e497
PART B
STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 29, 2011, AS AMENDED JUNE 15, 2012
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Separate |
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Account |
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Class A |
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Class B |
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Class C |
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Class R |
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Class IR |
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Service |
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Institutional |
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Administration |
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Institutional |
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FUND |
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Shares |
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Shares |
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Shares |
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Shares |
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Shares |
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Shares |
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Shares |
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Shares |
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Shares |
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GOLDMAN SACHS
ENHANCED INCOME
FUND |
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GEIAX |
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GEJBX |
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GHIRX |
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GEIIX |
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GEADX |
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GOLDMAN SACHS
ULTRA-SHORT DURATION GOVERNMENT |
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GSAMX |
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GTATX |
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GSASX |
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GSARX |
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GOLDMAN SACHS
SHORT DURATION
GOVERNMENT FUND |
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GSSDX |
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GSDGX |
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GSDCX |
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GTDTX |
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GSDSX |
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GSTGX |
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GOLDMAN SACHS
SHORT DURATION
TAX-FREE FUND |
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GSDTX |
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GSDBX |
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GSTCX |
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GDIRX |
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GSFSX |
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GSDUX |
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GOLDMAN SACHS
GOVERNMENT INCOME
FUND |
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GSGOX |
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GSOBX |
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GSOCX |
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GSORX |
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GSOTX |
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GSOSX |
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GSOIX |
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GOLDMAN SACHS
MUNICIPAL INCOME
FUND |
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GSMIX |
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GSMBX |
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GSMUX |
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GUIRX |
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GSMEX |
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GSMTX |
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GOLDMAN SACHS
U.S. MORTGAGES FUND |
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GSUAX |
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GGIRX |
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GSUIX |
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GSUPX |
GOLDMAN SACHS
CORE FIXED INCOME
FUND |
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GCFIX |
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GCFBX |
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GCFCX |
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GDFRX |
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GDFTX |
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GSCSX |
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GSFIX |
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GOLDMAN SACHS
CORE PLUS FIXED
INCOME FUND |
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GSFAX |
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GSFBX |
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GSFCX |
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GSNRX |
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GSNTX |
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GSNSX |
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GSNIX |
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GOLDMAN SACHS
INVESTMENT GRADE
CREDIT FUND |
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GSGAX |
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GTIRX |
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GSGDX |
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GSCPX |
GOLDMAN SACHS
GLOBAL INCOME FUND |
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GSGIX |
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GSLBX |
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GSLCX |
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GBIRX |
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GGISX |
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GSGLX |
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GOLDMAN SACHS
HIGH YIELD
MUNICIPAL FUND |
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GHYAX |
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GHYBX |
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GHYCX |
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GYIRX |
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* |
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GHYIX |
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GOLDMAN SACHS
HIGH YIELD FUND |
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GSHAX |
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GSHBX |
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GSHCX |
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GSHRX |
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GSHTX |
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GSHSX |
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GSHIX |
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GOLDMAN SACHS
HIGH YIELD FLOATING
RATE FUND |
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GFRAX |
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GFRCX |
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GFRRX |
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GFRIX |
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GSFRX |
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GOLDMAN SACHS
STRATEGIC INCOME
FUND |
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GSZAX |
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GSZCX |
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GSZRX |
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GZIRX |
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GSZIX |
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GOLDMAN SACHS
EMERGING MARKETS
DEBT FUND |
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GSDAX |
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GSCDX |
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GSIRX |
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GSDIX |
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GOLDMAN SACHS
LOCAL EMERGING
MARKETS DEBT FUND |
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GAMDX |
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GCMDX |
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GLIRX |
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GIMDX |
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GOLDMAN SACHS
INFLATION PROTECTED
SECURITIES FUND |
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GSAPX |
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GSCFX |
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GSRPX |
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GSTPX |
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GSIPX |
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(Each a portfolio of Goldman Sachs Trust)
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* |
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As of the date of this SAI, Service Class Shares of the Goldman Sachs High Yield Municipal
Fund have not commenced operations |
Goldman Sachs Trust
71 South Wacker Drive
Chicago, Illinois 60606
This Statement of Additional Information (the SAI) is not a prospectus. This SAI describes
each of the above-referenced series of Goldman Sachs Trust. This SAI should be read in conjunction
with the Prospectuses for the Goldman Sachs Enhanced Income Fund, Goldman Sachs Ultra-Short Duration Government Fund, Goldman Sachs Short Duration
Government Fund, Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs U.S. Mortgages Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Core Plus Fixed Income Fund, Goldman Sachs Investment Grade Credit Fund,
Goldman Sachs Global Income Fund, Goldman Sachs High Yield Municipal Fund, Goldman Sachs High Yield
Fund, Goldman Sachs High Yield Floating Rate Fund, Goldman Sachs Strategic Income Fund, Goldman
Sachs Emerging Markets Debt Fund, Goldman Sachs Local Emerging Markets Debt Fund, and Goldman Sachs
Inflation Protected Securities Fund (collectively, the Funds and each individually, a Fund),
each dated July 29, 2011, as they may be further amended and/or supplemented from time to time (the
Prospectuses). The Prospectuses may be obtained without charge from Goldman, Sachs & Co. by
calling the telephone numbers or writing to one of the addresses listed below, or from institutions
(Authorized Institutions) acting on behalf of their customers. As of November 2, 2009, Class B
Shares are generally no longer offered.
The audited financial statements and related report of PricewaterhouseCoopers LLP, independent
registered public accounting firm for each Fund, contained in the Funds 2011 Annual Report are
incorporated herein by reference in the section FINANCIAL STATEMENTS. No other portions of the
Funds Annual Report are incorporated by reference herein. A Funds Annual Report may be obtained
upon request and without charge by calling Goldman, Sachs & Co. toll free 1-800-526-7384 (for Class
A, Class B, Class C, Class R and Class IR Shareholders) or 1-800-621-2550 (for Institutional,
Service, Administration and Separate Account Institutional Shareholders).
GSAM® is a registered service mark of Goldman, Sachs & Co.
TABLE OF CONTENTS
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INTRODUCTION |
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B-1 |
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INVESTMENT OBJECTIVES AND POLICIES |
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B-2 |
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DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES |
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B-12 |
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INVESTMENT RESTRICTIONS |
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B-61 |
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TRUSTEES AND OFFICERS |
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B-63 |
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MANAGEMENT SERVICES |
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B-78 |
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POTENTIAL CONFLICTS OF INTEREST |
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B-92 |
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PORTFOLIO TRANSACTIONS AND BROKERAGE |
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B-98 |
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SHARES OF THE TRUST |
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B-102 |
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NET ASSET VALUE |
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B-118 |
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TAXATION |
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B-120 |
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PROXY VOTING |
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B-127 |
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PAYMENTS TO INTERMEDIARIES |
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B-128 |
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OTHER INFORMATION |
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B-132 |
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FINANCIAL STATEMENTS |
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B-135 |
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OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE,
PURCHASES, REDEMPTIONS, EXCHANGES AND DIVIDENDS |
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B-135 |
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DISTRIBUTION AND SERVICE PLANS |
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B-139 |
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SERVICE PLAN AND SHAREHOLDER ADMINISTRATION PLAN |
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B-143 |
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ADMINISTRATION PLAN |
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B-145 |
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ACCOUNT SERVICE PLAN |
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B-146 |
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APPENDIX A: DESCRIPTION OF SECURITIES RATINGS |
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1-A |
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APPENDIX B: GSAM PROXY VOTING GUIDELINES SUMMARY |
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1-B |
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APPENDIX C: STATEMENT OF INTENTION |
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1-C |
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The date of this SAI is July 29, 2011, as amended June 15, 2012.
-i-
GOLDMAN SACHS ASSET MANAGEMENT, L.P.
Investment Adviser to:
Goldman Sachs Enhanced Income Fund
Goldman Sachs Ultra-Short Duration Government Fund
Goldman Sachs Short Duration Government Fund
Goldman Sachs Short Duration Tax-Free Fund
Goldman Sachs Government Income Fund
Goldman Sachs Municipal Income Fund
Goldman Sachs U.S. Mortgages Fund
Goldman Sachs Core Fixed Income Fund
Goldman Sachs Core Plus Fixed Income Fund
Goldman Sachs Investment Grade Credit Fund
Goldman Sachs High Yield Municipal Fund
Goldman Sachs High Yield Fund
Goldman Sachs High Yield Floating Rate Fund
Goldman Sachs Strategic Income Fund
Goldman Sachs Emerging Markets Debt Fund
Goldman Sachs Local Emerging Markets Debt Fund
Goldman Sachs Inflation Protected Securities Fund
200 West Street
New York, NY 10282
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
Investment Adviser to:
Goldman Sachs Global Income Fund
Christchurch Court
10-15 Newgate Street
London, England EC1A7HD
GOLDMAN, SACHS & CO.
Distributor
200 West Street
New York, NY 10282
GOLDMAN, SACHS & CO.
Transfer Agent
71 South Wacker Drive
Chicago, Illinois 60606
Toll free (in U.S.) : 800-621-2550 (for Institutional, Service, Administration and Separate Account
Institutional Shareholders) or 800-526-7384 (for Class A, Class B, Class C, Class R and Class IR
Shareholders).
INTRODUCTION
Goldman Sachs Trust (the Trust) is an open-end, management investment company. The Trust is
organized as a Delaware statutory trust and was established by a Declaration of Trust dated January
28, 1997. The Trust is a successor to a Massachusetts business trust that was combined with the
Trust on April 30, 1997. The Trustees of the Trust have authority under the Declaration of Trust to
create and classify shares into separate series and to classify and reclassify any series of shares
into one or more classes without further action by shareholders. Pursuant thereto, the Trustees
have created the following series, among others: Goldman Sachs Enhanced Income Fund (Enhanced
Income Fund), Goldman Sachs Ultra-Short Duration
Government Fund (Ultra-Short Duration Government Fund), Goldman Sachs Short Duration Government Fund
(Short Duration Government Fund), Goldman Sachs Short Duration Tax-Free Fund (Short Duration
Tax-Free Fund), Goldman Sachs Government Income Fund (Government Income Fund), Goldman Sachs
Municipal Income Fund (Municipal Income Fund), Goldman Sachs U.S. Mortgages Fund (U.S. Mortgages
Fund), Goldman Sachs Core Fixed Income Fund (Core Fixed Income Fund), Goldman Sachs Core Plus
Fixed Income Fund (Core Plus Fixed Income Fund), Goldman Sachs Investment Grade Credit Fund
(Investment Grade Credit Fund), Goldman Sachs Global Income Fund (Global Income Fund), Goldman
Sachs High Yield Municipal Fund (High Yield Municipal Fund), Goldman Sachs High Yield Fund (High
Yield Fund), Goldman Sachs High Yield Floating Rate Fund (High Yield Floating Rate Fund),
Goldman Sachs Strategic Income Fund (Strategic Income Fund), Goldman Sachs Emerging Markets Debt
Fund (Emerging Markets Debt Fund), Goldman Sachs Local Emerging Markets Debt Fund (Local
Emerging Markets Debt Fund) and Goldman Sachs Inflation Protected Securities Fund (Inflation
Protected Securities Fund) (each referred to herein as a Fund and, collectively, the Funds).
Each Fund other than the Global Income Fund, High Yield Municipal Fund, Emerging Markets Debt Fund,
and Local Emerging Markets Debt Fund is a diversified, open-end management investment company under
the Investment Company Act of 1940, as amended (the Act). Each of the Global Income Fund, High
Yield Municipal Fund, Emerging Markets Debt Fund and Local Emerging Markets Debt Fund is a
non-diversified, open-end management investment company. Government Income Fund, Core Fixed Income
Fund, Core Plus Fixed Income Fund and High Yield Fund are authorized to issue seven classes of
shares: Class A Shares, Class B Shares (subject to the limitations described herein), Class C
Shares, Service Shares, Institutional Shares, Class R Shares and Class IR Shares. Short Duration
Government Fund, Short Duration Tax-Free Fund, Municipal Income Fund, High Yield Municipal Fund and
Global Income Fund are authorized to issue six classes of shares: Class A Shares, Class B Shares
(subject to the limitations described herein), Class C Shares, Service Shares, Institutional Shares
and Class IR Shares. Inflation Protected Securities Fund, High Yield Floating Rate Fund and
Strategic Income Fund are authorized to issue five classes of shares: Class A Shares, Class C
Shares, Institutional Shares, Class R Shares and Class IR Shares. Enhanced Income Fund is
authorized to issue five classes of shares: Class A Shares, Class B Shares (subject to the
limitations described herein), Administration Shares, Institutional Shares and Class IR Shares.
Ultra-Short Duration Government Fund is authorized to issue four classes of shares: Class A Shares,
Service Shares, Institutional Shares and Class IR Shares. U.S. Mortgages Fund and Investment Grade
Credit Fund are authorized to issue four classes of shares: Class A Shares, Institutional Shares,
Class IR Shares and Separate Account Institutional Shares. Emerging Markets Debt Fund and Local
Emerging Markets Debt Fund are authorized to issue four classes of shares: Class A Shares, Class C
Shares, Institutional Shares and Class IR Shares. The Trustees of the Trust may designate
additional series and classes in the future from time to time.
As of November 2, 2009 (the Effective Date), Class B Shares are generally no longer
available for purchase by new or existing shareholders. Shareholders who invested in Class B Shares
prior to the Effective Date may continue to hold their Class B Shares until they convert
automatically to Class A Shares, as described in each Funds Prospectus. Class B shareholders may
continue to reinvest dividends and capital gains into their accounts. Class B shareholders can no
longer make automatic investments into Class B Shares. Class B shareholders may continue to
exchange their Shares for Class B Shares of certain other Goldman Sachs Funds. Otherwise,
additional purchase requests for a Funds Class B Shares will be rejected.
Goldman Sachs Asset Management, L.P. (GSAM), an affiliate of Goldman, Sachs & Co. (Goldman
Sachs), serves as the investment adviser to each Fund except the Global Income Fund. Goldman Sachs
Asset Management International (GSAMI), an affiliate of Goldman Sachs, serves as investment
adviser to the Global Income Fund. GSAM and GSAMI are each sometimes referred to herein as an
Investment Adviser and collectively herein as the Investment Advisers. In addition, Goldman
Sachs serves as each Funds distributor and transfer agent. Except for the Short Duration Tax-Free
Fund, Municipal Income Fund and High Yield Municipal Fund, each Funds custodian is State Street
Bank and Trust Company. JPMorganChase Bank, N.A. serves as custodian for the Short Duration Tax
Free Fund, Municipal Income Fund and High Yield Municipal Fund.
The following information relates to and supplements the description of each Funds investment
objectives and policies contained in the Prospectuses. See the Prospectuses for a more complete
description of the Funds investment objectives and policies. Investing in the Funds entails
certain risks and there is no assurance that a Fund will achieve its objective. Capitalized terms
used but not defined herein have the same meaning as in the Prospectuses.
As used in the SAI, the term Tax Exempt Funds refers to the Short Duration Tax-Free,
Municipal Income and High Yield Municipal Funds; the term Taxable Funds refers to all of the
other Funds.
B-1
INVESTMENT OBJECTIVES AND POLICIES
All investment objectives and investment policies not specifically designated as fundamental
may be changed without shareholder approval. However, with respect to the Ultra-Short Duration Government, Short Duration Government, Government Income, U.S. Mortgages, Core Fixed Income, Core Plus
Fixed Income, Investment Grade Credit, Global Income, High Yield, High Yield Floating Rate,
Emerging Markets Debt, Local Emerging Markets Debt and Inflation Protected Securities Funds, to the
extent required by Securities and Exchange Commission (SEC) regulations, shareholders will be
provided with sixty days notice in the manner prescribed by the SEC before any change in a Funds
policy to invest at least 80% of its net assets plus any borrowings for investment purposes
(measured at the time of purchase) (Net Assets), in the particular type of investment suggested
by its name. With respect to the Short Duration Tax-Free Fund, Municipal Income Fund and High Yield
Municipal Fund, such Funds policies to invest at least 80% of their Net Assets in tax exempt and
municipal investments, as applicable, are fundamental policies that may not be changed without
shareholder approval. With respect to the Inflation Protected Securities Fund, as a matter of
fundamental policy, under normal circumstances at least 80% of the Funds Net Assets will be
invested in inflation protected securities (IPS) of varying maturities issued by the U.S.
Treasury (TIPS) and other U.S. and non-U.S. government agencies and corporations (CIPS).
Additional information about the Funds, their policies, and the investment instruments they may
hold is provided below.
Each Funds 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.
Enhanced Income Fund
Enhanced Income Fund is designed for investors who seek returns in excess of traditional money
market products while maintaining an emphasis on preservation of capital and liquidity. The Fund
invests, under normal circumstances, primarily in a portfolio of U.S. dollar-denominated fixed
income securities, including non-mortgage-backed U.S. government securities, corporate notes,
commercial paper, fixed and floating rate asset-backed securities and foreign securities rated, at
the time of purchase, at least A by a nationally recognized statistical rating organization
(NRSRO) or, if unrated, determined by the Investment Adviser to be of comparable quality.
A number of investment strategies will be used to achieve the Funds investment objective,
including market sector selection, determination of yield curve exposure and issuer selection. In
addition, the Investment Adviser will attempt to take advantage of pricing inefficiencies in the
fixed income markets. Market sector selection is the underweighting or overweighting of one or more
of the four market sectors (i.e., U.S. Treasuries, U.S. government agencies, corporate securities
and asset-backed securities) in which the Fund primarily invests. The decision to overweight or
underweight a given market sector is based on expectations of future yield spreads between
different sectors. Yield curve exposure strategy consists of overweighting or underweighting
different maturity sectors to take advantage of the shape of the yield curve. Issuer selection is
the purchase and sale of fixed income corporate securities based on a corporations current and
expected credit standing. To take advantage of price discrepancies between securities resulting
from supply and demand imbalances or other technical factors, the Fund may simultaneously purchase
and sell comparable, but not identical, securities. The Investment Adviser will usually have access
to the research of, and proprietary technical models developed by, Goldman Sachs and will apply
quantitative and qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
The Funds overall returns are generally likely to move in the opposite direction as interest
rates. Therefore, when interest rates decline, the Funds return is likely to increase. Conversely,
when interest rates increase, the Funds return is likely to decline. In exchange for accepting a
higher degree of share price fluctuation, investors have the potential to achieve a higher return
from the Fund than from shorter-term investments.
In determining the maturity of an instrument, the Fund will treat the remaining maturity of a
newly-issued security as five years in situations where the original maturity of the security
exceeds that period by not more than forty-five days. In addition, a fixed income instrument that
has a mandatory put or call feature that provides that the Fund will receive payment of the
principal amount of the instrument from the issuer and/or an investment banker at a specified
future date will be deemed to have a remaining maturity ending on that date, even though the stated
final maturity of the instrument is later than the put or call date.
Preservation of Capital. Enhanced Income Fund seeks to reduce principal fluctuation by
maintaining a target duration equal to that of the six-month U.S. Treasury Bill Index to One-Year
Treasury Note Index and an approximate interest rate sensitivity of a nine-month U.S. Treasury
Bill, as well as utilizing certain interest rate hedging techniques. There is no assurance that
these strategies will be successful.
B-2
Liquidity. Because the Funds shares may be redeemed upon request of a shareholder on
any business day at net asset value, the Fund offers greater liquidity than many competing
investments such as certificates of deposit and direct investments in certain securities in which
the Fund may invest. However, unlike certificates of deposit, shares of the Funds are not insured
by the Federal Deposit Insurance Corporation.
A Sophisticated Investment Process. Enhanced Income Fund will attempt to control its
exposure to interest rate risk, including overall market exposure and the spread risk of particular
sectors and securities, through active portfolio management techniques. The Funds investment
process starts with a review of trends for the overall economy as well as for different sectors of
the fixed income securities markets. Goldman Sachs portfolio managers then analyze yield spreads,
implied volatility and the shape of the yield curve. In planning the Funds portfolio investment
strategies, the Investment Adviser is able to draw upon the economic and fixed income research
resources of Goldman Sachs. The Investment Adviser will use a sophisticated analytical process
including Goldman Sachs option-adjusted spread model to assist in structuring and maintaining the
Funds investment portfolio. In determining the Funds investment strategy and making market timing
decisions, the Investment Adviser will have access to input from Goldman Sachs economists and
fixed income analysts.
Ultra-Short Duration Government Fund and Short Duration Government Fund
Ultra-Short Duration Government Fund is designed for investors who seek a high level of current
income, consistent with low volatility of principal. Short Duration Government Fund is designed for
investors who seek a high level of current income and secondarily, in seeking current income, may
also wish to consider the potential for capital appreciation. Both Funds are appropriate for
investors who seek the high credit quality of securities issued or guaranteed by the U.S.
government, its agencies, instrumentalities or sponsored enterprises (U.S. Government
Securities), without incurring the administrative and accounting burdens involved in direct
investment.
Market and economic conditions may affect the investments of the Ultra-Short Duration Government
and Short Duration Government Funds differently than the investments normally purchased by other
types of fixed income investors. Relative to U.S. Treasury and non-fluctuating money market
instruments, the market value of adjustable rate mortgage securities in which Ultra-Short Duration Government and Short Duration Government Funds may invest may be adversely affected by increases in
market interest rates. Conversely, decreases in market interest rates may result in less capital
appreciation for adjustable rate mortgage securities in relation to U.S. Treasury and money market
investments.
High Current Income. Ultra-Short Duration Government and Short Duration Government Funds
seek a higher current yield than that offered by money market funds or by bank certificates of
deposit and money market accounts. However, the Ultra-Short Duration Government and Short Duration
Government Funds do not maintain a constant net asset value per share and are subject to greater
fluctuations in the value of their shares than a money market fund. Unlike bank certificates of
deposit and money market accounts, investments in shares of the Funds are not insured or guaranteed
by any government agency. The Ultra-Short Duration Government and Short Duration Government Funds each
seek to provide such high current income without sacrificing credit quality.
Relative Low Volatility of Principal. Ultra-Short Duration Government Fund seeks to
minimize net asset value fluctuations by investing primarily in U.S. Government Securities
(including securities representing an interest in or collateralized by adjustable rate and fixed
rate mortgage loans) and by maintaining a maximum
duration of two years and a target duration equal to that of the Six-Month U.S. Treasury Bill Index
to One-Year U.S. Treasury Note Index. This Fund utilizes certain active management techniques to
seek to hedge interest rate risk. Short Duration Government Fund seeks to minimize net asset value
fluctuations by utilizing certain interest rate hedging techniques and by maintaining a maximum
duration of not more than three years. The duration target of Short Duration Government Fund is
that of the 2-year U.S. Treasury Note Index plus or minus 0.5 years. There is no assurance that
these strategies for Ultra-Short Duration Government Fund and Short Duration Government Fund will be
successful.
Professional Management and Administration. Investors who invest in securities of the
Government National Mortgage Association (Ginnie Mae or GNMA) and other mortgage-backed
securities may prefer professional management and administration of their mortgage-backed
securities portfolios. A well-diversified portfolio of such securities emphasizing minimal
fluctuation of net asset value requires significant active management as well as significant
accounting and administrative resources. Members of Goldman Sachs highly skilled portfolio
management team bring together many years of experience in the analysis, valuation and trading of
U.S. fixed income securities.
B-3
Government Income Fund
Government Income Fund is designed for investors who seek a high level of current income,
consistent with safety of principal and the high credit quality of U.S. Government Securities,
without incurring the administrative and account burdens involved in direct investment.
Government Income Funds overall returns are generally likely to move in the opposite
direction from interest rates. Therefore, when interest rates decline, Government Income Funds
return is likely to increase. In exchange for accepting a higher degree of share price fluctuation,
investors have the potential to achieve a higher return from Government Income Fund than from
shorter-term investments.
High Current Income. Government Income Fund is designed to have a higher current yield
than a money market fund, since it can invest in longer-term, higher yielding securities, and may
utilize certain investment techniques not available to a money market fund. Similarly, Government
Income Funds yield is expected to exceed that offered by bank certificates of deposit and money
market accounts. However, Government Income Fund does not maintain a constant net asset value per
share and is subject to greater fluctuation in the value of its shares than a money market fund.
Unlike bank certificates of deposit and money market accounts, investments in shares of Government
Income Fund are not insured or guaranteed by any government agency. Government Income Fund seeks to
provide high current income without, however, sacrificing credit quality.
Liquidity. Because Government Income Funds shares may be redeemed upon request of a
shareholder on any business day at net asset value, Government Income Fund offers greater liquidity
than many competing investments such as certificates of deposit and direct investments in certain
securities in which Government Income Fund may invest.
A Sophisticated Investment Process. Government Income Funds investment process starts
with a review of trends for the overall economy as well as for different sectors of the U.S.
government and mortgage-backed securities markets. Goldman Sachs portfolio managers then analyze
yield spreads, implied volatility and the shape of the yield curve. In planning Government Income
Funds portfolio investment strategies, the Investment Adviser is able to draw upon the economic
and fixed income research resources of Goldman Sachs. The Investment Adviser will use a
sophisticated analytical process involving Goldman Sachs proprietary mortgage prepayment model and
option-adjusted spread model to structure and maintain the Government Income Funds investment
portfolio. In determining the Government Income Funds investment strategy and in making market
timing decisions, the Investment Adviser will have access to information from Goldman Sachs
economists, fixed income analysts and mortgage specialists.
Convenience of a Fund Structure. Government Income Fund eliminates many of the
complications that direct ownership of U.S. Government Securities and mortgage-backed securities
entails. Government Income Fund automatically reinvests all principal payments within the Fund and
distributes only current income each month, thereby conserving principal and eliminating the
investors need to segregate and reinvest the principal portion of each payment on his own.
Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds
The Tax Exempt Funds are not money market funds. Short Duration Tax-Free Fund is designed for
investors who seek a high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax. Municipal Income Fund is designed for
investors who seek a high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital. High Yield Municipal Fund is designed for investors who
seek a high level of current income that is exempt from regular federal income tax and may also
consider the potential for capital appreciation.
The Tax Exempt Funds are appropriate for investors who seek to invest in fixed income
securities issued by or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and the political subdivisions, agencies and instrumentalities
(Municipal Securities) and who are able to accept greater risk with the possibility of higher
returns than investors in municipal money market funds. While municipal money market funds almost
always maintain a constant net asset value, they must meet stringent high quality credit standards,
their portfolios must be broadly diversified and their portfolio securities must have remaining
maturities of 397 days or less. An example of an eligible investment for the Tax Exempt Funds is
an auction rate Municipal Security. These securities generally have higher yields than money market
Municipal Securities, but are, in many cases, not eligible investments for municipal money market
funds.
In addition, unlike a municipal money market fund, the Tax Exempt Funds increased investment
flexibility permits their portfolios to be more easily adjusted to reflect the shape of the current
yield curve as well as to respond to anticipated developments that might affect the shape of the
yield curve.
B-4
The Municipal Securities in which the Short Duration Tax-Free and Municipal Income Funds
invest will be rated, at the time of purchase, at least BBB or Baa by an NRSRO or, if unrated, will
be determined by the Investment Adviser to be of comparable quality. Municipal Securities rated BBB
or Baa are considered medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers capability to pay interest
and repay principal. Municipal Income Fund will have a weighted average credit quality equal to A
or better for securities rated by an NRSRO or, if unrated, determined by the Investment Adviser to
be of comparable quality. High Yield Municipal Fund will invest at least a majority of its total
assets (not including securities lending collateral and any investment of that collateral)
(measured at the time of purchase) in high-yield Municipal Securities rated, at the time of
purchase, BBB or Baa or lower by a NRSRO or, if unrated, will be determined by the Investment
Adviser to be of comparable quality. See also High Yield Fund Return on and Risks of High Yield
Securities for a discussion of risks that are generally applicable to High Yield Municipal Fund.
The credit rating assigned to Municipal Securities may reflect the existence of guarantees, letters
of credit or other credit enhancement features available to the issuers or holders of such
Municipal Securities.
Investors who wish to invest in Municipal Securities may find that a mutual fund structure
offers some important advantages when compared to investing in individual Municipal Securities,
including:
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The ratings given to Municipal Securities by the rating organizations are difficult
to evaluate. For example, some Municipal Securities with relatively low credit ratings
have yields comparable to Municipal Securities with much higher ratings. The credit
research professionals at Goldman Sachs closely follow market events and are well
positioned to judge current and expected credit conditions of municipal issuers; |
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Because of the relative inefficiency of the secondary market in Municipal Securities,
the value of an individual municipal security is often difficult to determine. As such,
investors may obtain a wide range of different prices when asking for quotes from
different dealers. In addition, a dealer may have a large inventory of a particular issue
that it wants to reduce. Obtaining the best overall prices can require extensive
negotiation, which is a function performed by the portfolio manager; and |
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Market expertise is also an important consideration for municipal investors, and
because the Tax Exempt Funds may take relatively large positions in different securities,
the Tax Exempt Funds may be able to obtain more favorable prices in the Municipal
Securities market than investors with relatively small positions. |
U.S. Mortgages Fund
Philosophy. The U.S. Mortgages Fund seeks a high level of total return consisting of
income and capital appreciation. The Fund invests, under normal circumstances, in securities
representing direct or indirect interests in or that are collateralized by Mortgage-Backed
Securities (as defined below). Although the Investment Adviser considers macroeconomic trends
including the Investment Advisers expectations about interest rate trends and whether the curve
will be flattening or steepeningthe Investment Advisers investment approach to mortgages is
mainly based on analyses of mortgage prepayments and measures of relative value.
Much of the research focus is on understanding model risk, which requires the Investment
Adviser to understand how popular prepayment models are biased under different market scenarios.
The Investment Adviser constructs a view which attempts to gauge how popular prepayment models will
predict prepay activity across the broad spectrum of different mortgage instruments which spans all
the major fixed-rate, single family mortgage sectors level-pay and balloon, agency and
non-agency. The Investment Adviser develops an independent view of how these popular models may not
have kept up with recent changes in the individual homeowners decision process. For example, there
have been material changes over the last decade in the way in which homeowners have access to
mortgage refinancing: from the evolution of the mortgage broker market to access via internet
applications to current trends in underwriters soliciting their own mortgage holder base for
refinancing. The Investment Advisers intent is to understand these changes and exploit them in its
trading activity. The focus throughout is to uncover model predictive bias with respect to borrower
behavior and the decision-making of refinancing.
Additionally, the Investment Adviser accesses and dissects individual mortgage pool
information, which it believes can deliver an informational advantage under certain trading
conditions.
The Investment Advisers data-set distinguishes on the basis of mortgage characteristics such
as loan type, coupon, pool originator, underwriter standards, prepay penalties, vintage, and dollar
balance, as well as by environmental variables including interest rates and origination points (for
the entire term structure of mortgage alternatives including level pay, balloon and adjustable
rate), housing values, recording-tax rates and relevant government regulations which are
significant elements affecting the prepayment decision. These decisions are incorporated into
trading decisions about which mortgages to hold and which to avoid.
Specifically, the Investment Adviser expects to implement several investment strategies, as
described below:
B-5
Sector/Subsector Strategies: The sector strategy would 1) attempt to take advantage of
potential changes in general spread levels by overweighting and underweighting the spread duration
of the portfolio relative to the index and 2) allocate risk among the different sectors in the
mandate: pass-throughs, collateralized mortgage obligations (CMOs), and Treasuries. The subsector
strategy would allocate risk among the different subsectors in each sector: e.g. pass-throughs,
whether to own GNMA vs. conventionals.
Security Selection: The Investment Advisers security selection strategy represents relative
value investing. The Investment Advisers specialist team focuses on 1) finding the most attractive
securities to place in the investment portfolios and 2) avoiding the least attractive securities in
the index.
Among the Investment Advisers security selection strategies are:
1) Seasoning Strategies: The Investment Adviser believes that the market does not always
correctly price the seasoning of a bond and its tendency to prepay in the future. By identifying
these mispriced bonds, the Investment Adviser can construct a portfolio with more attractive
interest rate sensitivity than that of the index.
2) Coupon Selection: By combining the Investment Advisers fundamental market views with the
Investment Advisers quantitative models, the Investment Adviser believes that it can take
advantage of potential mispricings across coupons. The Investment Adviser also believes that there
are opportunities to generate absolute returns by monitoring the embedded delivery options in the
To-Be-Allocated (TBA) market and by understanding the implied financing rate in TBA market for
each coupon.
3) CMO vs. Pass-through Selection: There are often opportunities in the market to replicate
pass-through securities by purchasing CMOs. This strategy may benefit an investment portfolio in
two ways. First, it might be possible to purchase the replicating CMOs at a lower price than the
pass-through. Second, the replicating CMOs may have the same price as the pass-through but have
more attractive interest rate sensitivity characteristics.
Security Weighting: The Investment Adviser scales its positions as a function of the expected
return and risk of the trade. Generally riskier trades will have smaller positions and less risky
trades will have larger positions. For example, the Investment Adviser may cap the exposure from
issuers in a particular rating category. This scaling occurs as a result of the Investment
Advisers risk managed approach. When sizing the trade the Investment Adviser will consider its
impact upon the tracking error of the investment portfolio and also the trades relative
attractiveness to other perceived opportunities.
Yield Curve and Duration Management: These strategies attempt to take advantage of changes in
the shape of the yield curve and the level of rates. While the Investment Adviser believes that it
can add excess return through yield curve and duration management, the Investment Adviser also
believes that within the context of the U.S. Mortgages Fund, these strategies contribute less to
total return than other strategies. As a result the Investment Adviser expects to take less risk in
this area.
Consistent with the Investment Advisers overall fixed income investment philosophy for
mortgage-backed security portfolios, the Investment Adviser actively manages mortgage portfolios
within a risk-managed framework. The portfolio risk management process includes an effort to
monitor and manage risk, but should not be confused with and does not imply low risk.
Core Fixed Income and Core Plus Fixed Income Funds
Core Fixed Income and Core Plus Fixed Income Funds are designed for investors seeking a total
return consisting of capital appreciation and income that exceeds the total return of the Barclays
Capital U.S. Aggregate Bond Index (the Index), without incurring the administrative and
accounting burdens involved in direct investment. Such investors also prefer liquidity, experienced
professional management and administration, a sophisticated investment process, and the convenience
of a mutual fund structure. Core Fixed Income and Core Plus Fixed Income Funds may be appropriate
as part of a balanced investment strategy consisting of stocks, bonds and cash or as a complement
to positions in other types of fixed income investments.
The Index currently includes U.S. Government Securities and fixed-rate, publicly issued, U.S.
dollar-denominated fixed income securities rated at least Baa by Moodys Investors Services, Inc.
(Moodys), or if a Moodys rating is unavailable, the comparable Standard & Poors Ratings Group
(Standard & Poors) rating is used. The securities currently included in the Index have at least
one year remaining to maturity; and are issued by the following types of issuers, with each
category receiving a different weighting in the Index: U.S. Treasury; agencies, authorities or
instrumentalities of the U.S. government; issuers of mortgage-backed securities; utilities;
industrial issuers; financial institutions; foreign issuers; and issuers of asset-backed
securities. In pursuing its investment objective, the Funds use the Index as its performance
benchmark, but the Funds will not attempt to replicate the Index. The Funds may, therefore, invest
in securities that are not included in the Index. The Index is a trademark of Barclays Capital.
Inclusion of a security in the Index does not imply an opinion by Barclays Capital as to its
attractiveness or appropriateness for investment. Although
B-6
Barclays Capital obtains factual information used in connection with the Index from sources
which it considers reliable, Barclays Capital claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any person for any loss
arising from results obtained from the use of the Index data.
The Funds overall returns are generally likely to move in the opposite direction from
interest rates. Therefore, when interest rates decline, the Funds returns are likely to increase.
Conversely, when interest rates increase, the Funds returns are likely to decline. However, the
Investment Adviser believes that, given the flexibility of managers to invest in a diversified
portfolio of securities, the Funds returns are not likely to decline as quickly as that of other
fixed income funds with a comparable average portfolio duration. In exchange for accepting a higher
degree of potential share price fluctuation, investors have the opportunity to achieve a higher
return from the Funds than from shorter-term investments.
A number of investment strategies will be used to achieve the Funds investment objective,
including market sector selection, determination of yield curve exposure, and issuer selection. In
addition, the Investment Adviser will attempt to take advantage of pricing inefficiencies in the
fixed income markets. Market sector selection is the underweighting or overweighting of one or more
of the five market sectors (i.e., U.S. Treasuries, U.S. government agencies, corporate securities,
mortgage-backed securities and asset-backed securities) in which the Funds primarily invest. The
decision to overweight or underweight a given market sector is based on expectations of future
yield spreads among different sectors. Yield curve exposure strategy consists of overweighting or
underweighting different maturity sectors to take advantage of the shape of the yield curve. Issuer
selection is the purchase and sale of corporate securities based on a corporations current and
expected credit standing. To take advantage of price discrepancies between securities resulting
from supply and demand imbalances or other technical factors, the Funds may simultaneously purchase
and sell comparable, but not identical, securities. The Investment Adviser will usually have access
to the research of, and proprietary technical models developed by, Goldman Sachs and will apply
quantitative and qualitative analysis in determining the appropriate allocations among the
categories of issuers and types of securities.
A Sophisticated Investment Process. The Funds will attempt to control their exposure
to interest rate risk, including overall market exposure and the spread risk of particular sectors
and securities, through active portfolio management techniques. The Funds investment processes
start with a review of trends for the overall economy as well as for different sectors of the fixed
income securities markets. Goldman Sachs portfolio managers then analyze yield spreads, implied
volatility and the shape of the yield curve. In planning the Funds portfolio investment
strategies, the Investment Adviser is able to draw upon the economic and fixed income research
resources of Goldman Sachs. The Investment Adviser will use a sophisticated analytical process
including Goldman Sachs proprietary mortgage prepayment model and option-adjusted spread model to
assist in structuring and maintaining Core Fixed Income Funds investment portfolio. In determining
the Funds investment strategy and making market timing decisions, the Investment Adviser will have
access to input from Goldman Sachs economists, fixed income analysts and mortgage specialists.
Investment Grade Credit Fund
The Fund seeks a high level of total return consisting of capital appreciation and income that
exceeds the total return of the Barclays Capital U.S. Credit Index. The Funds strategy employs a
process that combines both a top-down and bottom-up analysis to evaluate companies. The Investment
Adviser relies primarily on sub-sector/industry allocation and security selection strategies in
seeking to generate incremental return relative to the selected benchmark. To a lesser degree, the
Investment Adviser also implements duration and yield curve management strategies.
The Investment Advisers strategy for the Fund is based on maximizing its understanding of the
factors that drive performance. The Investment Advisers security selection process begins with an
analysis of the fundamentals of a given company and its industry, and goes on to include broader
market factors as well as technical and execution issues. The Investment Adviser has organized its
group to incorporate these elements into a process that pulls together the input of specialists
within a collaborative framework. Portfolio managers and analysts sit on the trading desk together.
This facilitates the frequent conversation between the various members of the corporate bond team.
Fundamental research is performed by a global high grade research group with parts of the
teams in New York and London. The Investment Adviser established this group to ensure comprehensive
research into high grade credits, which may be overlooked by firms with only one credit research
team. The Investment Advisers analysts develop investment rationales incorporating their
assessment of a companys return potential and risks.
The discussion of investment ideas goes beyond fundamentals to incorporate the broader market
views of the portfolio managers. Investment grade corporates are strongly affected by such factors
as comparative industry trends, the economy and general overall trends in coverage and leverage
ratios. These factors can have a significant impact on performance. The portfolio managers bring
their awareness of these factors as a crucial input in the formulation of investment ideas.
B-7
A final element of the process incorporates technical and execution issues. Adding value
requires close attention to execution issues including market levels and the new issuance calendar.
It is also crucial to stay apprised of dealer activity; being aware of which bonds are being traded
by particular dealers promotes efficient trading, which plays directly through to better
performance. The Investment Advisers traders help in this regard.
The Investment Advisers process is enhanced by the full integration of its New York and
London corporate bond teams. While the teams are focused on issue selection in their respective
markets, they are able to leverage their peers insights to develop broader, better-informed credit
views than they could on their own. This integration extends to the portfolio managers, who also
develop views on market and industry trends jointly. In addition to helping the Investment Adviser
to develop fuller investment views, this integration can also allow it to exploit structural
inefficiencies that arise when global corporate issues are priced differently in different
currencies.
Global Income Fund
Global Income Fund is designed for investors seeking high total return, emphasizing current
income and, to a lesser extent, opportunities for capital appreciation. In selecting securities for
the Fund, portfolio managers consider such factors as the securitys duration, sector and credit
quality rating as well as the securitys yield and prospects for capital appreciation. In
determining the countries and currencies in which the Fund will invest, the Funds portfolio
managers form opinions based primarily on the views of Goldman Sachs economists as well as
information provided by securities dealers, including information relating to factors such as
interest rates, inflation, monetary and fiscal policies, taxation, and political climate. The
portfolio managers apply the Black-Litterman Model (the Model) to their views to develop a
portfolio that produces, in the view of the Investment Adviser, the optimal expected return for a
given level of risk. The Model factors in the opinions of the portfolio managers, adjusting for
their level of confidence in such opinions, with the views implied by an international capital
asset pricing formula. The Model is also used in seeking to maintain the level of portfolio risk
within the guidelines established by the Investment Adviser.
High Income. Global Income Funds portfolio managers will seek out the highest
yielding bonds in the global fixed income market that meet the Global Income Funds credit quality
standards and certain other criteria.
Capital Appreciation. Investing in the foreign bond markets offers the potential for
capital appreciation due to both interest rate and currency exchange rate fluctuations. The
portfolio managers attempt to identify investments with appreciation potential by carefully
evaluating trends affecting a countrys currency as well as a countrys fundamental economic
strength. However, there is a risk of capital depreciation as a result of unanticipated interest
rate and currency fluctuations.
Portfolio Management Flexibility. Global Income Fund is actively managed. The Funds
portfolio managers invest in countries that, in their judgment, meet the Funds investment
guidelines and often have strong currencies and stable economies and in securities that they
believe offer favorable performance prospects.
Relative Stability of Principal. Global Income Fund may be able to reduce principal
fluctuation by investing in foreign countries with economic policies or business cycles different
from those of the United States and in foreign securities markets that do not necessarily move in
the same direction or magnitude as the U.S. market. Investing in a broad range of U.S. and foreign
fixed income securities and currencies reduces the dependence of the Funds performance on
developments in any particular market to the extent that adverse events in one market are offset by
favorable events in other markets. The Funds policy of investing primarily in high quality
securities may also reduce principal fluctuation. However, there is no assurance that these
strategies will always be successful.
Professional Management. Individual U.S. investors may prefer professional management
of their global bond and currency portfolios because a well-diversified portfolio requires a large
amount of capital and because the size of the global market requires access to extensive resources
and a substantial commitment of time.
High Yield Fund
High Yield Funds Investment Process. High Yield Fund is appropriate for investors who
seek a high level of current income and who also may wish to consider the potential for capital
appreciation. A number of investment strategies are used to seek to achieve the Funds investment
objective, including market sector selection, determination of yield curve exposure and issuer
selection. In addition, the Investment Adviser will attempt to take advantage of pricing
inefficiencies in the fixed income markets. GSAM starts the investment process with economic
analysis to determine broad growth trends, industry-specific events and market forecasts. The
market value of non-investment grade fixed income securities tends to reflect individual
developments within a company to a greater extent than higher rated corporate debt or Treasury
bonds that react primarily to fluctuations in interest rates. Therefore, determining the
creditworthiness of issuers is critical. To that end, High Yield Funds portfolio managers have
access to GSAMs highly regarded
B-8
Fundamental Equity Research Team, as well as internal analysis from the teams dedicated High
Yield Research analysts. The High Yield Funds portfolio managers will also leverage Goldman Sachs
Global Investment Research Department, subject to Goldman Sachs Chinese wall restrictions. In
addition, the Funds portfolio managers may review the opinions of the two largest independent
credit rating agencies, Standard & Poors and Moodys. High Yield Funds portfolio managers and
credit analysts also conduct their own in-depth analysis of the issues considered for inclusion in
the Funds portfolio. The portfolio managers and credit analysts evaluate such factors as a
companys competitive position, the strength of its balance sheet, its ability to withstand
economic downturns and its potential to generate ample cash flow to service its debt. The ability
to analyze accurately a companys future cash flow by correctly anticipating the impact of
economic, industry-wide and specific events are critical to successful high yield investing. GSAMs
goal is to identify companies with the potential to strengthen their balance sheets by increasing
their earnings, reducing their debt or effecting a turnaround. GSAM analyzes trends in a companys
debt picture (i.e., the level of its interest coverage) as well as new developments in its capital
structure on an ongoing basis. GSAM believes that this ongoing reassessment is more valuable than
relying on a snapshot view of a companys ability to service debt at one or two points in time.
High Yield Funds portfolio is diversified among different sectors and industries on a global
basis in an effort to reduce overall risk. While GSAM will avoid excessive concentration in any one
industry, the Funds specific industry weightings are the result of individual security selection.
Emerging market debt considered for the High Yield Funds portfolio will be selected by specialists
knowledgeable about the political and economic structure of those economies.
Return on and Risks of High Yield Securities. High yield bonds can deliver higher
yields and total return than either investment grade corporate bonds or U.S. Treasury bonds.
However, because these non-investment grade securities involve higher risks in return for higher
income, they are best suited to long-term investors who are financially secure enough to withstand
volatility and the risks associated with such investments. See DESCRIPTION OF INVESTMENT
SECURITIES AND PRACTICES. Different types of fixed income securities may react differently to
changes in the economy. High yield bonds, like stocks, tend to perform best when the economy is
strong, inflation is low and companies experience healthy profits, which can lead to higher stock
prices and higher credit ratings. Government bonds are likely to appreciate more in a weaker
economy when interest rates are declining. In certain types of markets, adding some diversification
in the high yield asset class may help to increase returns and decrease overall portfolio risk.
For high yield, non-investment grade securities, as for most investments, there is a direct
relationship between risk and return. Along with their potential to deliver higher yields and
greater capital appreciation than most other types of fixed income securities, high yield
securities are subject to higher risk of loss, greater volatility and are considered predominantly
speculative by traditional investment standards. The most significant risk associated with high
yield securities is credit risk: the risk that the company issuing a high yield security may have
difficulty in meeting its principal and/or interest payments on a timely basis. As a result,
extensive credit research and diversification are essential factors in managing risk in the high
yield arena. To a lesser extent, high yield bonds are also subject to interest rate risk: when
interest rates increase, the value of fixed income securities tends to decline.
High Yield Floating Rate Fund
The High Yield Floating Rate Fund is designed for investors seeking a high level of current
income. The Fund invests, under normal circumstances, at least 80% of its Net Assets in domestic or
foreign floating rate loans and other floating or variable rate obligations rated below investment
grade. Non-investment grade fixed income securities are securities rated BB+, Ba1 or below by a
NRSRO, or, if unrated, determined by the Investment Adviser to be of comparable quality, and are
commonly referred to as junk bonds.
The Funds investments in floating and variable rate obligations may include, without
limitation, senior secured loans (including assignments and participations), second lien loans,
senior unsecured and subordinated loans, senior and subordinated corporate debt obligations (such
as bonds, debentures, notes and commercial paper), debt issued by governments, their agencies and
instrumentalities, and debt issued by central banks. The Fund may invest indirectly in loans by
purchasing participations or sub-participations from financial institutions. Participations and
sub-participations represent the right to receive a portion of the principal of, and all of the
interest relating to such portion of, the applicable loan. The Fund expects to invest principally
in the U.S. loan market and, to a lesser extent, in the European loan market. The Fund may also
invest in other loan markets, although it does not currently intend to do so.
Under normal conditions, the Fund may invest up to 20% of its Net Assets in fixed income
instruments, regardless of rating, including fixed rate corporate bonds, government bonds,
convertible debt obligations and mezzanine fixed income instruments. The Fund may also invest in
floating or variable rate instruments that are rated investment grade and in preferred stock,
repurchase agreements and cash securities.
B-9
The Fund may also invest in derivative instruments. Derivatives are instruments that have a
value based on another instrument, exchange rate or index. The Funds investments in derivatives
may include credit default swaps on credit and loan indices and forward contracts, among others.
The Fund may use currency management techniques, such as forward foreign currency contracts, for
investment or hedging purposes. Derivatives that provide exposure to floating or variable rate
loans or obligations rated below investment grade are counted towards the Funds 80% policy.
The Funds target duration under normal interest rate conditions is less than 0.5 years (the
Funds duration approximates its price sensitivity to changes in interest rates). The Funds
investments in floating rate obligations will generally have short to intermediate maturities
(approximately 5-7 years).
The Funds investments are selected using a bottom-up analysis that incorporates fundamental
research, a focus on market conditions and pricing trends, quantitative research, and news or
market events. The selection of individual investments is based on the overall risk and return
profile of the investment taking into account liquidity, structural complexity, cash flow
uncertainty and downside potential. Research analysts and portfolio managers systematically assess
portfolio positions, taking into consideration, among other factors, broader macroeconomic
conditions and industry and company-specific financial performance and outlook. Based upon this
analysis, the Investment Adviser will sell positions determined to be overvalued and reposition the
portfolio in more attractive investment opportunities on a relative basis given the current
climate.
The Funds investments may be denominated in currencies other than the U.S. dollar.
Strategic Income Fund
The Strategic Income Fund is designed for investors seeking total return comprised of income
and capital appreciation. The Fund invests in a broadly diversified portfolio of U.S. and foreign
investment grade and non-investment grade fixed income investments including, but not limited to:
U.S. Government securities (such as U.S. Treasury securities or Treasury inflation protected
securities), non-U.S. sovereign debt, agency securities, corporate debt securities, agency and
non-agency mortgage-backed securities, asset-backed securities, custodial receipts, municipal
securities, loans and loan participations and convertible securities. The Funds investments in
loans and loan participations may include, but are not limited to: (a) senior secured floating rate
and fixed rate loans or debt (Senior Loans), (b) second lien or other subordinated or unsecured
floating rate and fixed rate loans or debt (Second Lien Loans) and (c) other types of secured or
unsecured loans with fixed, floating or variable interest rates. The Fund may invest in fixed
income securities of any maturity.
Non-investment grade fixed income securities are securities rated BB, Ba or below by an NRSRO,
or, if unrated, determined by the Investment Adviser to be of comparable quality.
The Fund may invest in fixed income securities of issuers located in emerging countries. Such
investments may include sovereign debt issued by emerging countries that have sovereign ratings
below investment grade or that are unrated. There is no limitation to the amount the Fund invests
in non-investment grade or emerging market securities. From time to time, the Fund may also invest
in preferred stock. The Funds investments may be denominated in currencies other than the U.S.
dollar. The Fund may engage in forward foreign currency transactions for both investment and
hedging purposes.
The Fund also intends to invest in other derivative instruments. Derivatives are instruments
that have a value based on another instrument, exchange rate or index. The Funds investments in
derivatives may include, in addition to forward foreign currency exchange contracts, interest rate
futures contracts, options (including options on futures contracts, swaps, bonds, stocks and
indexes), swaps (including credit default, index, basis, total return, volatility and currency
swaps), and other forward contracts. The Fund may use derivatives instead of buying and selling
bonds to manage duration, to gain exposure or to short individual securities or to gain exposure to
a credit or asset backed index.
The Fund may implement short positions and generally will do so by using swaps or futures. For
example, the Fund may enter into a futures contract pursuant to which it agrees to sell an asset
(that it does not currently own) at a specified price at a specified point in the future. This
gives the Fund a short position with respect to that asset. The Fund will benefit to the extent the
asset decreases in value (and will be harmed to the extent the asset increases in value) between
the time it enters into the futures contract and the agreed date of sale.
Strategic in the Funds name means that the Fund seeks both current income and capital
appreciation as elements of total return. The Fund attempts to exploit pricing anomalies throughout
the global fixed income and currency markets. Additionally, the Fund uses
B-10
short positions and derivatives to enhance portfolio return or for hedging purposes. The Fund
may sell investments that the portfolio managers believe are no longer favorable with regard to
these factors.
Emerging Markets Debt and Local Emerging Markets Debt Funds
The Emerging Markets Debt and Local Emerging Markets Debt Funds seek a high level of total
return consisting of income and capital appreciation. Prior to October 18, 2011, the Emerging
Markets Debt Fund invests, under normal circumstances, at least 80% of its Net Assets in fixed
income securities of issuers located in emerging countries. Effective October 18, 2011, the
Emerging Markets Debt Fund invests, under normal circumstances, at least 80% of its Net Assets in
sovereign and corporate debt of issuers located in or tied economically to emerging countries.
Prior to October 18, 2011, the Local Emerging Markets Debt Fund invests, under normal
circumstances, at least 80% of its Net Assets in sovereign and corporate debt of issuers located in
emerging countries where such debt securities are denominated in the local currency of such
emerging countries or in currencies of such emerging countries, which may be represented by
forwards or other derivatives that may have interest rate exposure. Effective October 18, 2011, the
Local Emerging Markets Debt Fund invests, under normal circumstances, at least 80% of its Net
Assets in (i) sovereign and corporate debt of issuers located in or tied economically to emerging
countries, denominated in the local currency of such emerging countries, or (ii) currencies of such
emerging countries, which may be represented by forwards or other derivatives that may have
interest rate exposure.
For each of these Funds, such issuers include:
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governments or any of their agencies, political subdivisions, or instrumentalities; |
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those with a class of securities whose primary trading market is in an emerging
country or region; |
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those organized under the laws of, or having a principal office in, an emerging
country; |
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those deriving at least 50% of their revenues from goods produced, sales made or
services provided in one or more emerging countries; |
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those maintaining at least 50% of their assets in one or more emerging countries; |
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those offering a security included in an index representative of a particular
emerging country or region; or |
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those whose securities are exposed to the economic fortunes and risks of a
particular emerging country or region. |
The Investment Advisers emerging markets debt (EMD) investment philosophy strives to
generate returns through an active, research-intensive, risk-managed approach. The Investment
Adviser seeks to add value through country allocation, security selection, and market exposure
strategies.
The Investment Adviser believes that active management focused on fundamental research is
critical for achieving long-term value for its clients portfolios. EMD can offer an attractive
risk/return profile for investors who have the proper resources and experience to exploit the
myriad opportunities in the market. The Investment Advisers process is built on fundamental
analysis of emerging market countries and securities. In addition, the Investment Advisers process
focuses on risk-adjusted returns, as the Investment Adviser believes that risk can have a material
impact on long-term investment results. As a result, the Investment Adviser diversifies across
sovereign credits and employs proprietary tools to manage overall portfolio risks.
Types of Securities Used. EMD comprises fixed income securities issued mainly by
governments, but also by quasi-sovereigns and corporations, of developing countries. The Investment
Adviser typically expresses its view on a relative-to-benchmark basis, overweighting those
securities the Investment Adviser believes will outperform and underweighting those countries the
Investment Adviser believes will underperform.
The types of financial instruments used in the Emerging Markets Debt and Local Emerging
Markets Debt Funds include Eurobonds, Brady bonds, tradable bank loans, local bonds and other
securities, which can include their associated derivatives. The EMD team may invest in liquid, long
duration securities and employ active trading strategies that exploit market inefficiencies and
arbitrage opportunities (e.g., between Brady Bonds and global bonds) that often exist in the EMD
market. Given the limited diversification within the EMD sector, buying longer dated, more liquid,
lower dollar price securities may be a preferred strategy.
The Investment Adviser may use derivative instruments such as forwards and futures in the
Emerging Markets Debt and Local Emerging Markets Debt Funds in an attempt to hedge its currency
exposures. However, due to the limited market for these instruments in emerging countries, a
significant portion of the Funds currency exposure in emerging countries may not be covered by
such instruments.
Research. Being part of GSAMs wider Fixed Income and Currency Team, the EMD team
interacts with the Investment Advisers fixed income and currency analysts and portfolio managers
based in New York, London, and Tokyo. The Fixed Income and Currency
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Team employs a broad analysis of the macro-economic environment, credit risk factors, and
quantitative relationships and plays a vital role in aspects of portfolio construction and
strategy.
In addition to internal research, the Investment Adviser may utilize external sources in its
analysis and seek information from external consultants and sell-side economists and strategists.
The Investment Advisers EMD team may draw on the resources of Goldman Sachs (e.g., GSAM Emerging
Market Foreign Exchange, Emerging Market Equity and Quantitative Strategy) in the country and
security selection process. The Investment Advisers research analysts also travel to emerging
countries to seek additional insight on the macroeconomic and political developments. The
Investment Advisers research analysts also obtain research publications from broker-dealers,
supranational organizations (e.g., the International Monetary Fund), and academic sources.
Portfolio managers and research analysts have access to external research (e.g., internet
websites, publications). In addition, market information is disseminated through electronic
communications as well as regularly scheduled meetings. The members of the EMD investment team sit
on the trading desk to facilitate efficient and timely flow of market information.
Based on macroeconomic and political considerations, the Investment Adviser will have a
negative, neutral, or positive recommendation on various emerging countries. In addition to these
recommendations, the Investment Adviser considers which are the most attractive securities within
those countries.
Inflation Protected Securities Fund
The Inflation Protected Securities Fund is designed for investors who seek real return
consistent with preservation of capital. Real return is the return on an investment adjusted for
inflation. The Inflation Protected Securities Fund invests, under normal circumstances, at least
80% of its Net Assets in IPS of varying maturities, including TIPS and CIPS. IPS are designed to
provide inflation protection to investors. The U.S. Treasury uses the Consumer Price Index for
Urban Consumers (the CPIU) as the measurement of inflation, while other issuers of IPS may use
different indices as the measure of inflation. IPS are income-generating instruments whose interest
and principal payments are adjusted for inflationa sustained increase in prices that erodes the
purchasing power of money. The inflation adjustment, which is typically applied monthly to the
principal of the bond, follows a designated inflation index, such as the consumer price index. A
fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both
the principal value and the interest payments increase. This can provide investors with a hedge
against inflation, as it helps preserve the purchasing power of an investment. Because of this
inflation adjustment feature, inflation-protected bonds typically have lower yields than
conventional fixed-rate bonds. The remainder of the Inflation Protected Securities Funds Net
Assets (up to 20%) may be invested in other fixed income securities, including U.S. Government
Securities, asset-backed securities, mortgage-backed securities, corporate securities, and
securities issued by foreign corporate and governmental issuers.
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES
U.S. Government Securities
Each Fund may invest in U.S. Government Securities. Some U.S. Government Securities (such as
Treasury bills, notes and bonds, which differ only in their interest rates, maturities and times of
issuance) are supported by the full faith and credit of the United States. Others, such as
obligations issued or guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises, are supported either by (i) the right of the issuer to borrow from the U.S. Treasury,
(ii) the discretionary authority of the U.S. government to purchase certain obligations of the
issuer or (iii) only the credit of the issuer. The U.S. government is under no legal obligation, in
general, to purchase the obligations of its agencies, instrumentalities or sponsored enterprises.
No assurance can be given that the U.S. government will provide financial support to the U.S.
government agencies, instrumentalities or sponsored enterprises in the future.
U.S. Government Securities include (to the extent consistent with the Act) securities for
which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, or its agencies, instrumentalities or sponsored enterprises. U.S. Government
Securities may also include (to the extent consistent with the Act) participations in loans made to
foreign governments or their agencies that are guaranteed as to principal and interest by the U.S.
government or its agencies, instrumentalities or sponsored enterprises. The secondary market for
certain of these participations is extremely limited. In the absence of a suitable secondary
market, such participations are regarded as illiquid.
Each Fund may also purchase U.S. Government Securities in private placements and may also
invest in separately traded principal and interest components of securities guaranteed or issued by
the U.S. Treasury that are traded independently under the separate trading of registered interest
and principal of securities program (STRIPS).
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Treasury Inflation-Protected Securities. Certain Funds may invest in Treasury
inflation protected securities or TIPS, which are U.S. Government Securities whose principal
value is periodically adjusted according to the rate of inflation. The interest rate on TIPS is
fixed at issuance, but over the life of the bond this interest may be paid on an increasing or
decreasing principal value that has been adjusted for inflation. Although repayment of the original
bond principal upon maturity is guaranteed, the market value of TIPS is not guaranteed, and will
fluctuate.
The values of TIPS generally fluctuate in response to changes in real interest rates, which
are in turn tied to the relationship between nominal interest rates and the rate of inflation. If
inflation were to rise at a faster rate than nominal interest rates, real interest rates might
decline, leading to an increase in the value of TIPS. In contrast, if nominal interest rates were
to increase at a faster rate than inflation, real interest rates might rise, leading to a decrease
in the value of TIPS. If inflation is lower than expected during the period a Fund holds TIPS, the
Fund may earn less on the TIPS than on a conventional bond. If interest rates rise due to reasons
other than inflation (for example, due to changes in the currency exchange rates), investors in
TIPS may not be protected to the extent that the increase is not reflected in the bonds inflation
measure. There can be no assurance that the inflation index for TIPS will accurately measure the
real rate of inflation in the prices of goods and services.
Any increase in principal value of TIPS caused by an increase in the consumer price index is
taxable in the year the increase occurs, even though the Fund holding TIPS will not receive cash
representing the increase at that time. As a result, a Fund could be required at times to liquidate
other investments, including when it is not advantageous to do so, in order to satisfy its
distribution requirements as a regulated investment company.
If a Fund invests in TIPS, it will be required to treat as original issue discount any
increase in the principal amount of the securities that occurs during the course of its taxable
year. If a Fund purchases such inflation protected securities that are issued in stripped form
either as stripped bonds or coupons, it will be treated as if it had purchased a newly issued debt
instrument having original issue discount.
Because a Fund is required to distribute substantially all of its net investment income
(including accrued original issue discount), a Funds investment in either zero coupon bonds or
TIPS may require it to distribute to shareholders an amount greater than the total cash income it
actually receives. Accordingly, in order to make the required distributions, a Fund may be required
to borrow or liquidate securities.
Custodial Receipts and Trust Certificates
Each Fund may invest in custodial receipts and trust certificates, which may be underwritten
by securities dealers or banks, representing interests in securities held by a custodian or
trustee. The securities so held may include U.S. Government Securities, Municipal Securities or
other types of securities in which a Fund may invest. The custodial receipts or trust certificates
are underwritten by securities dealers or banks and may evidence ownership of future interest
payments, principal payments or both on the underlying securities, or, in some cases, the payment
obligation of a third party that has entered into an interest rate swap or other arrangement with
the custodian or trustee. For purposes of certain securities laws, custodial receipts and trust
certificates may not be considered obligations of the U.S. government or other issuer of the
securities held by the custodian or trustee. As a holder of custodial receipts and trust
certificates, a Fund will bear its proportionate share of the fees and expenses charged to the
custodial account or trust. The Funds may also invest in separately issued interests in custodial
receipts and trust certificates.
Although under the terms of a custodial receipt or trust certificate a Fund would typically be
authorized to assert its rights directly against the issuer of the underlying obligation, the Fund
could be required to assert through the custodian bank or trustee those rights as may exist against
the underlying issuers. Thus, in the event an underlying issuer fails to pay principal and/or
interest when due, a Fund may be subject to delays, expenses and risks that are greater than those
that would have been involved if the Fund had purchased a direct obligation of the issuer. In
addition, in the event that the trust or custodial account in which the underlying securities have
been deposited is determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying securities would be reduced in recognition of any
taxes paid.
Certain custodial receipts and trust certificates may be synthetic or derivative instruments
that have interest rates that reset inversely to changing short-term rates and/or have embedded
interest rate floors and caps that require the issuer to pay an adjusted interest rate if market
rates fall below or rise above a specified rate. Because some of these instruments represent
relatively recent innovations, and the trading market for these instruments is less developed than
the markets for traditional types of instruments, it is uncertain how these instruments will
perform under different economic and interest-rate scenarios. Also, because these instruments may
be leveraged, their market values may be more volatile than other types of fixed income instruments
and may present greater potential for capital gain or loss. The possibility of default by an issuer
or the issuers credit provider may be greater for these derivative instruments than for other
types of instruments. In some cases, it may be difficult to determine the fair value of a
derivative
B-13
instrument because of a lack of reliable objective information and an established secondary
market for some instruments may not exist. In many cases, the Internal Revenue Service (the IRS)
has not ruled on the tax treatment of the interest or payments received on the derivative
instruments and, accordingly, purchases of such instruments are based on the opinion of counsel to
the sponsors of the instruments.
Mortgage Loans and Mortgage-Backed Securities
The Taxable Funds (other than the Enhanced Income Fund, High Yield Floating Rate Fund,
Emerging Markets Debt Fund, and Local Emerging Markets Debt Fund) may each invest in mortgage loans
and mortgage pass-through securities and other securities representing an interest in or
collateralized by adjustable and fixed-rate mortgage loans, including collateralized mortgage
obligations, real estate mortgage investment conduits (REMICs) and stripped mortgage-backed
securities, as described below (Mortgage-Backed Securities).
Mortgage-Backed Securities are subject to both call risk and extension risk. Because of these
risks, these securities can have significantly greater price and yield volatility than traditional
fixed income securities.
General Characteristics of Mortgage Backed Securities.
In general, 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, multi-family (i.e., five-units or more) properties,
agricultural properties, commercial properties and mixed use properties (the Mortgaged
Properties). The Mortgaged Properties may consist of detached individual dwelling units,
multi-family dwelling units, individual condominiums, townhouses, duplexes, triplexes, fourplexes,
row houses, individual units in planned unit developments, other attached dwelling units
(Residential Mortgaged Properties) or commercial properties, such as office properties, retail
properties, hospitality properties, industrial properties, healthcare related properties or other
types of income producing real property (Commercial Mortgaged Properties). Residential Mortgaged
Properties may also include residential investment properties and second homes. In addition, the
Mortgage-Backed Securities which are residential mortgage-backed securities may also consist of
mortgage loans evidenced by promissory notes secured entirely or in part by second priority
mortgage liens on Residential Mortgaged Properties.
The investment characteristics of adjustable and fixed rate Mortgage-Backed Securities differ
from those of traditional fixed income securities. The major differences include the payment of
interest and principal on Mortgage-Backed Securities on a more frequent (usually monthly) schedule,
and the possibility that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly greater price and
yield volatility than is the case with traditional fixed income securities. As a result, if 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, 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 value. To the extent that a Fund invests in
Mortgage-Backed Securities, the Investment Adviser may seek to manage these potential risks by
investing in a variety of Mortgage-Backed Securities and by using certain hedging techniques.
Prepayments on a pool of mortgage loans are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors (such as changes in mortgagor
housing needs, job transfers, unemployment, mortgagor equity in the mortgage properties and
servicing decisions). The timing and level of prepayments cannot be predicted. A predominant factor
affecting the prepayment rate on a pool of mortgage loans is the difference between the interest
rates on outstanding mortgage loans and prevailing mortgage loan interest rates (giving
consideration to the cost of any refinancing). Generally, prepayments on mortgage loans will
increase during a period of falling mortgage interest rates and decrease during a period of rising
mortgage interest rates. Accordingly, the amounts of prepayments available for reinvestment by a
Fund are likely to be greater during a period of declining mortgage interest rates. If general
interest rates decline, such prepayments are likely to be reinvested at lower interest rates than a
Fund was earning on the Mortgage-Backed Securities that were prepaid. Due to these factors,
Mortgage-Backed Securities may be less effective than U.S. Treasury and other types of debt
securities of similar maturity at maintaining yields during periods of declining interest rates.
Because a Funds investments in Mortgage-Backed Securities are interest-rate sensitive, a Funds
performance will depend in part upon the ability of the Fund to anticipate and respond to
fluctuations in market interest rates and to utilize appropriate strategies to maximize returns to
the Fund, while attempting to minimize the associated risks to its investment capital. Prepayments
may have a disproportionate effect on certain Mortgage-Backed Securities and other multiple class
pass-through securities, which are discussed below.
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The rate of interest paid on Mortgage-Backed Securities is normally lower than the rate of
interest paid on the mortgages included in the underlying pool due to (among other things) the fees
paid to any servicer, special servicer and trustee for the trust fund which holds the mortgage
pool, other costs and expenses of such trust fund, fees paid to any guarantor, such as Ginnie Mae
(as defined below) or to any credit enhancers, mortgage pool insurers, bond insurers and/or hedge
providers, and due to any yield retained by the issuer. Actual yield to the holder may vary from
the coupon rate, even if adjustable, if the Mortgage-Backed Securities are purchased or traded in
the secondary market at a premium or discount. In addition, there is normally some delay between
the time the issuer receives mortgage payments from the servicer and the time the issuer (or the
trustee of the trust fund which holds the mortgage pool) makes the payments on the Mortgage-Backed
Securities, and this delay reduces the effective yield to the holder of such securities.
The issuers of certain mortgage-backed obligations may elect to have the pool of mortgage
loans (or indirect interests in mortgage loans) underlying the securities treated as a REMIC, which
is subject to special federal income tax rules. A description of the types of mortgage loans and
mortgage-backed securities in which a Fund may invest is provided below. The descriptions are
general and summary in nature, and do not detail every possible variation of the types of
securities that are permissible investments for a Fund.
Certain General Characteristics of Mortgage Loans
Adjustable Rate Mortgage Loans (ARMs). The Taxable Funds (other than the Enhanced
Income Fund, High Yield Floating Rate Fund, Emerging Markets Debt Fund, and Local Emerging Markets
Debt Fund) may invest in ARMs. ARMs generally provide for a fixed initial mortgage interest rate
for a specified period of time. Thereafter, the interest rates (the Mortgage Interest Rates) may
be subject to periodic adjustment based on changes in the applicable index rate (the Index Rate).
The adjusted rate would be equal to the Index Rate plus a fixed percentage spread over the Index
Rate established for each ARM at the time of its origination. ARMs allow a Fund to participate in
increases in interest rates through periodic increases in the securities coupon rates. During
periods of declining interest rates, coupon rates may readjust downward resulting in lower yields
to a Fund.
Adjustable interest rates can cause payment increases that some mortgagors may find difficult
to make. However, certain ARMs may provide that the Mortgage Interest Rate may not be adjusted to a
rate above an applicable lifetime maximum rate or below an applicable lifetime minimum rate for
such ARM. Certain ARMs may also be subject to limitations on the maximum amount by which the
Mortgage Interest Rate may adjust for any single adjustment period (the Maximum Adjustment).
Other ARMs (Negatively Amortizing ARMs) may provide instead or as well for limitations on changes
in the monthly payment on such ARMs. Limitations on monthly payments can result in monthly payments
which are greater or less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In the event that a
monthly payment is not sufficient to pay the interest accruing on a Negatively Amortizing ARM, any
such excess interest is added to the principal balance of the loan, causing negative amortization,
and will be repaid through future monthly payments. It may take borrowers under Negatively
Amortizing ARMs longer periods of time to build up equity and may increase the likelihood of
default by such borrowers. In the event that a monthly payment exceeds the sum of the interest
accrued at the applicable Mortgage Interest Rate and the principal payment which would have been
necessary to amortize the outstanding principal balance over the remaining term of the loan, the
excess (or accelerated amortization) further reduces the principal balance of the ARM. Negatively
Amortizing ARMs do not provide for the extension of their original maturity to accommodate changes
in their Mortgage Interest Rate. As a result, unless there is a periodic recalculation of the
payment amount (which there generally is), the final payment may be substantially larger than the
other payments. After the expiration of the initial fixed rate period and upon the periodic
recalculation of the payment to cause timely amortization of the related mortgage loan, the monthly
payment on such mortgage loan may increase substantially which may, in turn, increase the risk of
the borrower defaulting in respect of such mortgage loan. These limitations on periodic increases
in interest rates and on changes in monthly payments protect borrowers from unlimited interest rate
and payment increases, but may result in increased credit exposure and prepayment risks for
lenders. When interest due on a mortgage loan is added to the principal balance of such mortgage
loan, the related mortgaged property provides proportionately less security for the repayment of
such mortgage loan. Therefore, if the related borrower defaults on such mortgage loan, there is a
greater likelihood that a loss will be incurred upon any liquidation of the mortgaged property
which secures such mortgage loan.
ARMs also have the risk of prepayment. The rate of principal prepayments with respect to ARMs
has fluctuated in recent years. The value of Mortgage-Backed Securities collateralized by ARMs is
less likely to rise during periods of declining interest rates than the value of fixed-rate
securities during such periods. Accordingly, ARMs may be subject to a greater rate of principal
repayments in a declining interest rate environment resulting in lower yields to a Fund. For
example, if prevailing interest rates fall significantly, ARMs could be subject to higher
prepayment rates (than if prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance their ARMs to
lock-in a fixed-rate mortgage. On the other hand, during periods of rising interest rates, the
value of ARMs will lag behind changes in the market rate. ARMs are also typically subject to
maximum increases and decreases in the interest rate adjustment which can be made on any one
adjustment date, in any one year, or during the life of the security. In the event of dramatic
increases or decreases in prevailing market interest rates, the value of a Funds investment in
ARMs may fluctuate more substantially because these limits may prevent the security from fully
B-15
adjusting its interest rate to the prevailing market rates. As with fixed-rate mortgages, ARM
prepayment rates vary in both stable and changing interest rate
environments.
There are two main categories of indices which provide the basis for rate adjustments on ARMs:
those based on U.S. Treasury securities and those derived from a calculated measure, such as a cost
of funds index or a moving average of mortgage rates. Indices commonly used for this purpose
include the one-year, three-year and five-year constant maturity Treasury rates, the three-month
Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the
one-month, three-month, six-month or one-year London Interbank Offered Rate, the prime rate of a
specific bank, or commercial paper rates. Some indices, such as the one-year constant maturity
Treasury rate, closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market rate
levels and tend to be somewhat less volatile. The degree of volatility in the market value of ARMs
in a Funds portfolio and, therefore, in the net asset value of the Funds shares, will be a
function of the length of the interest rate reset periods and the degree of volatility in the
applicable indices.
Fixed-Rate Mortgage Loans. Generally, fixed-rate mortgage loans included in mortgage
pools (the Fixed-Rate Mortgage Loans) will bear simple interest at fixed annual rates and have
original terms to maturity ranging from 5 to 40 years. Fixed-Rate Mortgage Loans generally provide
for monthly payments of principal and interest in substantially equal installments for the term of
the mortgage note in sufficient amounts to fully amortize principal by maturity, although certain
Fixed-Rate Mortgage Loans provide for a large final balloon payment upon maturity.
Certain Legal Considerations of Mortgage Loans. The following is a discussion of
certain legal and regulatory aspects of the mortgage loans in which the Taxable Funds (other than
the Enhanced Income Fund, High Yield Floating Rate Fund, Emerging Markets Debt Fund, and Local
Emerging Markets Debt Fund) may invest. This discussion is not exhaustive, and does not address all
of the legal or regulatory aspects affecting mortgage loans. These regulations may impair the
ability of a mortgage lender to enforce its rights under the mortgage documents. These regulations
may also adversely affect a Funds investments in Mortgage-Backed Securities (including those
issued or guaranteed by the U.S. government, its agencies or instrumentalities) by delaying the
Funds receipt of payments derived from principal or interest on mortgage loans affected by such
regulations.
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Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed due to
compliance with statutory notice or service of process provisions, difficulties in locating
necessary parties or legal challenges to the mortgagees right to foreclose. Depending upon
market conditions, the ultimate proceeds of the sale of foreclosed property may not equal the
amounts owed on the Mortgage-Backed Securities. Furthermore, courts in some cases have imposed
general equitable principles upon foreclosure generally designed to relieve the borrower from
the legal effect of default and have required lenders to undertake affirmative and expensive
actions to determine the causes for the default and the likelihood of loan reinstatement. |
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Rights of Redemption. In some states, after foreclosure of a mortgage loan, the
borrower and foreclosed junior lienors are given a statutory period in which to redeem the
property, which right may diminish the mortgagees ability to sell the property. |
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Legislative Limitations. In addition to anti-deficiency and related legislation,
numerous other federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to enforce its security interest. For example, a bankruptcy court may
grant the debtor a reasonable time to cure a default on a mortgage loan, including a payment
default. The court in certain instances may also reduce the monthly payments due under such
mortgage loan, change the rate of interest, reduce the principal balance of the loan to the
then-current appraised value of the related mortgaged property, alter the mortgage loan
repayment schedule and grant priority of certain liens over the lien of the mortgage loan. If
a court relieves a borrowers obligation to repay amounts otherwise due on a mortgage loan,
the mortgage loan servicer will not be required to advance such amounts, and any loss may be
borne by the holders of securities backed by such loans. In addition, numerous federal and
state consumer protection laws impose penalties for failure to comply with specific
requirements in connection with origination and servicing of mortgage loans. |
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Due-on-Sale Provisions. Fixed-rate mortgage loans may contain a so-called
due-on-sale clause permitting acceleration of the maturity of the mortgage loan if the
borrower transfers the property. The Garn-St. Germain Depository Institutions Act of 1982 sets
forth nine specific instances in which no mortgage lender covered by that Act may exercise a
due-on-sale clause upon a transfer of property. The inability to enforce a due-on-sale
clause or the lack of such a clause in mortgage loan documents may result in a mortgage loan
being assumed by a purchaser of the property that bears an interest rate below the current
market rate. |
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Usury Laws. Some states prohibit charging interest on mortgage loans in excess of
statutory limits. If such limits are exceeded, substantial penalties may be incurred and, in
some cases, enforceability of the obligation to pay principal and interest may be affected. |
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Recent Governmental Action, Legislation and Regulation. The rise in the rate of
foreclosures of properties in certain states or localities has resulted in legislative,
regulatory and enforcement action in such states or localities seeking to prevent or restrict
foreclosures, particularly in respect of residential mortgage loans. Actions have also been
brought against issuers and underwriters of residential mortgage-backed securities
collateralized by such residential mortgage loans and investors in such residential
mortgage-backed securities. Legislative or regulatory initiatives by federal, state or local
legislative bodies or administrative agencies, if enacted or adopted, could delay foreclosure
or the exercise of other remedies, provide new defenses to foreclosure, or otherwise impair
the ability of the loan servicer to foreclose or realize on a defaulted residential mortgage
loan included in a pool of residential mortgage loans backing such residential mortgage-backed
securities. While the nature or extent of limitations on foreclosure or exercise of other
remedies that may be enacted cannot be predicted, any such governmental actions that interfere
with the foreclosure process could increase the costs of such foreclosures or exercise of
other remedies in respect of residential mortgage loans which collateralize Mortgage-Backed
Securities held by a Fund, delay the timing or reduce the amount of recoveries on defaulted
residential mortgage loans which collateralize Mortgage-Backed Securities held by a Fund, and
consequently, could adversely impact the yields and distributions a Fund may receive in
respect of its ownership of Mortgage-Backed Securities collateralized by residential mortgage
loans. For example, the Helping Families Save Their Homes Act of 2009 authorizes bankruptcy
courts to assist bankrupt borrowers by restructuring residential mortgage loans secured by a
lien on the borrowers primary residence. Bankruptcy judges are permitted to reduce the
interest rate of the bankrupt borrowers residential mortgage loan, extend its term to
maturity to up to 40 years or take other actions to reduce the borrowers monthly payment. As
a result, the value of, and the cash flows in respect of, the Mortgage-Backed Securities
collateralized by these residential mortgage loans may be adversely impacted, and, as a
consequence, a Funds investment in such Mortgage-Backed Securities could be adversely
impacted. Other federal legislation, including the Home Affordability Modification Program
(HAMP), encourages servicers to modify residential mortgage loans that are either
already in default or are at risk of imminent default. Furthermore, HAMP provides incentives
for servicers to modify residential mortgage loans that are contractually current. This
program, as well other legislation and/or governmental intervention designed to protect
consumers, may have an adverse impact on servicers of residential mortgage loans by increasing
costs and expenses of these servicers while at the same time decreasing servicing cash flows.
Such increased financial pressures may have a negative effect on the ability of servicers to
pursue collection on residential mortgage loans that are experiencing increased delinquencies
and defaults and to maximize recoveries on the sale of underlying residential mortgaged
properties following foreclosure. Other legislative or regulatory actions include insulation
of servicers from liability for modification of residential mortgage loans without regard to
the terms of the applicable servicing agreements. The foregoing legislation and current and
future governmental regulation activities may have the effect of reducing returns to a Fund to
the extent it has invested in Mortgage-Backed Securities collateralized by these residential mortgage loans. |
Government Guaranteed Mortgage-Backed Securities. There are several types of
government 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), other collateralized mortgage
obligations and stripped Mortgage-Backed Securities. Each of the Taxable Funds (other than the
Enhanced Income Fund, High Yield Floating Rate Fund, Emerging Markets Debt Fund, and Local Emerging
Markets Debt 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 Funds 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 securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest and principal will be
paid when due. Fannie Mae and Freddie Mac securities are not backed by the full faith and credit of
the U.S. Government. Fannie Mae and Freddie Mac have the ability to borrow from the U.S. Treasury,
and as a result, they are generally viewed by the market as high quality securities with low credit
risks. From time to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating federal sponsorship of Fannie Mae and Freddie Mac that issue guaranteed
Mortgage-Backed Securities. The Trust cannot predict what legislation, if any, may be proposed in
the future in Congress as regards such sponsorship or which proposals, if any, might be enacted.
Such proposals, if enacted, might materially and adversely affect the availability of government
guaranteed Mortgage-Backed Securities and the liquidity and value of a Funds portfolio.
There is risk that the U.S. Government will not provide financial support to its agencies,
authorities, instrumentalities or sponsored enterprises. A Fund may purchase U.S. Government
Securities that are not backed by the full faith and credit of the U.S. Government, such as those
issued by Fannie Mae and Freddie Mac. The maximum potential liability of the issuers of some U.S.
Government Securities held by a Fund may greatly exceed such issuers current resources, including
such issuers legal right to support from the U.S. Treasury. It is possible that these issuers will
not have the funds to meet their payment obligations in the future.
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Below is a general discussion of certain types of guaranteed Mortgage-Backed Securities in
which the Fund may invest.
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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), or
guaranteed by the Veterans Administration (VA), 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. The National Housing Act
provides that the full faith and credit of the U.S. Government is pledged to the timely
payment of principal and interest by Ginnie Mae of amounts due on Ginnie Mae
certificates. |
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Fannie Mae Certificates. Fannie Mae is a stockholder-owned
corporation chartered under an act of the United States Congress. Generally, Fannie Mae
Certificates are issued and guaranteed by Fannie Mae and represent an undivided interest
in a pool of mortgage loans (a Pool) formed by Fannie Mae. A Pool consists of
residential mortgage loans either previously owned by Fannie Mae or purchased by it in
connection with the formation of the Pool. The mortgage loans may be either conventional
mortgage loans (i.e., not insured or guaranteed by any U.S. Government agency) or
mortgage loans that are either insured by the FHA or guaranteed by the 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 installments of principal and interest after Fannie Maes 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. See Certain Additional Information
with Respect to Freddie Mac and Fannie Mae below. |
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Freddie Mac Certificates. Freddie Mac is a publicly held U.S.
Government sponsored enterprise. A principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential and multifamily 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. See Certain Additional Information with Respect
to Freddie Mac and Fannie Mae below. |
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 up to forty years.
These mortgage loans are usually secured by first liens on one-to-four-family residential
properties or multi-family projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate group may include
whole loans, participation interests in whole loans, undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
Conventional Mortgage Loans. The conventional mortgage loans underlying the Freddie
Mac and Fannie Mae Certificates consist of adjustable rate or fixed-rate mortgage loans normally
with original terms to maturity of between five and thirty years. Substantially all of these
mortgage loans are secured by first liens on one- to four-family residential properties or
multi-family projects. Each mortgage loan must meet the applicable standards set forth in the law
creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans, undivided interests in whole loans and participations
comprising another Freddie Mac Certificate group.
Certain Additional Information with Respect to Freddie Mac and Fannie Mae. The
volatility and disruption that impacted the capital and credit markets during late 2008 and into
2009 have led to increased market concerns about Freddie Macs and Fannie Maes ability to
withstand future credit losses associated with securities held in their investment portfolios, and
on which they provide guarantees, without the direct support of the federal government. On
September 6, 2008, both Freddie Mac and Fannie Mae were placed under the conservatorship of the
Federal Housing Finance Agency (FHFA). Under the plan of conservatorship, the FHFA has assumed
control of, and generally has the power to direct, the operations of Freddie Mac and Fannie Mae,
and is empowered to exercise all powers collectively held by their respective shareholders,
directors and officers, including the power to (1) take over the
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assets of and operate Freddie Mac and Fannie Mae with all the powers of the shareholders, the
directors, and the officers of Freddie Mac and Fannie Mae and conduct all business of Freddie Mac
and Fannie Mae; (2) collect all obligations and money due to Freddie Mac and Fannie Mae; (3)
perform all functions of Freddie Mac and Fannie Mae which are consistent with the conservators
appointment; (4) preserve and conserve the assets and property of Freddie Mac and Fannie Mae; and
(5) contract for assistance in fulfilling any function, activity, action or duty of the
conservator. In addition, in connection with the actions taken by the FHFA, the U.S. Treasury
Department (the Treasury) entered into certain preferred stock purchase agreements with each of
Freddie Mac and Fannie Mae which established the Treasury as the holder of a new class of senior
preferred stock in each of Freddie Mac and Fannie Mae, which stock was issued in connection with
financial contributions from the Treasury to Freddie Mac and Fannie Mae. The conditions attached
to the financial contribution made by the Treasury to Freddie Mac and Fannie Mae and the issuance
of this senior preferred stock placed significant restrictions on the activities of Freddie Mac and
Fannie Mae. Freddie Mac and Fannie Mae must obtain the consent of the Treasury to, among other
things, (i) make any payment to purchase or redeem its capital stock or pay any dividend other than
in respect of the senior preferred stock issued to the Treasury, (ii) issue capital stock of any
kind, (iii) terminate the conservatorship of the FHFA except in connection with a receivership, or
(iv) increase its debt beyond certain specified levels. In addition, significant restrictions were
placed on the maximum size of each of Freddie Macs and Fannie Maes respective portfolios of
mortgages and Mortgage-Backed Securities, and the purchase agreements entered into by Freddie Mac
and Fannie Mae provide that the maximum size of their portfolios of these assets must decrease by a
specified percentage each year. On June 16, 2010, FHFA ordered Fannie Mae and Freddie Macs stock
de-listed from the New York Stock Exchange (NYSE) after the price of common stock in Fannie Mae
fell below the NYSE minimum average closing price of $1 for more than 30 days.
The future status and role of Freddie Mac and Fannie Mae could be impacted by (among other
things) the actions taken and restrictions placed on Freddie Mac and Fannie Mae by the FHFA in its
role as conservator, the restrictions placed on Freddie Macs and Fannie Maes operations and
activities as a result of the senior preferred stock investment made by the Treasury, market
responses to developments at Freddie Mac and Fannie Mae, and future legislative and regulatory
action that alters the operations, ownership, structure and/or mission of these institutions, each
of which may, in turn, impact the value of, and cash flows on, any Mortgage-Backed Securities
guaranteed by Freddie Mac and Fannie Mae, including any such Mortgage-Backed Securities held by a
Fund.
Privately Issued Mortgage-Backed Securities. The Ultra-Short Duration Government Fund,
Government Income Fund, U.S. Mortgages Fund, Core Fixed Income Fund, Core Plus Fixed Income Fund,
Investment Grade Credit Fund, Global Income Fund, High Yield Fund, and Inflation Protected
Securities Fund may invest in privately issued Mortgage-Backed Securities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional (i.e., non-government
guaranteed or insured) mortgage loans. The seller or servicer of the underlying mortgage
obligations will generally make representations and warranties to certificate-holders as to certain
characteristics of the mortgage loans and as to the accuracy of certain information furnished to
the trustee in respect of each such mortgage loan. Upon a breach of any representation or warranty
that materially and adversely affects the interests of the related certificate-holders in a
mortgage loan, the seller or servicer generally will be obligated either to cure the breach in all
material respects, to repurchase the mortgage loan or, if the related agreement so provides, to
substitute in its place a mortgage loan pursuant to the conditions set forth therein. Such a
repurchase or substitution obligation may constitute the sole remedy available to the related
certificate-holders or the trustee for the material breach of any such representation or warranty
by the seller or servicer.
Mortgage Pass-Through Securities
To the extent consistent with their investment policies, the Taxable Funds (other than the
Enhanced Income Fund, High Yield Floating Rate Fund, Emerging Markets Debt Fund, and Local Emerging
Markets Debt Fund) may invest in both government guaranteed and privately issued mortgage
pass-through securities (Mortgage Pass-Throughs) that are 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 seller or servicer of the
underlying mortgage obligations will generally make representations and warranties to
certificate-holders as to certain characteristics of the mortgage loans and as to the accuracy of
certain information furnished to the trustee in respect of each such mortgage loan. Upon a breach
of any representation or warranty that materially and adversely affects the interests of the
related certificate-holders in a mortgage loan, the seller or servicer generally may be obligated
either to cure the breach in all material respects, to repurchase the mortgage loan or, if the
related agreement so provides, to substitute in its place a mortgage loan pursuant to the
conditions set forth therein. Such a repurchase or substitution obligation may constitute the sole
remedy available to the related certificate-holders or the trustee for the material breach of any
such representation or warranty by the seller or servicer.
The following discussion describes certain aspects of only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
General 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
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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. Because 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 generally be added to the principal balance of
the related mortgage loan and will be distributed pro rata to certificate-holders as principal of
such mortgage loan when paid by the mortgagor in subsequent monthly payments or at maturity.
Ratings. The ratings assigned by a rating organization to Mortgage Pass-Throughs
generally address the likelihood of the receipt of distributions on the underlying mortgage loans
by the related certificate-holders under the agreements pursuant to which such certificates are
issued. A rating organizations ratings normally 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 organizations 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
may not address the 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. A rating organization may downgrade or withdraw a rating assigned by
it to any Mortgage Pass-Through at any time, and no assurance can be made that any ratings on any
Mortgage Pass-Throughs included in a Fund will be maintained, or that if such ratings are assigned,
they will not be downgraded or withdrawn by the assigning rating organization.
Recently, rating agencies have placed on credit watch or downgraded the ratings previously
assigned to a large number of mortgage-backed securities (which may include certain of the
Mortgage-Backed Securities in which a Fund may have invested or may in the future be invested), and
may continue to do so in the future. In the event that any Mortgage-Backed Security held by a Fund
is placed on credit watch or downgraded, the value of such Mortgage-Backed Security may decline and
the Fund may consequently experience losses in respect of such Mortgage-Backed Security.
Credit Enhancement. Mortgage pools created by non-governmental issuers generally offer
a higher yield than government and government-related pools because of the absence of direct or
indirect government or agency payment guarantees. To lessen the effect of failures by obligors on
underlying assets to make payments, Mortgage Pass-Throughs may contain elements of credit support.
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 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 may 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.
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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 to 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 that 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 through bond insurers, or at the mortgage loan-level through mortgage insurance, hazard
insurance, or through 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 bond insurers, guarantees or letters of credit, the
security is subject to credit risk because of its exposure to the credit risk of 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 may agree to make advances of
cash for the benefit of certificate-holders, but generally will do so 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 if at such time
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.
Each Taxable Fund (other than the Enhanced Income Fund, High Yield Floating Rate Fund, Emerging
Markets Debt Fund, and Local Emerging Markets Debt 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, instrumentalities or sponsored enterprises such as Fannie
Mae or Freddie Mac or by trusts formed by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks, insurance companies,
investment banks and special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class Mortgage-Backed
Securities represent direct ownership interests in, a pool of mortgage loans or Mortgage-Backed
Securities the payments on which are used to make payments on the CMOs or multiple class
Mortgage-Backed Securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely distribution of principal
and interest by Fannie Mae. In addition, Fannie Mae will be obligated to distribute the principal
balance of each class of REMIC Certificates in full, whether or not sufficient funds are otherwise
available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC Certificates and
also guarantees the payment of principal as payments are required to be made on the underlying
mortgage participation certificates (PCs). PCs represent undivided interests in specified level
payment, residential mortgages or participations therein purchased by Freddie Mac and placed in a
PC pool. With respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or deduction but the
receipt of the required payments may be delayed. 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. 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. See Certain Additional Information with Respect to
Freddie Mac and Fannie Mae.
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 principal
payments and prepayments of the Mortgage Assets are then required to be applied to one or more
other classes of the PAC 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.
Commercial Mortgage-Backed Securities. Commercial mortgage-backed securities (CMBS).
are a type of Mortgage Pass-Through that are primarily backed by a pool of commercial mortgage
loans. The commercial mortgage loans are, in turn, generally secured by commercial mortgaged
properties (such as office properties, retail properties, hospitality properties, industrial
properties, healthcare related properties or other types of income producing real property). CMBS
generally entitle the holders thereof to receive payments that depend primarily on the cash flow
from a specified pool of commercial or multifamily mortgage loans. CMBS will be affected by
payments, defaults, delinquencies and losses on the underlying mortgage loans. The underlying
mortgage loans generally are secured by income producing properties such as office properties,
retail properties, multifamily properties, manufactured housing, hospitality properties, industrial
properties and self storage properties. Because issuers of CMBS have no significant assets other
than the underlying commercial real estate loans and because of the significant credit risks
inherent in the underlying collateral, credit risk is a correspondingly important consideration
with respect to the related CMBS Securities. Certain of the mortgage loans underlying CMBS
Securities constituting part of the collateral interests may be delinquent, in default or in
foreclosure.
Commercial real estate lending may expose a lender (and the related Mortgage-Backed Security)
to a greater risk of loss than certain other forms of lending because it typically involves making
larger loans to single borrowers or groups of related borrowers. In addition, in the case of
certain commercial mortgage loans, repayment of loans secured by commercial and multifamily
properties depends upon the ability of the related real estate project to generate income
sufficient to pay debt service, operating expenses and leasing commissions and to make necessary
repairs, tenant improvements and capital improvements, and in the case of loans that do not fully
amortize over their terms, to retain sufficient value to permit the borrower to pay off the loan at
maturity through a sale or refinancing of the mortgaged property. The net operating income from and
value of any commercial property is subject to various risks, including changes in general or local
economic conditions and/or specific industry segments; declines in real estate values; declines in
rental or occupancy rates; increases in interest rates, real estate tax rates and other operating
expenses; changes in governmental rules, regulations and fiscal policies; acts of God; terrorist
threats and attacks and social unrest and civil disturbances. In addition, certain of the mortgaged
properties securing the pools of commercial mortgage loans underlying CMBS may have a higher degree
of geographic concentration in a few states or regions. Any deterioration in the real estate market
or economy or adverse events
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in such states or regions, may increase the rate of delinquency and default experience (and as
a consequence, losses) with respect to mortgage loans related to properties in such state or
region. Pools of mortgaged properties securing the commercial mortgage loans underlying CMBS may
also have a higher degree of concentration in certain types of commercial properties. Accordingly,
such pools of mortgage loans represent higher exposure to risks particular to those types of
commercial properties. Certain pools of commercial mortgage loans underlying CMBS consist of a
fewer number of mortgage loans with outstanding balances that are larger than average. If a
mortgage pool includes mortgage loans with larger than average balances, any realized losses on
such mortgage loans could be more severe, relative to the size of the pool, than would be the case
if the aggregate balance of the pool were distributed among a larger number of mortgage loans.
Certain borrowers or affiliates thereof relating to certain of the commercial mortgage loans
underlying CMBS may have had a history of bankruptcy. Certain mortgaged properties securing the
commercial mortgage loans underlying CMBS may have been exposed to environmental conditions or
circumstances. The ratings in respect of certain of the CMBS comprising the Mortgage-Backed
Securities may have been withdrawn, reduced or placed on credit watch since issuance. In addition,
losses and/or appraisal reductions may be allocated to certain of such CMBS and certain of the
collateral or the assets underlying such collateral may be delinquent and/or may default from time
to time.
CMBS held by a Fund may be subordinated to one or more other classes of securities of the same
series for purposes of, among other things, establishing payment priorities and offsetting losses
and other shortfalls with respect to the related underlying mortgage loans. Realized losses in
respect of the mortgage loans included in the CMBS pool and trust expenses generally will be
allocated to the most subordinated class of securities of the related series. Accordingly, to the
extent any CMBS is or becomes the most subordinated class of securities of the related series, any
delinquency or default on any underlying mortgage loan may result in shortfalls, realized loss
allocations or extensions of its weighted average life and will have a more immediate and
disproportionate effect on the related CMBS than on a related more senior class of CMBS of the same
series. Further, even if a class is not the most subordinate class of securities, there can be no
assurance that the subordination offered to such class will be sufficient on any date to offset all
losses or expenses incurred by the underlying trust. CMBS are typically not guaranteed or insured,
and distributions on such CMBS generally will depend solely upon the amount and timing of payments
and other collections on the related underlying commercial mortgage loans.
Stripped Mortgage-Backed Securities. The Funds may invest in stripped mortgage-backed
securities (SMBS), which are derivative multiclass mortgage securities, issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or non-governmental originators. SMBS are
usually structured with two different classes: one that receives substantially all of the interest
payments (the interest-only, or IO and/or the high coupon rate with relatively low principal
amount, or IOette), and the other that receives substantially all of the principal payments (the
principal-only, or PO), from a pool of mortgage loans.
Certain SMBS may not be readily marketable and will be considered illiquid for purposes of a
Funds limitation on investments in illiquid securities. The Investment Adviser may determine that
SMBS which are U.S. Government Securities are liquid for purposes of a Funds limitation on
investments in illiquid securities. The market value of POs generally is unusually volatile in
response to changes in interest rates. The yields on IOs and IOettes 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. A
Funds investment in SMBS may require the Fund to sell certain of its portfolio securities to
generate sufficient cash to satisfy certain income distribution requirements.
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 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.
Each Fund (other than the High Yield Floating Rate Fund) may invest in asset-backed
securities. The Short Duration Government Fund may only invest in asset-backed securities that are
issued or guaranteed by U.S. government agencies, instrumentalities or sponsored enterprises.
Such securities are often subject to more rapid repayment than their stated maturity date would
indicate as a result of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying asset-backed securities
can be expected to accelerate. Accordingly, the Funds ability to maintain positions in such
securities will be affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable yields is subject
to generally prevailing interest rates at that time. To the extent that the Fund invests in
asset-backed securities, the values of the Funds portfolio securities will vary with changes in
market interest rates generally and the differentials in yields among various kinds of asset-backed
securities.
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Asset-backed securities present certain additional risks 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, if the issuer of an asset-backed security defaults on its
payment obligations, there is the possibility that, in some cases, the Fund will be unable to
possess and sell the underlying collateral and that the Funds recoveries on repossessed collateral
may not be available to support payments on these securities.
Recent Events Relating to the Mortgage- and Asset-Backed Securities Markets and the Overall Economy
The recent and unprecedented disruption in the residential mortgage-backed securities market
(and in particular, the subprime residential mortgage market), the broader mortgage-backed
securities market and the asset-backed securities market have resulted (and continue to result) in
downward price pressures and increasing foreclosures and defaults in residential and commercial
real estate. Concerns over inflation, energy costs, geopolitical issues, the availability and cost
of credit, the mortgage market and a depressed real estate market have contributed to increased
volatility and diminished expectations for the economy and markets going forward, and have
contributed to dramatic declines in the housing market, with falling home prices and increasing
foreclosures and unemployment, and significant asset write-downs by financial institutions. These
conditions have prompted a number of financial institutions to seek additional capital, to merge
with other institutions and, in some cases, to fail or seek bankruptcy protection. Since 2008, the
market for Mortgage-Backed Securities (as well as other asset-backed securities) has been
particularly adversely impacted by, among other factors, the failure and subsequent sale of Bear,
Stearns & Co. Inc. to J.P. Morgan Chase, the merger of Bank of America Corporation and Merrill
Lynch & Co., the insolvency of Washington Mutual Inc., the failure and subsequent bankruptcy of
Lehman Brothers Holdings, Inc., the extension of approximately $152 billion in emergency credit by
the U.S. Department of the Treasury to American International Group Inc., and, as described above,
the conservatorship and the control by the U.S. government of Freddie Mac and Fannie Mae.
Furthermore, the global markets have seen an increase in volatility due to uncertainty surrounding
the level and sustainability of sovereign debt of certain countries that are part of the European
Union, including Greece, Spain, Portugal, Ireland and Italy, as well as the sustainability of the
European Union itself. Recent concerns over the level and sustainability of the sovereign debt of
the United States have aggravated this volatility. No assurance can be made that this uncertainty
will not lead to further disruption of the credit markets in the United States or around the globe.
These events, coupled with the general global economic downturn, have resulted in a substantial
level of uncertainty in the financial markets, particularly with respect to mortgage-related
investments.
The continuation or worsening of this general economic downturn may lead to further declines
in income from, or the value of, real estate, including the real estate which secures the
Mortgage-Backed Securities held by a Fund. Additionally, a lack of credit liquidity, adjustments of
mortgages to higher rates and decreases in the value of real property have occurred and may
continue to occur or worsen, and potentially prevent borrowers from refinancing their mortgages,
which may increase the likelihood of default on their mortgage loans. These economic conditions,
coupled with high levels of real estate inventory and elevated incidence of underwater mortgages,
may also adversely affect the amount of proceeds the holder of a mortgage loan or mortgage-backed
securities (including the Mortgaged-Backed Securities in which certain Funds may invest) would
realize in the event of a foreclosure or other exercise of remedies. Moreover, even if such
Mortgage-Backed Securities are performing as anticipated, the value of such securities in the
secondary market may nevertheless fall or continue to fall as a result of deterioration in general
market conditions for such Mortgage-Backed Securities or other asset-backed or structured products.
Trading activity associated with market indices may also drive spreads on those indices wider than
spreads on Mortgage-Backed Securities, thereby resulting in a decrease in value of such
Mortgage-Backed Securities, including the Mortgage-Backed Securities owned by a Fund.
The U.S. Government, the Federal Reserve, the Treasury, the Securities and Exchange
Commission, the Federal Deposit Insurance Corporation and other governmental and regulatory bodies
have recently taken or are considering taking actions to address the financial crisis. These
actions include, but are not limited to, the enactment by the United States Congress of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21,
2010 and imposes a new regulatory framework over the U.S. financial services industry and the
consumer credit markets in general, and proposed regulations by the Securities and Exchange
Commission, which, if enacted, would significantly alter the manner in which asset-backed
securities, including Mortgage-Backed Securities, are issued. Given the broad scope, sweeping
nature, and relatively recent enactment of some of these regulatory measures, the potential impact
they could have on any of the asset-backed or Mortgage-Backed Securities held by the Funds is
unknown. There can be no assurance that these measures will not have an adverse effect on the
value or marketability of any asset-backed or Mortgage-Backed Securities held by the Funds.
Furthermore, no assurance can be made that the U.S. Government or any
B-24
U.S. regulatory body (or other authority or regulatory body) will not continue to take further
legislative or regulatory action in response to the economic crisis or otherwise, and the effect of
such actions, if taken, cannot be known.
Among its other provisions, the Dodd-Frank Act creates a liquidation framework under which the
Federal Deposit Insurance Corporation (the FDIC), may be appointed as receiver following a
systemic risk determination by the Secretary of Treasury (in consultation with the President) for
the resolution of certain nonbank financial companies and other entities, defined as covered
financial companies, and commonly referred to as systemically important entities, in the event
such a company is in default or in danger of default and the resolution of such a company under
other applicable law would have serious adverse effects on financial stability in the United
States, and also for the resolution of certain of their subsidiaries. No assurances can be given
that this new liquidation framework would not apply to the originators of asset-backed securities,
including Mortgage-Backed Securities, or their respective subsidiaries, including the issuers and
depositors of such securities, although the expectation embedded in the Dodd-Frank Act is that the
framework will be invoked only very rarely. Recent guidance from the FDIC indicates that such new
framework will largely be exercised in a manner consistent with the existing bankruptcy laws, which
is the insolvency regime that would otherwise apply to the sponsors, depositors and issuing
entities with respect to asset-backed securities, including Mortgage-Backed Securities. The
application of such liquidation framework to such entities could result in decreases or delays in
amounts paid on, and hence the market value of, the Mortgage-Backed or asset-backed securities that
are owned by a Fund.
Recently, delinquencies, defaults and losses on residential mortgage loans have increased
substantially and may continue to increase, which may affect the performance of the Mortgage-Backed
Securities in which certain Funds may invest. Mortgage loans backing non-agency Mortgage-Backed
Securities are more sensitive to economic factors that could affect the ability of borrowers to pay
their obligations under the mortgage loans backing these securities. In addition, in recent months
housing prices and appraisal values in many states and localities have declined or stopped
appreciating. A continued decline or an extended flattening of those values may result in
additional increases in delinquencies and losses on Mortgage-Backed Securities generally (including
the Mortgaged-Backed Securities that the Funds may invest in as described above).
The foregoing adverse changes in market conditions and regulatory climate may reduce the cash
flow which a Fund, to the extent it invests in Mortgage-Backed Securities or other asset-backed
securities, receives from such securities and increase the incidence and severity of credit events
and losses in respect of such securities. In addition, interest rate spreads for Mortgage-Backed
Securities have widened and are more volatile when compared to the recent past due to these adverse
changes in market conditions. In the event that interest rate spreads for Mortgage-Backed
Securities and other asset-backed securities widen following the purchase of such assets by a Fund,
the market value of such securities is likely to decline and, in the case of a substantial spread
widening, could decline by a substantial amount. Furthermore, these adverse changes in market
conditions have resulted in reduced liquidity in the market for Mortgage-Backed Securities and
other asset-backed securities (including the Mortgaged-Backed Securities and other asset-backed
securities in which certain Funds may invest) and increasing unwillingness by banks, financial
institutions and investors to extend credit to servicers, originators and other participants in the
market for Mortgage-Backed and other asset-backed securities. As a result, the liquidity and/or the
market value of any Mortgage-Backed or asset-backed securities that are owned by a Fund may
experience further declines after they are purchased by a Fund.
Collateralized Debt Obligations
The Core Fixed Income Fund, Core Plus Fixed Income Fund, Global Income Fund, Inflation
Protected Securities Fund, High Yield Fund, High Yield Floating Rate Fund, Strategic Income Fund,
Investment Grade Credit Fund and U.S. Mortgages Fund may invest in collateralized debt obligations
(CDOs), which include collateralized bond obligations (CBOs), collateralized loan obligations
(CLOs), and other similarly structured securities. CBOs and CLOs are types of asset-backed
securities. A CBO is a trust which is backed by a diversified pool of high risk, below investment
grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which
may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and
subordinate corporate loans, including loans that may be rated below investment grade or equivalent
unrated loans. CDOs may charge management fees and administrative expenses.
For both CBOs and CLOs, the cash flows from the trust are split into two or more portions,
called tranches, varying in risk and yield. The riskiest portion is the equity tranche which
bears the bulk of defaults from the bonds or loans in the trust and serves to protect the other,
more senior tranches from default in all but the most severe circumstances. Since it is partially
protected from defaults, a senior tranche from a CBO trust or CLO trust typically has higher
ratings and lower yields than its underlying securities, and can be rated investment grade. Despite
the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due
to actual defaults, increased sensitivity to defaults due to collateral default and disappearance
of protecting tranches, market anticipation of defaults, as well as aversion to CBO or CLO
securities as a class.
The risks of an investment in a CDO depend largely on the type of the collateral securities
and the class of the CDO in which a Fund invests. Normally, CBOs, CLOs and CDOs are privately
offered and sold, and thus, are not registered under the securities laws.
B-25
As a result, investments in CDOs may be characterized by a Fund as illiquid securities.
However, an active dealer market may exist for CDOs that qualify under the Rule 144A safe harbor
from the registration requirements of the Securities Act for resales of certain securities to
qualified institutional buyers, and such CDOs may be characterized by the Fund as liquid
securities. In addition to the normal risks associated with fixed income securities discussed
elsewhere in this SAI and the Funds Prospectuses (e.g., interest rate risk and default risk), CDOs
carry additional risks including, but not limited to, the risk that: (i) distributions from
collateral securities may not be adequate to make interest or other payments; (ii) the quality of
the collateral may decline in value or default; (iii) a Fund may invest in CDOs that are
subordinate to other classes; and (iv) the complex structure of the security may not be fully
understood at the time of investment and may produce disputes with the issuer or unexpected
investment results.
Zero Coupon, Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds
Each Fund may invest in zero coupon, deferred interest, pay-in-kind (PIK) and capital
appreciation bonds. Zero coupon, deferred interest and capital appreciation bonds are debt
securities issued or sold at a discount from their face value and which do not entitle the holder
to any periodic payment of interest prior to maturity or a specified date. The original issue
discount varies depending on the time remaining until maturity or cash payment date, prevailing
interest rates, the liquidity of the security and the perceived credit quality of the issuer. These
securities also may take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves or receipts or certificates representing interests in such
stripped debt obligations or coupons. The market prices of zero coupon, deferred interest, capital
appreciation bonds and PIK securities generally are more volatile than the market prices of
interest bearing securities and are likely to respond to a greater degree to changes in interest
rates than interest bearing securities having similar maturities and credit quality.
PIK securities may be debt obligations or preferred shares that provide the issuer with the
option of paying interest or dividends on such obligations in cash or in the form of additional
securities rather than cash. Similar to zero coupon bonds and deferred interest bonds, PIK
securities are designed to give an issuer flexibility in managing cash flow. PIK securities that
are debt securities can be either senior or subordinated debt and generally trade flat (i.e.,
without accrued interest). The trading price of PIK debt securities generally reflects the market
value of the underlying debt plus an amount representing accrued interest since the last interest
payment.
Zero coupon, deferred interest, capital appreciation and PIK securities involve the additional
risk that, unlike securities that periodically pay interest to maturity, a Fund will realize no
cash until a specified future payment date unless a portion of such securities is sold and, if the
issuer of such securities defaults, a Fund may obtain no return at all on its investment. In
addition, even though such securities do not provide for the payment of current interest in cash,
the Funds are nonetheless required to accrue income on such investments for each taxable year and
generally are required to distribute such accrued amounts (net of deductible expenses, if any) to
avoid being subject to tax. Because no cash is generally received at the time of the accrual, a
Fund may be required to liquidate other portfolio securities to obtain sufficient cash to satisfy
federal tax distribution requirements applicable to the Fund. A portion of the discount with
respect to stripped tax exempt securities or their coupons may be taxable. See TAXATION.
Floating Rate Loans and Other Variable and Floating Rate Securities
The interest rates payable on certain securities in which a Fund may invest are not fixed and
may fluctuate based upon changes in market rates. Variable and floating rate obligations are debt
instruments issued by companies or other entities with interest rates that reset periodically
(typically, daily, monthly, quarterly, or semi-annually) in response to changes in the market rate
of interest on which the interest rate is based. Moreover, 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. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest rate levels, but
they may decline in value if their interest rates do not rise as much, or as quickly, as interest
rates in general. Conversely, floating rate securities will not generally increase in value if
interest rates decline.
Floating rate loans consist generally of obligations of companies or other entities (e.g., a
U.S. or foreign bank, insurance company or finance company) (collectively, borrowers) incurred
for a variety of purposes. Floating rate loans may be acquired by direct investment as a lender or
as an assignment of the portion of a floating rate loan previously attributable to a different
lender. The Investment Grade Credit Fund, High Yield Fund, High Yield Floating Rate Fund,
Strategic Income Fund, Emerging Markets Debt Fund, and Local Emerging Markets Debt Fund may also
invest in floating rate loans through a participation interest (which represents a fractional
interest in a floating rate loan) issued by a lender or other financial institution.
Floating rate loans may be obligations of borrowers who are highly leveraged. Floating rate
loans may be structured to include both term loans, which are generally fully funded at the time of
the making of the loan, and revolving credit facilities, which would require additional investments
upon the borrowers demand. A revolving credit facility may require a purchaser to increase its
investment in a
B-26
floating rate loan at a time when it would not otherwise have done so, even if the borrowers
condition makes it unlikely that the amount will ever be repaid.
A floating rate loan offered as part of the original lending syndicate typically is purchased
at par value. As part of the original lending syndicate, a purchaser generally earns a yield equal
to the stated interest rate. In addition, members of the original syndicate typically are paid a
commitment fee. In secondary market trading, floating rate loans may be purchased or sold above,
at, or below par, which can result in a yield that is below, equal to, or above the stated interest
rate, respectively. At certain times when reduced opportunities exist for investing in new
syndicated floating rate loans, floating rate loans may be available only through the secondary
market. There can be no assurance that an adequate supply of floating rate loans will be available
for purchase.
Historically, floating rate loans have not been registered with the SEC or any state
securities commission or listed on any securities exchange. As a result, the amount of public
information available about a specific floating rate loan historically has been less extensive than
if the floating rate loan were registered or exchange-traded. As a result, no active market may
exist for some floating rate loans.
Purchasers of floating rate loans and other forms of debt obligations depend primarily upon
the creditworthiness of the borrower for payment of interest and repayment of principal. If
scheduled interest or principal payments are not made, the value of the obligation may be adversely
affected. Floating rate loans and other debt obligations that are fully secured provide more
protections than unsecured obligations in the event of failure to make scheduled interest or
principal payments. Indebtedness of borrowers whose creditworthiness is poor involves substantially
greater risks and may be highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the amount owed. Some
floating rate loans and other debt obligations are not rated by any NRSRO. In connection with the
restructuring of a floating rate loan or other debt obligation outside of bankruptcy court in a
negotiated work-out or in the context of bankruptcy proceedings, equity securities or junior debt
obligations may be received in exchange for all or a portion of an interest in the obligation.
From time to time, Goldman Sachs and its affiliates may borrow money from various banks in
connection with their business activities. These banks also may sell floating rate loans to the
Funds or acquire floating rate loans from the Funds, or may be intermediate participants with
respect to floating rate loans owned by the Funds. These banks also may act as agents for floating
rate loans that the Funds own.
Agents. Floating rate loans typically are originated, negotiated, and structured by a bank,
insurance company, finance company, or other financial institution (the agent) for a lending
syndicate of financial institutions. The borrower and the lender or lending syndicate enter into a
loan agreement. In addition, an institution (typically, but not always, the agent) holds any
collateral on behalf of the lenders.
In a typical floating rate loan, the agent administers the terms of the loan agreement and is
responsible for the collection of principal and interest and fee payments from the borrower and the
apportionment of these payments to all lenders that are parties to the loan agreement. Purchasers
will rely on the agent to use appropriate creditor remedies against the borrower. Typically, under
loan agreements, the agent is given broad discretion in monitoring the borrowers performance and
is obligated to use the same care it would use in the management of its own property. Upon an event
of default, the agent typically will enforce the loan agreement after instruction from the lenders.
The borrower compensates the agent for these services. This compensation may include special fees
paid on structuring and funding the floating rate loan and other fees paid on a continuing basis.
The typical practice of an agent or a lender in relying exclusively or primarily on reports from
the borrower may involve a risk of fraud by the borrower.
If an agent becomes insolvent, or has a receiver, conservator, or similar official appointed
for it by the appropriate bank or other regulatory authority, or becomes a debtor in a bankruptcy
proceeding, the agents appointment may be terminated, and a successor agent would be appointed. If
an appropriate regulator or court determines that assets held by the agent for the benefit of the
purchasers of floating rate loans are subject to the claims of the agents general or secured
creditors, the purchasers might incur certain costs and delays in realizing payment on a floating
rate loan or suffer a loss of principal and/or interest. Furthermore, in the event of the
borrowers bankruptcy or insolvency, the borrowers obligation to repay a floating rate loan may be
subject to certain defenses that the borrower can assert as a result of improper conduct by the
agent.
Assignments. The Investment Grade Credit Fund, High Yield Fund, High Yield Floating Rate Fund,
Strategic Income Fund, Emerging Markets Debt Fund and Local Emerging Markets Debt Fund may purchase
an assignment of a portion of a floating rate loan from an agent or from another group of
investors. The purchase of an assignment typically succeeds to all the rights and obligations under
the original loan agreement; however, assignments may also be arranged through private negotiations
between potential
B-27
assignees and potential assignors, and the rights and obligations acquired by the purchaser of an
assignment may differ from, and be more limited than, those held by the assigning agent or
investor.
Loan Participation Interests. Purchasers of participation interests do not have any direct
contractual relationship with the borrower. Purchasers rely on the lender who sold the
participation interest not only for the enforcement of the purchasers rights against the borrower
but also for the receipt and processing of payments due under the floating rate loan. For
additional information, see the section Loans and Loan Participations below.
Liquidity. Floating rate loans may be transferable among financial institutions, but may not
have the liquidity of conventional debt securities and are often subject to legal or contractual
restrictions on resale. Floating rate loans are not currently listed on any securities exchange or
automatic quotation system. As a result, no active market may exist for some floating rate loans.
To the extent a secondary market exists for other floating rate loans, such market may be subject
to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods. The
lack of a highly liquid secondary market for floating rate loans may have an adverse affect on the
value of such loans and may make it more difficult to value the loans for purposes of calculating
their respective net asset value.
Collateral. Most floating rate loans are secured by specific collateral of the borrower and
are senior to most other securities or obligations of the borrower. The collateral typically has a
market value, at the time the floating rate loan is made, that equals or exceeds the principal
amount of the floating rate loan. The value of the collateral may decline, be insufficient to meet
the obligations of the borrower, or be difficult to liquidate. As a result, a floating rate loan
may not be fully collateralized and can decline significantly in value.
Floating rate loan collateral may consist of various types of assets or interests, including
working capital assets, such as accounts receivable or inventory; tangible or intangible assets; or
assets or other types of guarantees of affiliates of the borrower.
Generally, floating rate loans are secured unless (i) the purchasers security interest in the
collateral is invalidated for any reason by a court, or (ii) the collateral is fully released with
the consent of the agent bank and lenders or under the terms of a loan agreement as the
creditworthiness of the borrower improves. Collateral impairment is the risk that the value of the
collateral for a floating rate loan will be insufficient in the event that a borrower defaults.
Although the terms of a floating rate loan generally require that the collateral at issuance have a
value at least equal to 100% of the amount of such floating rate loan, the value of the collateral
may decline subsequent to the purchase of a floating rate loan. In most loan agreements there is no
formal requirement to pledge additional collateral. There is no guarantee that the sale of
collateral would allow a borrower to meet its obligations should the borrower be unable to repay
principal or pay interest or that the collateral could be sold quickly or easily.
In addition, most borrowers pay their debts from the cash flow they generate. If the
borrowers cash flow is insufficient to pay its debts as they come due, the borrower may seek to
restructure its debts rather than sell collateral.
Borrowers may try to restructure their debts by filing for protection under the federal
bankruptcy laws or negotiating a work-out. If a borrower becomes involved in bankruptcy
proceedings, access to the collateral may be limited by bankruptcy and other laws. In the event
that a court decides that access to the collateral is limited or void, it is unlikely that
purchasers could recover the full amount of the principal and interest due.
There may be temporary periods when the principal asset held by a borrower is the stock of a
related company, which may not legally be pledged to secure a floating rate loan. On occasions when
such stock cannot be pledged, the floating rate loan will be temporarily unsecured until the stock
can be pledged or is exchanged for, or replaced by, other assets.
Some floating rate loans are unsecured. The claims of holders under unsecured loans are
subordinated to claims of creditors holding secured indebtedness and possibly also to claims of
other creditors holding unsecured debt. Unsecured loans have a greater risk of default than secured
loans, particularly during periods of deteriorating economic conditions. If the borrower defaults
on an unsecured floating rate loan, there is no specific collateral on which the purchaser can
foreclose.
Floating Interest Rates. The rate of interest payable on floating rate loans and other
floating or variable rate obligations is the sum of a base lending rate plus a specified spread.
Base lending rates are generally the London Interbank Offered Rate (LIBOR), the Prime Rate of a
designated U.S. bank, the Federal Funds Rate, or another base lending rate used by commercial
lenders. A borrower usually has the right to select the base lending rate and to change the base
lending rate at specified intervals. The applicable spread may be fixed at time of issuance or may
adjust upward or downward to reflect changes in credit quality of the borrower.
B-28
The interest rate on LIBOR-based floating rate loans/obligations is reset periodically at
intervals ranging from 30 to 180 days, while the interest rate on Prime Rate- or Federal Funds
Rate-based floating rate loans/obligations floats daily as those rates change. Investment in
floating rate loans/obligations with longer interest rate reset periods can increase fluctuations
in the floating rate loans values when interest rates change.
The yield on a floating rate loan/obligation will primarily depend on the terms of the
underlying floating rate loan/obligation and the base lending rate chosen by the borrower. The
relationship between LIBOR, the Prime Rate, and the Federal Funds Rate will vary as market
conditions change.
Maturity. Floating rate loans typically will have a stated term of five to nine years.
However, because floating rate loans are frequently prepaid, their average maturity is expected to
be two to three years. The degree to which borrowers prepay floating rate loans, whether as a
contractual requirement or at their election, may be affected by general business conditions, the
borrowers financial condition, and competitive conditions among lenders. Prepayments cannot be
predicted with accuracy. Prepayments of principal to the purchaser of a floating rate loan may
result in the principals being reinvested in floating rate loans with lower yields.
Supply of Floating Rate Loans. The legislation of state or federal regulators that regulate
certain financial institutions may impose additional requirements or restrictions on the ability of
such institutions to make loans, particularly with respect to highly leveraged transactions. The
supply of floating rate loans may be limited from time to time due to a lack of sellers in the
market for existing floating rate loans or the number of new floating rate loans currently being
issued. As a result, the floating rate loans available for purchase may be lower quality or higher
priced.
Restrictive Covenants. A borrower must comply with various restrictive covenants contained in
the loan agreement. In addition to requiring the scheduled payment of interest and principal, these
covenants may include restrictions on dividend payments and other distributions to stockholders,
provisions requiring the borrower to maintain specific financial ratios, and limits on total debt.
The loan agreement may also contain a covenant requiring the borrower to prepay the floating rate
loan with any free cash flow. A breach of a covenant that is not waived by the agent (or by the
lenders directly) is normally an event of default, which provides the agent or the lenders the
right to call the outstanding floating rate loan.
Fees. Purchasers of floating rate loans may receive and/or pay certain fees. These fees are in
addition to interest payments received and may include facility fees, commitment fees, commissions,
and prepayment penalty fees. When a purchaser buys a floating rate loan, it may receive a facility
fee; and when it sells a floating rate loan, it may pay a facility fee. A purchaser may receive a
commitment fee based on the undrawn portion of the underlying line of credit portion of a floating
rate loan or a prepayment penalty fee on the prepayment of a floating rate loan. A purchaser may
also receive other fees, including covenant waiver fees and covenant modification fees.
Other Types of Floating Rate Debt Obligations. Floating rate debt obligations include other
forms of indebtedness of borrowers such as notes and bonds, obligations with fixed rate interest
payments in conjunction with a right to receive floating rate interest payments, and shares of
other investment companies. These instruments are generally subject to the same risks as floating
rate loans but are often more widely issued and traded.
Inverse Floating Rate Debt Obligations. Each Fund (other than the Enhanced Income Fund,
Emerging Markets Debt Fund, and Local Emerging Markets Debt Fund) may invest in leveraged inverse
floating rate debt instruments (inverse floaters), including leveraged inverse floaters. The
interest rate on inverse floaters resets in the opposite direction from the market rate of interest
to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to
the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher the degree of leverage 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 each Funds limitation on illiquid investments.
Loans and Loan Participations
The Investment Grade Credit Fund, High Yield Fund, High Yield Floating Rate Fund, Core Plus
Fixed Income Fund, Strategic Income Fund, Emerging Markets Debt Fund, and Local Emerging Markets
Debt Fund may invest in loans and loan participations. A loan participation is an interest in a
loan to a U.S. or foreign company or other borrower which is administered and sold by a financial
intermediary. In a typical corporate loan syndication, a number of lenders, usually banks
(co-lenders), lend a corporate borrower a
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specified sum pursuant to the terms and conditions of a loan agreement. One of the co-lenders
usually agrees to act as the agent bank with respect to the loan.
Participation interests acquired by the Funds may take the form of a direct or co-lending
relationship with the corporate borrower, an assignment of an interest in the loan by a co-lender
or another participant, or a participation in the sellers share of the loan. The participation by
a Fund in a lenders portion of a loan typically will result in the Fund having a contractual
relationship only with such lender, not with the business entity borrowing the funds (the
Borrower). As a result, the Fund may have the right to receive payments of principal, interest
and any fees to which it is entitled only from the lender selling the participation and only upon
receipt by such lender of payments from the Borrower. Such indebtedness may be secured or
unsecured. Under the terms of the loan participation, a Fund may be regarded as a creditor of the
agent bank (rather than of the underlying corporate borrower), so that the Fund may also be subject
to the risk that the agent bank may become insolvent. Loan participations typically represent
direct participations in a loan to a Borrower, and generally are offered by banks or other
financial institutions or lending syndicates. The secondary market, if any, for these loan
participations may be limited and loan participations purchased by a Fund may be regarded as
illiquid.
When a Fund acts as co-lender in connection with a participation interest or when such Fund
acquires certain participation interests, that Fund may have direct recourse against the borrower
if the borrower fails to pay scheduled principal and interest. In cases where a Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit remedies against the
borrower. In these cases, a Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the bankruptcy or insolvency of
the corporate borrower, a loan participation may be subject to certain defenses by the borrower as
a result of improper conduct by the agent bank.
For purposes of certain investment limitations pertaining to diversification of a Funds
portfolio investments, the issuer of a loan participation will be the underlying borrower. However,
in cases where a Fund does not have recourse directly against the borrower, both the borrower and
each agent bank and co-lender interposed between the Fund and the borrower will be deemed issuers
of a loan participation.
Senior Loans. The Investment Grade Credit Fund, High Yield Fund, High Yield Floating
Rate Fund, Core Plus Fixed Income Fund, Strategic Income Fund, Emerging Markets Debt Fund and Local
Emerging Markets Debt Fund may invest in Senior Loans. Senior Loans hold the most senior position
in the capital structure of a Borrower, are typically secured with specific collateral and have a
claim on the assets and/or stock of the Borrower that is senior to that held by subordinated debt
holders and stockholders of the Borrower. The proceeds of Senior Loans primarily are used to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases,
refinancings and to finance internal growth and for other corporate purposes. Senior Loans
typically have rates of interest which are redetermined daily, monthly, quarterly or semi-annually
by reference to a base lending rate, plus a premium or credit spread. These base lending rates are
primarily the LIBOR and secondarily the prime rate offered by one or more major U.S. banks and the
certificate of deposit rate or other base lending rates used by commercial lenders.
Senior Loans typically have a stated term of between five and nine years, and have rates of
interest which typically are redetermined daily, monthly, quarterly or semi-annually. Longer
interest rate reset periods would generally increase fluctuations in a Funds net asset value as a
result of changes in market interest rates. The Funds are not subject to any restrictions with
respect to the maturity of Senior Loans held in their portfolios. As a result, as short-term
interest rates increase, interest payable to the Funds from their investments in Senior Loans
should increase, and as short-term interest rates decrease, interest payable to the Funds from
their investments in Senior Loans should decrease. Because of prepayments, the Investment Adviser
expects the average life of the Senior Loans in which each of the Funds invest to be shorter than
the stated maturity.
Senior Loans are subject to the risk of non-payment of scheduled interest or principal. Such
non-payment would result in a reduction of income to a Fund, a reduction in the value of the
investment and a potential decrease in the Funds net asset value. There can be no assurance that
the liquidation of any collateral securing a Senior Loan would satisfy the Borrowers obligation in
the event of non-payment of scheduled interest or principal payments, or that such collateral could
be readily liquidated. In the event of bankruptcy of a Borrower, the Funds could experience delays
or limitations with respect to their ability to realize the benefits of the collateral securing a
Senior Loan. The collateral securing a Senior Loan may lose all or substantially all of its value
in the event of the bankruptcy of a Borrower. Some Senior Loans are subject to the risk that a
court, pursuant to fraudulent conveyance or other similar laws, could subordinate such Senior Loans
to presently existing or future indebtedness of the Borrower or take other action detrimental to
the holders of Senior Loans including, in certain circumstances, invalidating such Senior Loans or
causing interest previously paid to be refunded to the Borrower. If interest were required to be
refunded, it could negatively affect the a Funds performance.
B-30
Many Senior Loans in which a Fund will invest may not be rated by a rating agency, will not be
registered with the SEC or any state securities commission, and will not be listed on any national
securities exchange. The amount of public information available with respect to Senior Loans will
generally be less extensive than that available for registered or exchange-listed securities. In
evaluating the creditworthiness of Borrowers, the Investment Adviser will consider, and may rely in
part, on analyses performed by others. Borrowers may have outstanding debt obligations that are
rated below investment grade by a rating agency. Many of the Senior Loans in which a Fund will
invest will have been assigned below investment grade ratings by independent rating agencies. In
the event Senior Loans are not rated, they are likely to be the equivalent of below investment
grade quality. Because of the protective features of Senior Loans, the Investment Adviser believes
that Senior Loans tend to have more favorable loss recovery rates as compared to more junior types
of below investment grade debt obligations. The Investment Adviser does not view ratings as the
determinative factor in their investment decisions and rely more upon their credit analysis
abilities than upon ratings.
No active trading market may exist for some Senior Loans, and some loans may be subject to
restrictions on resale. A secondary market may be subject to irregular trading activity, wide
bid/ask spreads and extended trade settlement periods, which may impair the ability to realize full
value and thus cause a material decline in the net asset value of a Fund. In addition, a Fund may
not be able to readily dispose of its Senior Loans at prices that approximate those at which the
Fund could sell such loans if they were more widely-traded and, as a result of such illiquidity, a
Fund may have to sell other investments or engage in borrowing transactions if necessary to raise
cash to meet its obligations. During periods of limited supply and liquidity of Senior Loans, a
Funds yield may be lower.
When interest rates decline, the value of a Fund invested in fixed rate obligations can be
expected to rise. Conversely, when interest rates rise, the value of a Fund invested in fixed rate
obligations can be expected to decline. Although changes in prevailing interest rates can be
expected to cause some fluctuations in the value of Senior Loans (due to the fact that floating
rates on Senior Loans only reset periodically), the value of Senior Loans is substantially less
sensitive to changes in market interest rates than fixed rate instruments. As a result, to the
extent a Fund invests in floating-rate Senior Loans, the Funds portfolio may be less volatile and
less sensitive to changes in market interest rates than if the Fund invested in fixed rate
obligations. Similarly, a sudden and significant increase in market interest rates may cause a
decline in the value of these investments and in a Funds net asset value. Other factors
(including, but not limited to, rating downgrades, credit deterioration, a large downward movement
in stock prices, a disparity in supply and demand of certain securities or market conditions that
reduce liquidity) can reduce the value of Senior Loans and other debt obligations, impairing the
net asset value of the Funds.
A Fund may purchase and retain in its portfolio a Senior Loan where the Borrower has
experienced, or may be perceived to be likely to experience, credit problems, including involvement
in or recent emergence from bankruptcy reorganization proceedings or other forms of debt
restructuring. Such investments may provide opportunities for enhanced income as well as capital
appreciation, although they also will be subject to greater risk of loss. At times, in connection
with the restructuring of a Senior Loan either outside of bankruptcy court or in the context of
bankruptcy court proceedings, a Fund may determine or be required to accept equity securities or
junior credit securities in exchange for all or a portion of a Senior Loan.
The Funds may also purchase Senior Loans on a direct assignment basis. If a Fund purchases a
Senior Loan on direct assignment, they typically succeed to all the rights and obligations under
the loan agreement of the assigning lender and become a lender under the loan agreement with the
same rights and obligations as the assigning lender. Investments in Senior Loans on a direct
assignment basis may involve additional risks to the Funds. For example, if such loan is
foreclosed, the Fund could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral.
Loans and other types of direct indebtedness may not be readily marketable and may be subject
to restrictions on resale. In some cases, negotiations involved in disposing of indebtedness may
require weeks to complete. Consequently, some indebtedness may be difficult or impossible to
dispose of readily at what the Investment Adviser believes to be a fair price. In addition,
valuation of illiquid indebtedness involves a greater degree of judgment in determining the net
asset value of the Funds than if that valuation were based on available market quotations. At the
same time, some loan interests are traded among certain financial institutions and accordingly may
be deemed liquid. As the market for different types of indebtedness develops, the liquidity of
these instruments is expected to improve. Each of the Funds currently intends to invest only in
indebtedness for which, in the view of the Investment Adviser, there is a readily available market
at the time of the investment. To the extent a readily available market ceases to exist for a
particular investment, such investment would be treated as illiquid for purposes of a Funds
limitations on illiquid investments. Investments in loans and loan participations are considered
to be debt obligations for purposes of a Funds investment restriction relating to the lending of
funds or assets by the Fund.
Second Lien Loans. Each of the Investment Grade Credit Fund, High Yield Fund, High Yield
Floating Rate Fund, Core Plus Fixed Income Fund, Strategic Income Fund, Emerging Markets Debt Fund
and Local Emerging Markets Debt Fund may invest in Second Lien Loans, which have the same
characteristics as Senior Loans except that such loans are second in lien property rather than
first. Second Lien Loans typically have adjustable floating rate interest payments. Accordingly,
the risks associated with Second Lien
B-31
Loans are higher than the risk of loans with first priority over the collateral. In the event
of default on a Second Lien Loan, the first priority lien holder has first claim to the underlying
collateral of the loan. It is possible that no collateral value would remain for the second
priority lien holder and therefore result in a loss of investment to a Fund.
This risk is generally higher for subordinated unsecured loans or debt, which are not backed
by a security interest in any specific collateral. Second Lien Loans generally have greater price
volatility than Senior Loans and may be less liquid. There is also a possibility that originators
will not be able to sell participations in Second Lien Loans, which would create greater credit
risk exposure for the holders of such loans. Second Lien Loans share the same risks as other below
investment grade securities.
Distressed Debt
The High Yield Floating Rate Fund, High Yield Fund, Emerging Markets Debt Fund and Local
Emerging Markets Debt Fund may invest in the securities and other obligations of financially
troubled companies, including stressed, distressed and bankrupt issuers and debt obligations that
are in covenant or payment default. Such investments generally trade significantly below par and
are considered speculative. The repayment of defaulted obligations is subject to significant
uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy
proceedings, during which the issuer might not make any interest or other payments. Typically such
workout or bankruptcy proceedings result in only partial recovery of cash payments or an exchange
of the defaulted obligation for other debt or equity securities of the issuer or its affiliates,
which may in turn be illiquid or speculative.
In any investment involving stressed and distressed debt obligations, there exists the risk
that the transaction involving such debt obligations will be unsuccessful, take considerable time
or will result in a distribution of cash or a new security or obligation in exchange for the
stressed and distressed debt obligations, the value of which may be less than a Funds purchase
price of such debt obligations. Furthermore, if an anticipated transaction does not occur, a Fund
may be required to sell its investment at a loss. There are a number of significant risks inherent
in the bankruptcy process. Many events in a bankruptcy are the product of contested matters and
adversary proceedings and are beyond the control of the creditors. A bankruptcy filing by an issuer
may adversely and permanently affect the issuer, and if the proceeding is converted to a
liquidation, the value of the issuer may not equal the liquidation value that was believed to exist
at the time of the investment. The duration of a bankruptcy proceeding is difficult to predict, and
a creditors return on investment can be adversely affected by delays until the plan of
reorganization ultimately becomes effective. The administrative costs in connection with a
bankruptcy proceeding are frequently high and would be paid out of the debtors estate prior to any
return to creditors. Because the standards for classification of claims under bankruptcy law are
vague, there exists the risk that a Funds influence with respect to the class of securities or
other obligations it owns can be lost by increases in the number and amount of claims in the same
class or by different classification and treatment. In the early stages of the bankruptcy process
it is often difficult to estimate the extent of, or even to identify, any contingent claims that
might be made. In addition, certain claims that have priority by law (for example, claims for
taxes) may be substantial.
Preferred Stock, Warrants and Stock Purchase Rights
The Enhanced Income, Core Fixed Income, Core Plus Fixed Income, Investment Grade Credit, High
Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local Emerging Markets
Debt, and Inflation Protected Securities Funds may invest in preferred stock and the Enhanced
Income, High Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local
Emerging Markets Debt, and Inflation Protected Securities Funds may invest in warrants and stock
purchase rights (rights). Preferred stocks are securities that represent an ownership interest
providing the holder with claims on the issuers earnings and assets before common stock owners but
after bond owners. Unlike debt securities, the obligations of an issuer of preferred stock,
including dividend and other payment obligations, may not typically be accelerated by the holders
of such preferred stock on the occurrence of an event of default (such as a covenant default or
filing of a bankruptcy petition) or other non-compliance by the issuer with the terms of the
preferred stock. Often, however, on the occurrence of any such event of default or non-compliance
by the issuer, preferred stockholders will be entitled to gain representation on the issuers board
of directors or increase their existing board representation. In addition, preferred stockholders
may be granted voting rights with respect to certain issues on the occurrence of any event of
default.
Warrants and other rights are options to buy a stated number of shares of common stock at a
specified price at any time during the life of the warrant. The holders of warrants and rights have
no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.
Corporate Debt Obligations
Each Fund (other than the Short Duration Government Fund) may invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers. Corporate debt
obligations include bonds, notes, debentures and other obligations of
B-32
corporations to pay interest and repay principal. Corporate debt obligations are subject to
the risk of an issuers 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.
Corporate Debt Obligations rated BBB or Baa are considered medium grade obligations with
speculative characteristics, and adverse economic conditions or changing circumstances may weaken
their issuers capacity to pay interest and repay principal. Medium to lower rated and comparable
non-rated securities tend to offer higher yields than higher rated securities with the same
maturities because the historical financial condition of the issuers of such securities may not
have been as strong as that of other issuers. The price of corporate debt obligations will
generally fluctuate in response to fluctuations in supply and demand for similarly rated
securities. In addition, the price of corporate debt obligations will generally fluctuate in
response to interest rate levels. 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
Funds net asset value. Because 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 Investment Adviser will attempt to reduce these risks through
portfolio diversification and by analysis of each issuer and its ability to make timely payments of
income and principal, as well as broad economic trends and corporate developments.
The Investment Adviser employs its own credit research and analysis, which includes a study of
an issuers existing debt, capital structure, ability to service debt and to pay dividends,
sensitivity to economic conditions, operating history and current earnings trend. The Investment
Adviser continually monitors the investments in a Funds portfolio and evaluates whether to dispose
of or to retain corporate debt obligations whose credit ratings or credit quality may have changed.
If after its purchase, a portfolio security is assigned a lower rating or ceases to be rated, a
Fund may continue to hold the security if the Investment Adviser believes it is in the best
interest of the Fund and its shareholders.
Commercial Paper and Other Short-Term Corporate Obligations
Each Fund (other than the Short Duration Government Fund) may invest in commercial paper and
other short-term obligations payable in U.S. dollars and issued or guaranteed by U.S. corporations,
non-U.S. corporations or other entities. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies, corporations and finance
companies.
Trust Preferred Securities
Each Fund (other than the Short Duration Government Fund) may invest in trust preferred
securities. A trust preferred or capital security is a long dated bond (for example 30 years) with
preferred features. The preferred features are that payment of interest can be deferred for a
specified period without initiating a default event. From a bondholders viewpoint, the securities
are senior in claim to standard preferred but are junior to other bondholders. From the issuers
viewpoint, the securities are attractive because their interest is deductible for tax purposes like
other types of debt instruments.
High Yield Securities
Core Plus Fixed Income, High Yield Municipal, High Yield, High Yield Floating Rate, Strategic
Income, Emerging Markets Debt, Local Emerging Markets Debt, and Inflation Protected Securities
Funds may invest in bonds rated BB or below by Standard & Poors or Ba or below by Moodys (or
comparable rated and unrated securities). The other funds in this SAI may not invest directly in
high yield securities, but may hold securities that are subsequently downgraded to below investment
grade. These bonds are commonly referred to as junk bonds, are non-investment grade, and are
considered speculative. The ability of issuers of high yield securities to make principal and
interest payments may be questionable because such issuers are often less creditworthy or are
highly leveraged. High yield securities are also issued by governmental issuers that may have
difficulty in making all scheduled interest and principal payments. In some cases, high yield
securities may be highly speculative, have poor prospects for reaching investment grade standing
and be in default. As a result, investment in such bonds will entail greater risks than those
associated with investment in investment grade bonds (i.e., bonds rated AAA, AA, A or BBB by
Standard & Poors or Aaa, Aa, A or Baa by Moodys). Analysis of the creditworthiness of issuers of
high yield securities may be more complex than for issuers of higher quality debt securities, and
the ability of a Fund to achieve its investment objective may, to the extent of its investments in
high yield securities, be more dependent upon such creditworthiness analysis than would be the case
if the Fund were investing in higher quality securities. See Appendix A for a description of the
corporate bond and preferred stock ratings by Standard & Poors, Moodys, Fitch, Inc. (Fitch) and
Dominion Bond Rating Service Limited (DBRS).
B-33
The market values of high yield securities tend to reflect individual corporate or municipal
developments to a greater extent than do those of higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Issuers of high yield securities that are
highly leveraged may not be able to make use of more traditional methods of financing. Their
ability to service debt obligations may be more adversely affected by economic downturns or their
inability to meet specific projected business forecasts than would be the case for issuers of high
rated securities. Negative publicity about the junk bond market and investor perceptions regarding
lower-rated securities, whether or not based on fundamental analysis, may depress the prices for
such high yield 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 high yield securities is the supply and demand for similarly rated securities. In
addition, the prices of investments 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 Funds net asset value.
The risk of loss from default for the holders of high yield securities is significantly
greater than is the case for holders of other debt securities because such high yield securities
are generally unsecured and are often subordinated to the rights of other creditors of the issuers
of such securities. Investment by the Funds in already defaulted securities poses an additional
risk of loss should nonpayment of principal and interest continue in respect of such securities.
Even if such securities are held to maturity, recovery by a Fund of its initial investment and any
anticipated income or appreciation is uncertain. In addition, a Fund may incur additional expenses
to the extent that it is required to seek recovery relating to the default in the payment of
principal or interest on such securities or otherwise protect its interests. A Fund may be required
to liquidate other portfolio securities to satisfy annual distribution obligations of the Fund in
respect of accrued interest income on securities which are subsequently written off, even though
the Fund has not received any cash payments of such interest.
The secondary market for high yield securities is concentrated in relatively few markets and
is dominated by institutional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securities may not by as liquid
as and may be more volatile than the secondary market for higher-rated securities. In addition, the
trading volume for high yield securities is generally lower than that of higher rated securities
and the secondary market for high yield securities could contract under adverse market or economic
conditions independent of any specific adverse changes in the condition of a particular issuer.
These factors may have an adverse effect on the ability of the Funds to dispose of particular
portfolio investments when needed to meet their redemption requests or other liquidity needs. The
Investment Adviser could find it difficult to sell these investments or may be able to sell the
investments only at prices lower than if such investments were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances, may be less than the
prices used in calculating the net asset value of the Funds. A less liquid secondary market also
may make it more difficult for the Funds to obtain precise valuations of the high yield securities
in their portfolios.
The adoption of new legislation could adversely affect the secondary market for high yield
securities and the financial condition of issuers of these securities. The form of any future
legislation, and the probability of such legislation being enacted, is uncertain.
Non-investment grade or high yield securities also present risks based on payment
expectations. High yield securities frequently contain call or buy-back features which permit the
issuer to call or repurchase the security from its holder. If an issuer exercises such a call
option and redeems the security, the Funds may have to replace such security with a lower-yielding
security, resulting in a decreased return for investors. In addition, if a Fund experiences net
redemptions of its shares, it may be forced to sell its higher-rated securities, resulting in a
decline in the overall credit quality of its portfolio and increasing its exposure to the risks of
high yield securities.
Credit ratings issued by credit rating agencies are designed to evaluate the safety of
principal and interest payments of rated securities. They do not, however, evaluate the market
value risk of high yield securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely changes in a rating to
reflect changes in the economy or in the conditions of the issuer that affect the market value of
the security. Consequently, credit ratings are used only as a preliminary indicator of investment
quality. Investments in non-investment grade and comparable unrated obligations will be more
dependent on the Investment Advisers credit analysis than would be the case with investments in
investment-grade debt obligations. The Investment Adviser employs its own credit research and
analysis, which includes a study of an issuers existing debt, capital structure, ability to
service debt and to pay dividends, sensitivity to economic conditions, operating history and
current earnings trend. The Investment Adviser continually monitors the investments in the Funds
portfolios and evaluates whether to dispose of or to retain non-investment grade and comparable
unrated securities whose credit ratings or credit quality may have changed. If after its purchase,
a portfolio security is assigned a lower rating or ceases to be rated, a Fund may continue to hold
the security if the Investment Adviser believes it is in the best interest of the Fund and its
shareholders.
B-34
An economic downturn could severely affect the ability of highly leveraged issuers of junk
bond investments 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
Funds net asset value to the extent it invests in such investments. In addition, the Fund may
incur additional expenses to the extent it is required to seek recovery upon a default in payment
of principal or interest on its portfolio holdings.
Bank Obligations
The Enhanced Income, Ultra-Short Duration Government, Government Income, U.S. Mortgages, Core Fixed
Income, Core Plus Fixed Income, Investment Grade Credit, Global Income, High Yield, High Yield
Floating Rate, Strategic Income, Emerging Markets Debt, Local Emerging Markets Debt, and Inflation
Protected Securities Funds may each invest in obligations issued or guaranteed by U.S. and, except
with respect to Ultra-Short Duration Government and Government Income Funds, foreign banks (Enhanced
Income Fund may only invest in U.S. dollar denominated securities). Bank obligations, including
without limitation time deposits, bankers acceptances and certificates of deposit, may be general
obligations of the parent bank or may be obligations only of the issuing branch pursuant to the
terms of the specific obligations or government regulation.
Banks are subject to extensive 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. Foreign banks
are subject to different regulations and are generally permitted to engage in a wider variety of
activities than U.S. banks. In addition, the profitability of the banking industry is largely
dependent upon the availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. General economic conditions as well as exposure to credit
losses arising from possible financial difficulties of borrowers play an important part in the
operations of this industry.
Certificates of deposit are certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time at a specified rate. Certificates of deposit are
negotiable instruments and are similar to saving deposits but have a definite maturity and are
evidenced by a certificate instead of a passbook entry. Banks are required to keep reserves
against all certificates of deposit. Fixed time deposits are bank obligations payable at a stated
maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on the
demand by the investor, but may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. The Funds may invest in deposits
in U.S. and European banks which satisfy the standards set forth above.
Municipal Securities
Ultra-Short Duration Government, Short Duration Tax-Free, Government Income, Municipal Income, U.S.
Mortgages, Core Fixed Income, Core Plus Fixed Income, Investment Grade Credit, High Yield
Municipal, High Yield, Strategic Income and Inflation Protected Securities Funds may invest in
Municipal Securities, the interest on which is exempt from regular federal income tax (i.e.,
excluded from gross income for federal income tax purposes but not necessarily exempt from the
federal alternative minimum tax or from the income taxes of any state or local government). In
addition, Municipal Securities include participation interests in such securities the interest on
which is, in the opinion of bond counsel or counsel selected by the Investment Adviser, excluded
from gross income for federal income tax purposes. The Funds may revise their definition of
Municipal Securities in the future to include other types of securities that currently exist, the
interest on which is or will be, in the opinion of such counsel, excluded from gross income for
federal income tax purposes, provided that investing in such securities is consistent with each
Funds investment objective and policies. Ultra-Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income, Core Fixed Income, Core Plus Fixed Income, High Yield
Municipal, High Yield, Strategic Income, U.S. Mortgages, Investment Grade Credit and Inflation
Protected Securities Funds may also invest in taxable Municipal Securities.
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. 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. The credit rating assigned to municipal securities may reflect the existence of
guarantees, letters of credit or other credit enhancement features available to the issuers or
holders of such municipal securities.
Dividends paid by the Funds, other than the Tax Exempt Funds, that are derived from interest
paid on both tax exempt and taxable Municipal Securities will be taxable to the Funds
shareholders.
Municipal Securities are often issued to obtain funds for various public purposes including
refunding outstanding obligations, obtaining funds for general operating expenses, and obtaining
funds to lend to other public institutions and facilities. Municipal
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Securities also include certain private activity bonds or industrial development bonds,
which are issued by or on behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities within a municipality for privately or publicly owned corporations.
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.
The two principal classifications of Municipal Securities are general obligations and
revenue obligations. General obligations are secured by the issuers pledge of its full faith and
credit for the payment of principal and interest, although the characteristics and enforcement of
general obligations may vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds, resource recovery
bonds, certificates of participation and certain municipal notes, are not backed by the credit and
taxing authority of the issuer, and are payable solely from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer of a revenue obligation may be
backed by a letter of credit, guarantee or insurance. General obligations and revenue obligations
may be issued in a variety of forms, including commercial paper, fixed, variable and floating rate
securities, tender option bonds, auction rate bonds, zero coupon bonds, deferred interest bonds and
capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a variety of hybrid and
special types of Municipal Securities. There are also numerous differences in the security of
Municipal Securities both within and between these two principal classifications.
The High Yield Municipal Fund and Strategic Income Fund may own a large percentage of any one
general assessment bond issuance. Therefore, the Funds may be adversely impacted if the issuing
municipality fails to pay principal and/or interest on those bonds.
As of March 31, 2011, the High Yield Municipal Fund had invested more than 10.27% of its total
assets in Florida special assessment bonds, which are bonds backed by tax assessments on
residential and commercial development projects. The payments on special assessment bonds generally
depend on the ability of the developer, builder or homeowner of the home or property to pay tax
assessments levied against the home or property. Due to the concentration of these securities in
the High Yield Municipal Funds portfolio, the net asset value of the High Yield Municipal Fund
could be adversely affected by changes in general economic conditions in the State of Florida,
fluctuations in the real estate market, or a particular developer, builder or homeowners inability
to continue to pay the tax assessments underlying the special assessment bonds. In addition, the
homebuilding industry in Florida is currently undergoing significant slowing, which could affect
the financial health of real estate developers, builders or homeowners. In many cases, special
assessment bonds are secured by land which is undeveloped at the time of issuance but anticipated
to be developed within a few years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a default on the bonds.
Because the special assessments or taxes securing these bonds are not the personal liability of the
owners of the property assessed, the lien on the property is the only security for the bonds.
However, the lien created by a special assessment bond is pari passu to other tax liens on the home
or property and senior to all other liens on the home or property. In addition, if there is a
default on the special assessment bond, the Fund would have the right to foreclose on the home or
property. In most cases, however, the issuer of these bonds is not required to make payments on the
bonds in the event of delinquency in the payment of assessments or taxes, except from amounts, if
any, in a reserve fund established for the bonds. In the event of bankruptcy or similar proceedings
with respect to the developer, builder or homeowner of a home or property underlying special
assessment bonds held by the Fund, the bonds held by the Fund could lose a significant portion of
their value. Such proceedings could occur as the result of developments unrelated to the home or
property underlying special assessment bonds held by the High Yield Municipal Fund.
For the purpose of applying a Funds investment restrictions, the identification of the issuer
of a Municipal Security which is not a general obligation is made by the Investment Adviser based
on the characteristics of the Municipal Security, the most important of which is the source of
funds for the payment of principal and interest on such securities.
An entire issue of Municipal Securities may be purchased by one or a small number of
institutional investors, including one or more Funds. Thus, the issue may not be said to be
publicly offered. Unlike some securities that are not publicly offered, a secondary market exists
for many Municipal Securities that were not publicly offered initially and such securities may be
readily marketable.
The credit rating assigned to Municipal Securities may reflect the existence of guarantees,
letters of credit or other credit enhancement features available to the issuers or holders of such
Municipal Securities.
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The obligations of the issuer to pay the principal of and interest on a Municipal Security are
subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any, that may be enacted
by Congress or state legislatures extending the time for payment of principal or interest or
imposing other constraints upon the enforcement of such obligations. There is also the possibility
that, as a result of litigation or other conditions, the power or ability of the issuer to pay when
due principal of or interest on a Municipal Security may be materially affected.
While the Municipal Income Fund, High Yield Municipal Fund and Short Duration Tax-Free Fund,
under normal circumstances, invest substantially all of their assets in Municipal Securities, the
recognition of certain accrued market discount income (if the Funds acquire Municipal Securities or
other obligations at a market discount), income from investments other than Municipal Securities
and any capital gains generated from the disposition of investments, will result in taxable income.
In addition to federal income tax, shareholders may be subject to state, local or foreign taxes on
distributions of such income received from the Funds.
From time to time, proposals have been introduced before Congress for the purpose of
restricting or eliminating the federal income tax exemption for interest on Municipal Securities.
For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be
included in an investors federal alternative minimum taxable income, and corporate investors must
include all tax exempt interest in their federal alternative minimum taxable income. The Trust
cannot predict what legislation, if any, may be proposed in the future in Congress as regards the
federal income tax status of interest on Municipal Securities or which proposals, if any, might be
enacted. Such proposals, if enacted, might materially and adversely affect the tax treatment of
Municipal Securities and the availability of Municipal Securities for investment by the Tax Exempt
Funds and the Funds liquidity and value. In such an event the Board of Trustees would reevaluate
the Funds investment objectives and policies.
Municipal Leases, Certificates of Participation and Other Participation Interests.
Ultra-Short Duration Government, Short Duration Tax-Free, Government Income, Municipal Income, U.S.
Mortgages, Core Fixed Income, Core Plus Fixed Income, Investment Grade Credit, High Yield
Municipal, High Yield, Strategic Income and Inflation Protected Securities Funds may invest in
municipal leases, certificates of participation and other participation interests. A municipal
lease is an obligation in the form of a lease or installment purchase which is issued by a state or
local government to acquire equipment and facilities. Income from such obligations is generally
exempt from state and local taxes in the state of issuance. Municipal leases frequently involve
special risks not normally associated with general obligations or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for title to the leased
asset to pass eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and statutory
requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of non-appropriation clauses that relieve
the governmental issuer of any obligation to make future payments under the lease or contract
unless money is appropriated for such purpose by the appropriate legislative body on a yearly or
other periodic basis. In addition, such leases or contracts may be subject to the temporary
abatement of payments in the event the issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the obligations may be secured by the leased
equipment or facilities, the disposition of the property in the event of non-appropriation or
foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering
or the failure to fully recover a Funds original investment. To the extent that a Fund invests in
unrated municipal leases or participates in such leases, the credit quality rating and risk of
cancellation of such unrated leases will be monitored on an ongoing basis.
Certificates of participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The certificates are typically issued by a trust or other
entity which has received an assignment of the payments to be made by the state or political
subdivision under such leases or installment purchase agreements.
Certain municipal lease obligations and certificates of participation may be deemed to be
illiquid for the purpose of the Funds limitation on investments in illiquid securities. Other
municipal lease obligations and certificates of participation acquired by a Fund may be determined
by the Investment Adviser, pursuant to guidelines adopted by the Trustees of the Trust, to be
liquid securities for the purpose of such limitation. In determining the liquidity of municipal
lease obligations and certificates of participation, the Investment Adviser will consider a variety
of factors, including: (i) the willingness of dealers to bid for the security; (ii) the number of
dealers willing to purchase or sell the obligation and the number of other potential buyers; (iii)
the frequency of trades or quotes for the obligation; and (iv) the nature of the marketplace
trades. In addition, the Investment Adviser will consider factors unique to particular lease
obligations and certificates of participation affecting the marketability thereof. These include
the general creditworthiness of the issuer, the importance to the issuer of the property covered by
the lease and the likelihood that the marketability of the obligation will be maintained throughout
the time the obligation is held by a Fund.
Ultra-Short Duration Government, Short Duration Tax-Free, Government Income, Municipal Income, Core
Fixed Income, Core Plus Fixed Income, High Yield Municipal, High Yield, Strategic Income, U.S.
Mortgages, Investment Grade Credit and Inflation Protected Securities Funds may purchase
participations in Municipal Securities held by a commercial bank or other financial institution.
Such participations provide a Fund with the right to a pro rata undivided interest in the
underlying Municipal Securities. In addition, such
B-37
participations generally provide a Fund with the right to demand payment, on not more than
seven days notice, of all or any part of such Funds participation interest in the underlying
Municipal Securities, plus accrued interest.
Municipal Notes. Municipal Securities in the form of notes generally are used to
provide for short-term capital needs, in anticipation of an issuers receipt of other revenues or
financing, and typically have maturities of up to three years. Such instruments may include tax
anticipation notes, revenue anticipation notes, bond anticipation notes, tax and revenue
anticipation notes and construction loan notes. Tax anticipation notes are issued to finance the
working capital needs of governments. Generally, they are issued in anticipation of various tax
revenues, such as income, sales, property, use and business taxes, and are payable from these
specific future taxes. Revenue anticipation notes are issued in expectation of receipt of other
kinds of revenue, such as federal revenues available under federal revenue sharing programs. Bond
anticipation notes are issued to provide interim financing until long-term bond financing can be
arranged. In most cases, the long-term bonds then provide the funds needed for repayment of the
notes. Tax and revenue anticipation notes combine the funding sources of both tax anticipation
notes and revenue anticipation notes. Construction loan notes are sold to provide construction
financing. These notes are secured by mortgage notes insured by the FHA; however, the proceeds from
the insurance may be less than the economic equivalent of the payment of principal and interest on
the mortgage note if there has been a default. The obligations of an issuer of municipal notes are
generally secured by the anticipated revenues from taxes, grants or bond financing. An investment
in such instruments, however, presents a risk that the anticipated revenues will not be received or
that such revenues will be insufficient to satisfy the issuers payment obligations under the notes
or that refinancing will be otherwise unavailable.
Tax Exempt Commercial Paper. Issues of commercial paper typically represent
short-term, unsecured, negotiable promissory notes. These obligations are issued by state and local
governments and their agencies to finance working capital needs of municipalities or to provide
interim construction financing and are paid from general revenues of municipalities or are
refinanced with long-term debt. In most cases, tax exempt commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility agreements offered
by banks or other institutions.
Pre-Refunded Municipal Securities. The principal of and interest on pre-refunded
Municipal Securities are no longer paid from the original revenue source for the securities.
Instead, the source of such payments is typically an escrow fund consisting of U.S. Government
Securities. The assets in the escrow fund are derived from the proceeds of refunding bonds issued
by the same issuer as the pre-refunded Municipal Securities. Issuers of Municipal Securities use
this advance refunding technique to obtain more favorable terms with respect to securities that are
not yet subject to call or redemption by the issuer. For example, advance refunding enables an
issuer to refinance debt at lower market interest rates, restructure debt to improve cash flow or
eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded
Municipal Securities. However, except for a change in the revenue source from which principal and
interest payments are made, the pre-refunded Municipal Securities remain outstanding on their
original terms until they mature or are redeemed by the issuer. Pre-refunded Municipal Securities
are often purchased at a price which represents a premium over their face value.
Private Activity Bonds. Ultra-Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income, U.S. Mortgages, Core Fixed Income, Core Plus Fixed Income,
Investment Grade Credit, High Yield Municipal, High Yield and Strategic Income Funds may each
invest in certain types of Municipal Securities, generally referred to as industrial development
bonds (and referred to under current tax law as private activity bonds), which are issued by or on
behalf of public authorities to obtain funds to provide privately operated housing facilities,
airport, mass transit or port facilities, sewage disposal, solid waste disposal or hazardous waste
treatment or disposal facilities and certain local facilities for water supply, gas or electricity.
Other types of industrial development bonds, the proceeds of which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial facilities, may
constitute Municipal Securities, although the current federal tax laws place substantial
limitations on the size of such issues. A Tax Exempt Funds distributions of its interest income
from private activity bonds may subject certain investors to the federal alternative minimum tax
whereas a Taxable Funds distributions of any tax exempt interest it receives from any source will
be taxable for regular federal income tax purposes.
Tender Option Bonds. A tender option bond is a Municipal Security (generally held
pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a
fixed rate substantially higher than prevailing short-term, tax exempt rates. The bond is typically
issued with the agreement of a third party, such as a bank, broker-dealer or other financial
institution, which grants the security holders the option, at periodic intervals, to tender their
securities to the institution and receive the face value thereof. As consideration for providing
the option, the financial institution receives periodic fees equal to the difference between the
bonds fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near
the commencement of such period, that would cause the securities, coupled with the tender option,
to trade at par on the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax
exempt rate. However, an institution will not be obligated to accept tendered bonds in the event of
certain defaults or a significant downgrade in the credit rating assigned to the issuer of the
bond. The liquidity of a tender option bond is a function of the credit quality of both the bond
issuer and the financial institution providing liquidity. Tender option bonds are deemed to be
liquid unless, in the opinion of the Investment
B-38
Adviser, the credit quality of the bond issuer and the financial institution is deemed, in
light of the Funds credit quality requirements, to be inadequate and the bond would not otherwise
be readily marketable. The Tax Exempt Funds intend to invest in tender option bonds the interest on
which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel
selected by the Investment Adviser, be exempt from regular federal income tax. However, because
there can be no assurance that the IRS will agree with such counsels opinion in any particular
case, there is a risk that a Tax Exempt Fund will not be considered the owner of such tender option
bonds and thus will not be entitled to treat such interest as exempt from such tax. Additionally,
the federal income tax treatment of certain other aspects of these investments, including the
proper tax treatment of tender option bonds and the associated fees in relation to various
regulated investment company tax provisions is unclear. The Tax Exempt Funds intend to manage their
portfolios in a manner designed to eliminate or minimize any adverse impact from the tax rules
applicable to these investments.
Auction Rate Securities. Ultra-Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income, U.S. Mortgages, Core Fixed Income, Core Plus Fixed Income,
Investment Grade Credit, High Yield Municipal, High Yield, Strategic Income and Inflation Protected
Securities Funds may invest in auction rate securities. Auction rate securities include auction
rate Municipal Securities and auction rate preferred securities issued by closed-end investment
companies that invest primarily in Municipal Securities (collectively, auction rate securities).
Provided that the auction mechanism is successful, auction rate securities usually permit the
holder to sell the securities in an auction at par value at specified intervals. The dividend is
reset by Dutch auction in which bids are made by broker-dealers and other institutions for a
certain amount of securities at a specified minimum yield. The dividend rate set by the auction is
the lowest interest or dividend rate that covers all securities offered for sale. While this
process is designed to permit auction rate securities to be traded at par value, there is some risk
that an auction will fail due to insufficient demand for the securities. A Fund will take the time
remaining until the next scheduled auction date into account for purpose of determining the
securities duration.
Dividends on auction rate preferred securities issued by a closed-end fund may be designated
as exempt from federal income tax to the extent they are attributable to exempt income earned by
the fund on the securities in its portfolio and distributed to holders of the preferred securities,
provided that the preferred securities are treated as equity securities for federal income tax
purposes and the closed-end fund complies with certain tests under the Internal Revenue Code of
1986, as amended (the Code).
A Funds investments in auction rate securities of closed-end funds are subject to the
limitations prescribed by the Act and certain state securities regulations. The Funds will
indirectly bear their proportionate share of any management and other fees paid by such closed-end
funds in addition to the advisory fees payable directly by the Funds.
Insurance. Ultra-Short Duration Government, Short Duration Tax-Free, Government Income,
Municipal Income, U.S. Mortgages, Core Fixed Income, Core Plus Fixed Income, Investment Grade
Credit, High Yield Municipal, High Yield, Strategic Income and Inflation Protected Securities Funds
may invest in insured tax exempt Municipal Securities. Insured Municipal Securities are
securities for which scheduled payments of interest and principal are guaranteed by a private
(non-governmental) insurance company. The insurance only entitles a Fund to receive the face or par
value of the securities held by the Fund. The insurance does not guarantee the market value of the
Municipal Securities or the value of the shares of a Fund.
The Funds may utilize new issue or secondary market insurance. A new issue insurance policy is
purchased by a bond issuer who wishes to increase the credit rating of a security. By paying a
premium and meeting the insurers underwriting standards, the bond issuer is able to obtain a high
credit rating (usually, Aaa from Moodys or AAA from Standard & Poors) for the issued security.
Such insurance is likely to increase the purchase price and resale value of the security. New issue
insurance policies generally are non-cancelable and continue in force as long as the bonds are
outstanding.
A secondary market insurance policy is purchased by an investor (such as a Fund) subsequent to
a bonds original issuance and generally insures a particular bond for the remainder of its term.
The Funds may purchase bonds which have already been insured under a secondary market insurance
policy by a prior investor, or the Funds may directly purchase such a policy from insurers for
bonds which are currently uninsured.
An insured Municipal Security acquired by a Fund will typically be covered by only one of the
above types of policies. All of the insurance policies used by a Fund will be obtained only from
insurance companies rated, at the time of purchase, A by Moodys or Standard & Poors, or if
unrated, determined by the Investment Adviser to be of comparable quality. The Municipal Securities
invested in by High Yield Municipal, High Yield and Strategic Income Funds will not be subject to
this requirement.
Standby Commitments. In order to enhance the liquidity of Municipal Securities, the
Tax Exempt Funds and Strategic Income Fund may acquire the right to sell a security to another
party at a guaranteed price and date. Such a right to resell may be referred to as a standby
commitment or liquidity put, depending on its characteristics. The aggregate price which a Fund
pays for securities with
B-39
standby commitments may be higher than the price which otherwise would be paid for the
securities. Standby commitments may not be available or may not be available on satisfactory terms.
Standby commitments may involve letters of credit issued by domestic or foreign banks
supporting the other partys ability to purchase the security from a Fund. The right to sell may be
exercisable on demand or at specified intervals, and may form part of a security or be acquired
separately by a Fund. In considering whether a security meets a Funds quality standards, the
particular Fund will look to the creditworthiness of the party providing the Fund with the right to
sell as well as the quality of the security itself.
The Funds value Municipal Securities which are subject to standby commitments at amortized
cost. The exercise price of the standby commitments is expected to approximate such amortized cost.
No value is assigned to the standby commitments for purposes of determining a Funds net asset
value. The cost of a standby commitment is carried as unrealized depreciation from the time of
purchase until it is exercised or expires. Because the value of a standby commitment is dependent
on the ability of the standby commitment writer to meet its obligation to repurchase, a Funds
policy is to enter into standby commitment transactions only with banks, brokers or dealers which
present a minimal risk of default.
The Investment Adviser understands that the IRS has issued a favorable revenue ruling to the
effect that, under specified circumstances, a registered investment company will be the owner of
tax exempt municipal obligations acquired subject to a put option. The IRS has subsequently
announced that it will not ordinarily issue advance ruling letters as to the identity of the true
owner of property in cases involving the sale of securities or participation interests therein if
the purchaser has the right to cause the security, or the participation interest therein, to be
purchased by either the seller or a third party. The Funds intend to take the position that they
are the owner of any Municipal Securities acquired subject to a standby commitment or acquired or
held with certain other types of put rights and that tax exempt interest earned with respect to
such Municipal Securities will be tax exempt in their hands. There is no assurance that standby
commitments will be available to the Funds nor have the Funds assumed that such commitments would
continue to be available under all market conditions.
Call Risk and Reinvestment Risk. Municipal Securities may include call provisions
which permit the issuers of such securities, at any time or after a specified period, to redeem the
securities prior to their stated maturity. In the event that Municipal Securities held in a Funds
portfolio are called prior to the maturity, the Fund will be required to reinvest the proceeds on
such securities at an earlier date and may be able to do so only at lower yields, thereby reducing
the Funds return on its portfolio securities.
Tobacco Settlement Revenue Bonds. The Short Duration Tax-Free Fund, Municipal Income
Fund, High Yield Municipal Fund and Strategic Income Fund may each invest a portion of its assets
in tobacco settlement revenue bonds. Tobacco settlement revenue bonds are municipal obligations
that are backed entirely by expected revenues to be derived from lawsuits involving tobacco related
deaths and illnesses which were settled between certain states and American tobacco companies.
Tobacco settlement revenue bonds are secured by an issuing states proportionate share in the
Master Settlement Agreement (MSA). The MSA is an agreement, reached out of court in November 1998
between 46 states and nearly all of the U.S. tobacco manufacturers. The MSA provides for annual
payments in perpetuity by the manufacturers to the states in exchange for releasing all claims
against the manufacturers and a pledge of no further litigation. Tobacco manufacturers pay into a
master escrow trust based on their market share, and each state receives a fixed percentage of the
payment as set forth in the MSA. A number of states have securitized the future flow of those
payments by selling bonds pursuant to indentures or through distinct governmental entities created
for such purpose. The principal and interest payments on the bonds are backed by the future revenue
flow related to the MSA. Annual payments on the bonds, and thus risk to a Fund, are highly
dependent on the receipt of future settlement payments to the state or its governmental entity.
The actual amount of future settlement payments, is further dependent on many factors,
including, but not limited to, annual domestic cigarette shipments, reduced cigarette consumption,
increased taxes on cigarettes, inflation, financial capability of tobacco companies, continuing
litigation and the possibility of tobacco manufacturer bankruptcy. The initial and annual payments
made by the tobacco companies will be adjusted based on a number of factors, the most important of
which is domestic cigarette consumption. If the volume of cigarettes shipped in the U.S. by
manufacturers participating in the settlement decreases significantly, payments due from them will
also decrease. Demand for cigarettes in the U.S. could continue to decline due to price increases
needed to recoup the cost of payments by tobacco companies. Demand could also be affected by:
anti-smoking campaigns, tax increases, reduced advertising, enforcement of laws prohibiting sales
to minors; elimination of certain sales venues such as vending machines; and the spread of local
ordinances restricting smoking in public places. As a result, payments made by tobacco
manufacturers could be negatively impacted if the decrease in tobacco consumption is significantly
greater than the forecasted decline. A market share loss by the MSA companies to non-MSA
participating tobacco manufacturers would cause a downward adjustment in the payment amounts. A
participating manufacturer filing for bankruptcy also could cause delays or reductions in bond
payments. The MSA itself has been subject to legal challenges and has, to date, withstood those
challenges.
B-40
Foreign Investments
Core Fixed Income, Core Plus Fixed Income, U.S. Mortgages, Investment Grade Credit, Global
Income, High Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt and Inflation
Protected Securities Funds may invest in securities of foreign issuers, including securities quoted
or denominated in a currency other than U.S. dollars. Enhanced Income Fund may only invest in
securities of foreign issuers that are denominated in U.S. dollars. Local Emerging Markets Debt
Fund invests primarily in securities denominated in currencies other than U.S. dollars. Investments
in foreign securities may offer potential benefits not available from investments solely in U.S.
dollar-denominated or quoted securities of domestic issuers. Such benefits may include the
opportunity to invest in foreign issuers that appear, in the opinion of the Investment Adviser, to
offer the potential for better long term growth of capital and income than investments in U.S.
securities, the opportunity to invest in foreign countries with economic policies or business
cycles different from those of the United States and the opportunity to reduce fluctuations in
portfolio value by taking advantage of foreign securities markets that do not necessarily move in a
manner parallel to U.S. markets. Investing in the securities of foreign issuers also involves,
however, certain special risks, including those discussed in the Funds Prospectuses and those set
forth below, which are not typically associated with investing in U.S. dollar-denominated
securities or quoted securities of U.S. issuers.
With any investment in foreign securities, there exist certain economic, political and social
risks, including the risk of adverse political developments, nationalization, confiscation without
fair compensation or war. Individual foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. Investments in foreign securities usually involve currencies of foreign countries. Accordingly, a 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. The Funds may be subject to currency exposure independent of their securities
positions. To the extent that a Fund is fully invested in foreign securities while also
maintaining net currency positions, it may be exposed to greater combined risk.
Currency exchange rates may fluctuate significantly over short periods of time. They generally
are determined by the forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency exchange rates also can
be affected unpredictably by intervention by U.S. or foreign governments or central banks or the
failure to intervene or by currency controls or political developments in the United States or
abroad. To the extent that a portion of a Funds total assets, adjusted to reflect the Funds 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. A Funds net currency positions may expose it to
risks independent of its securities positions.
Because foreign issuers generally are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those applicable to U.S.
companies, there may be less publicly available information about a foreign company than about a
comparable U.S. company. Volume and liquidity in most foreign bond markets are less than in the
United States markets and securities of many foreign companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges, although each Fund endeavors to
achieve the most favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities markets and exchanges, brokers, dealers and
listed and unlisted companies than in the United States and the legal remedies for investors may be
more limited than the remedies available in the United States. For example, there may be no
comparable provisions under certain foreign laws to insider trading and similar investor
protections that apply with respect to securities transactions consummated in the United States.
Mail service between the United States and foreign countries may be slower or less reliable than
within the United States, thus increasing the risk of delayed settlement of portfolio transactions
or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement procedures, and in certain
markets there have been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. Such delays in
settlement could result in temporary periods when a portion of the assets of a Fund 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, limitations on the movement of funds and other assets
between different countries, political or social instability, or diplomatic developments which
could adversely affect the Funds investments in those countries.
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Foreign Government Obligations. Foreign government obligations include securities,
instruments and obligations issued or guaranteed by a foreign government, its agencies,
instrumentalities or sponsored enterprises. Investment in foreign government obligations can
involve a high degree of risk. The governmental entity that controls the repayment of foreign
government obligations may not be able or willing to repay the principal and/or interest when due
in accordance with the terms of such debt. A governmental entitys willingness or ability to repay
principal and interest due in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of the debt service burden to the economy as a
whole, the governmental entitys policy towards the International Monetary Fund and the political
constraints to which a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral agencies and others
abroad to reduce principal and interest on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned on a governmental
entitys implementation of economic reforms and/or economic performance and the timely service of
such debtors obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the cancellation of such third
parties commitments to lend funds to the governmental entity, which may further impair such
debtors ability or willingness to services its debts in a timely manner. Consequently,
governmental entities may default on their debt. Holders of foreign government obligations
(including a Fund) may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental agencies.
Investing in Emerging Countries
Market Characteristics. Of the Core Fixed Income, Core Plus Fixed Income, Investment
Grade Credit, Global Income, and High Yield Funds investments in foreign securities, 10%, 15%,
10%, 10% and 25% of their respective total assets may be invested in emerging countries. The
Emerging Markets Debt, Local Emerging Markets Debt, High Yield Floating Rate, Strategic Income and
Inflation Protected Securities Funds are not limited in the amount of their assets that may be
invested in emerging countries. Investment in debt securities of emerging country issuers involve
special risks. The development of a market for such securities is a relatively recent phenomenon
and debt securities of most emerging country issuers are less liquid and are generally subject to
greater price volatility than securities of issuers in the United States and other developed
countries. In certain countries, there may be fewer publicly traded securities, and the market may
be dominated by a few issuers or sectors. The markets for securities of emerging countries may have
substantially less volume than the market for similar securities in the United States and may not
be able to absorb, without price disruptions, a significant increase in trading volume or trade
size. Additionally, market making and arbitrage activities are generally less extensive in such
markets, which may contribute to increased volatility and reduced liquidity of such markets. The
less liquid the market, the more difficult it may be for a Fund to price accurately its portfolio
securities or to dispose of such securities at the times determined to be appropriate. The risks
associated with reduced liquidity may be particularly acute to the extent that a Fund needs cash to
meet redemption requests, to pay dividends and other distributions or to pay its expenses.
A Funds purchase and sale of portfolio securities in certain emerging countries 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, 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.
Securities markets of emerging countries may also have less efficient clearance and settlement
procedures than U.S. markets, making it difficult to conduct and complete transactions. Delays in
the settlement could result in temporary periods when a portion of a Funds assets is uninvested
and no return is earned thereon. Inability to make intended security purchases could cause the Fund
to miss attractive investment opportunities. Inability to dispose of portfolio securities could
result either in losses to a Fund due to subsequent declines in value of the portfolio security or,
if a Fund has entered into a contract to sell the security, could result in possible liability of a
Fund to the purchaser.
Transaction costs, including brokerage commissions and dealer mark-ups, in emerging countries
may be higher than in the U.S. and other developed securities markets. As legal systems in emerging
countries develop, foreign investors may be adversely affected by new or amended laws and
regulations. In circumstances where adequate laws exist, it may not be possible to obtain swift and
equitable enforcement of the law.
With respect to investments in certain emerging countries, antiquated legal systems may have
an adverse impact on the Funds. For example, while the potential liability of a shareholder of a
U.S. corporation with respect to acts of the corporation is generally limited to the amount of the
shareholders investment, the notion of limited liability is less clear in certain emerging market
countries. Similarly, the rights of investors in emerging market companies may be more limited than
those of investors of U.S. corporations.
Economic, Political and Social Factors. Emerging countries may be subject to a greater
degree of economic, political and social instability than the United States, Japan and most Western
European countries, and unanticipated political and social developments
B-42
may affect the value of a Funds investments in emerging countries and the availability to the
Fund of additional investments in such countries. Moreover, political and economic structures in
many emerging countries may be undergoing significant evolution and rapid development. Instability
may result from, among other things: (i) authoritarian governments or military involvement in
political and economic decision-making, including changes or attempted changes in government
through extra-constitutional means; (ii) popular unrest associated with demands for improved
economic, political and social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; (v) ethnic, religious and racial disaffection and conflict; and (vi) the
absence of developed legal structures governing foreign private property. Many emerging countries
have experienced in the past, and continue to experience, high rates of inflation. In certain
countries, inflation has at times accelerated rapidly to hyperinflationary levels, creating a
negative interest rate environment and sharply eroding the value of outstanding financial assets in
those countries. The economies of many emerging countries are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and the economic conditions of
their trading partners. In addition, the economies of some emerging countries may differ
unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of payments position.
Restrictions on Investment and Repatriation. Certain emerging countries require
governmental approval prior to investments by foreign persons or limit investments by foreign
persons to only a specified percentage of an issuers outstanding securities or a specific class of
securities which may have less advantageous terms (including price) than securities of the issuer
available for purchase by nationals. Repatriation of investment income and capital from certain
emerging countries is subject to certain governmental consents. Even where there is no outright
restriction on repatriation of capital, the mechanics of repatriation may affect the operation of a
Fund.
Emerging Country Government Obligations. Emerging country governmental entities are
among the largest debtors to commercial banks, foreign governments, international financial
organizations and other financial institutions. Certain emerging country governmental entities have
not been able to make payments of interest on or principal of debt obligations as those payments
have come due. Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those entities.
The ability of emerging country governmental entities to make timely payments on their
obligations is likely to be influenced strongly by the entitys balance of payments, including
export performance, and its access to international credits and investments. An emerging country
whose exports are concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased protectionism on the part of an
emerging countrys trading partners could also adversely affect the countrys exports and tarnish
its trade account surplus, if any. To the extent that emerging countries receive payment for their
exports in currencies other than dollars or non-emerging country currencies, the emerging country
governmental entitys ability to make debt payments denominated in dollars or non-emerging market
currencies could be affected.
To the extent that an emerging country cannot generate a trade surplus, it must depend on
continuing loans from foreign governments, multilateral organizations or private commercial banks,
aid payments from foreign governments and on inflows of foreign investment. The access of emerging
countries to these forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging country governmental entities to make
payments on their obligations. In addition, the cost of servicing emerging country debt obligations
can be affected by a change in international interest rates because the majority of these
obligations carry interest rates that are adjusted periodically based upon international rates.
Another factor bearing on the ability of emerging countries to repay debt obligations is the
level of international reserves of a country. Fluctuations in the level of these reserves affect
the amount of foreign exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging countries to make payments on these debt obligations.
As a result of the foregoing or other factors, a governmental obligor, especially in an
emerging country, may default on its obligations. If such an event occurs, a Fund may have limited
legal recourse against the issuer and/or guarantor. Remedies must, in some cases, be pursued in the
courts of the defaulting party itself, and the ability of the holder of foreign government
obligations to obtain recourse may be subject to the political climate in the relevant country. In
addition, no assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign government obligations in the event of default under the
commercial bank loan agreements.
Brady Bonds. Certain foreign debt obligations commonly referred to as Brady Bonds
are created through the exchange of existing commercial bank loans to foreign borrowers for new
obligations in connection with debt restructurings under a plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady (the Brady Plan).
Brady Bonds may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and they are actively traded in the over-the-counter
secondary market. Certain Brady Bonds are collateralized in full as to principal
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due at maturity by zero coupon obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities having the same maturity (Collateralized Brady Bonds). Brady Bonds
are not, however, considered to be U.S. Government Securities.
Dollar-denominated, Collateralized Brady Bonds may be fixed rate bonds or floating rate bonds.
Interest payments on Brady Bonds are often collateralized by cash or securities in an amount that,
in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one years rolling interest
payments based on the applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to value recovery payments in certain circumstances,
which in effect constitute supplemental interest payments but generally are not collateralized.
Brady Bonds are often viewed as having three or four valuation components: (i) collateralized
repayment of principal at final maturity; (ii) collateralized interest payments; (iii)
uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the residual risk). In the event of a default
with respect to Collateralized Brady Bonds as a result of which the payment obligations of the
issuer are accelerated, the U.S. Treasury zero coupon obligations held as collateral for the
payment of principal will not be distributed to investors, nor will such obligations be sold and
the proceeds distributed. The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds, which will continue to be outstanding, at which time the
face amount of the collateral will equal the principal payments which would have been due on the
Brady Bonds in the normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds should be viewed as
speculative.
Restructured Investments. Included among the issuers of emerging country debt
securities are entities organized and operated solely for the purpose of restructuring the
investment characteristics of various securities. These entities are often organized by investment
banking firms which receive fees in connection with establishing each entity and arranging for the
placement of its securities. This type of restructuring involves the deposit with or purchase by an
entity, such as a corporation or trust, or specified instruments, such as Brady Bonds, and the
issuance by the entity of one or more classes of securities (Restructured Investments) backed by,
or representing interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Restructured Investments to create securities
with different investment characteristics such as varying maturities, payment priorities or
investment rate provisions. Because Restructured Investments of the type in which the Fund may
invest typically involve no credit enhancement, their credit risk will generally be equivalent to
that of the underlying instruments.
The Core Plus Fixed Income Fund, Investment Grade Credit Fund, Emerging Markets Debt Fund,
Local Emerging Markets Debt Fund, High Yield Floating Rate Fund, Strategic Income and Inflation
Protected Securities Fund are permitted to invest in a class of Restructured Investments that is
either subordinated or unsubordinated to the right of payment of another class. Subordinated
Restructured Investments typically have higher yields and present greater risks than unsubordinated
Restructured Investments. Although a Funds purchases of subordinated Restructured Investments
would have a similar economic effect to that of borrowing against the underlying securities, such
purchases will not be deemed to be borrowing for purposes of the limitations placed on the extent
of the Funds assets that may be used for borrowing.
Certain issuers of Restructured Investments may be deemed to be investment companies as
defined in the Act. As a result, the Funds investments in these Restructured Investments may be
limited by the restrictions contained in the Act. Restructured Investments are typically sold in
private placement transactions, and there currently is no active trading market for most
Restructured Investments.
Forward Foreign Currency Exchange Contracts. Core Fixed Income, Core Plus Fixed
Income, Investment Grade Credit, Global Income, High Yield, Emerging Markets Debt, Local Emerging
Markets Debt, High Yield Floating Rate, Strategic Income and Inflation Protected Securities Funds
may enter into forward foreign currency exchange contracts for hedging purposes and to seek to
increase total return. U.S. Mortgages Fund may enter into forward foreign currency exchange
contracts for hedging purposes only. 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 and are 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 purchase
transaction involving the purchase or sale of an offsetting contract. Closing purchase transactions
with respect to forward contracts are usually effected with the currency trader who is a party to
the original forward contract.
The Funds may enter into forward foreign currency exchange contracts for hedging purposes in
several circumstances. First, when a Fund enters into a contract for the purchase or sale of a
security quoted or denominated in a foreign currency, or when a Fund
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anticipates the receipt in a foreign currency of a dividend or interest payment on such a
security which it holds, a 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 U.S. dollars, of the amount
of foreign currency involved in the underlying transactions, a Fund may 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 Investment Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter into a forward
contract to sell, for a fixed amount of U.S. dollars, the amount of foreign currency approximating
the value of some or all of a Funds 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 Funds 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 Funds foreign assets.
Core Fixed Income, Core Plus Fixed Income, Investment Grade Credit, Global Income, High Yield,
High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local Emerging Markets Debt, and
Inflation Protected Securities Funds may engage in cross-hedging by using forward contracts in one
currency to hedge against fluctuations in the value of securities denominated or quoted in a
different currency if the Investment Adviser determines that there is a pattern of correlation
between the two currencies. In addition, certain Funds may enter into foreign currency transactions
to seek a closer correlation between a Funds overall currency exposures and the currency exposures
of a Funds performance benchmark.
Unless otherwise covered, cash or liquid assets will be segregated in an amount equal to the
value of the Funds assets committed to the consummation of forward foreign currency exchange
contracts requiring the Fund to purchase foreign currencies and forward contracts entered into to
seek to increase total return. The segregated assets will be marked-to-market. If the value of the
segregated assets declines, additional liquid assets will be segregated so that the value will
equal the amount of the Funds commitments with respect to such contracts. The Funds will not enter
into a forward contract with a term of greater than one year.
While the Funds may enter into forward contracts to seek to reduce currency exchange rate
risks, transactions in such contracts involve certain other risks. Thus, while the Funds may
benefit from such transactions, unanticipated changes in currency prices may result in a poorer
overall performance for a Fund than if it had not engaged in any such transactions. Moreover, there
may be imperfect correlation between a Funds portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by a Fund. Such imperfect
correlation may cause the Fund to sustain losses which will prevent the Fund from achieving a
complete hedge or expose the Fund to risk of foreign exchange loss.
Markets for trading forward foreign currency contracts offer less protection against defaults
than is available when trading in currency instruments on an exchange. Forward contracts are
subject to the risk that the counterparty to such contract will default on its obligations. Because
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, 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. In addition, the institutions that deal in forward currency contracts
are not required to continue to make markets in the currencies they trade and these markets can
experience periods of illiquidity. A Fund will not enter into forward foreign currency exchange
contracts, 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. To the extent that
a substantial portion of a Funds total assets, adjusted to reflect the Funds 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.
Investing in Central and South American Countries
A significant portion of the Emerging Markets Debt and Local Emerging Markets Debt Funds,
portfolios may be invested in issuers located in Central and South American countries. The
economies of Central and South American countries have experienced considerable difficulties in the
past decade, including high inflation rates, high interest rates and currency devaluations. As a
result, Central and South American securities markets have experienced great volatility. In
addition, a number of Central and South American countries are among the largest emerging country
debtors. There have been moratoria on, and reschedulings of, repayment with respect to these debts.
Such events can restrict the flexibility of these debtor nations in the international markets and
result in the imposition of onerous conditions on their economies.
B-45
In the past, many Central and South American countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. High inflation rates have also led
to high interest rates. Inflation and rapid fluctuations in inflation rates have had, and could, in
the future, have very negative effects on the economies and securities markets of certain Central
and South American countries. Many of the currencies of Central and South American countries have
experienced steady devaluation relative to the U.S. dollar, and major devaluations have
historically occurred in certain countries. Any devaluations in the currencies in which a Funds
portfolio securities are denominated may have a detrimental impact on the Fund. There is also a
risk that certain Central and South American countries may restrict the free conversion of their
currencies into other currencies. Some Central and South American countries may have managed
currencies which are not free floating against the U.S. dollar. This type of system can lead to
sudden and large adjustments in the currency that, in turn, can have a disruptive and negative
effect on foreign investors. Certain Central and South American currencies may not be
internationally traded and it would be difficult for a Fund to engage in foreign currency
transactions designed to protect the value of the Funds interests in securities denominated in
such currencies.
In addition, substantial limitations may exist in certain countries with respect to the Funds
ability to repatriate investment income, capital or the proceeds of sales of securities by foreign
investors. The Funds could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application to a Fund of any
restrictions on investments.
The emergence of the Central and South American economies and securities markets will require
continued economic and fiscal discipline that has been lacking at times in the past, as well as
stable political and social conditions. Governments of many Central and South American countries
have exercised and continue to exercise substantial influence over many aspects of the private
sector. The political history of certain Central and South American countries has been
characterized by political uncertainty, intervention by the military in civilian and economic
spheres and political corruption. Such developments, if they were to recur, could reverse favorable
trends toward market and economic reform, privatization and removal of trade barriers.
International economic conditions, particularly those in the United States, as well as world
prices for oil and other commodities may also influence the recovery of the Central and South
American economies. Because commodities such as oil, gas, minerals and metals represent a
significant percentage of the regions exports, the economies of Central and South American
countries are particularly sensitive to fluctuations in commodity prices. As a result, the
economies in many of these countries can experience significant volatility.
Certain Central and South American countries have entered into regional trade agreements that
would, among other things, reduce barriers among countries, increase competition among companies
and reduce government subsidies in certain industries. No assurance can be given that these changes
will result in the economic stability intended. There is a possibility that these trade
arrangements will not be implemented, will be implemented but not completed or will be completed
but then partially or completely unwound. It is also possible that a significant participant could
choose to abandon a trade agreement, which could diminish its credibility and influence. Any of
these occurrences could have adverse effects on the markets of both participating and
non-participating countries, including share appreciation or depreciation of participants national
currencies and a significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the Central and South American markets, an
undermining of Central and South American economic stability, the collapse or slowdown of the drive
toward Central and South American economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of such trade agreements.
Such developments could have an adverse impact on the Funds investments in Central and South
America generally or in specific countries participating in such trade agreements.
Interest
Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps, Total Return Swaps, Options on Swaps and Interest Rate Caps, Floors and Collars
Each Fund may enter into interest rate, credit and total return swaps. Each Fund may also
enter into interest rate caps, floors and collars. In addition, Ultra-Short Duration Government, Short
Duration Government, Government Income, U.S. Mortgages, Core Fixed Income, Core Plus Fixed Income,
Investment Grade Credit, Global Income, High Yield, High Yield Floating Rate, Strategic Income and
Inflation Protected Securities Funds may enter into mortgage swaps; and Core Fixed Income, Core
Plus Fixed Income, Investment Grade Credit, High Yield, High Yield Floating Rate, Strategic Income,
Global Income, Emerging Markets Debt, Local Emerging Markets Debt, and Inflation Protected
Securities Funds may enter into currency swaps. Each Fund may also purchase and write (sell)
options contracts on swaps, commonly referred to as swaptions.
Each Fund may enter into swap transactions for hedging purposes or to seek to increase total
return. As examples, a Fund may enter into swap transactions for the purpose of attempting to
obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread
through purchases and/or sales of instruments in other markets, to protect against currency
fluctuations, as
B-46
a duration management technique, to protect against any increase in the price of securities a
Fund anticipates purchasing at a later date, or to gain exposure to certain markets in an
economical way.
Swap agreements are two party contracts entered into primarily by institutional investors. In
a standard swap transaction, two parties agree to exchange the returns (or differentials in rates
of return) earned or realized on particular predetermined investments or instruments, which may be
adjusted for an interest factor. The gross returns to be exchanged or swapped between the parties
are generally calculated with respect to a notional amount, i.e., the return on or increase in
value of a particular dollar amount invested at a particular interest rate, in a particular foreign
currency or security, or in a basket of securities representing a particular index. As examples,
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. Written credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security or pool of securities.
Credit swaps give one party to a transaction the right to dispose of or acquire an asset (or group
of assets), or the right to receive from or make a payment to the other party, upon the occurrence
of specified credit events. Currency swaps involve the exchange of the parties respective rights
to make or receive payments in specified currencies. Total return swaps are contracts that obligate
a party to pay or receive interest in exchange for payment by the other party of the total return
generated by a security, a basket of securities, an index, or an index component.
A swaption is an option to enter into a swap agreement. Like other types of options, the buyer
of a swaption pays a non-refundable premium for the option and obtains the right, but not the
obligation, to enter into an underlying swap on agreed-upon terms. The seller of a swaption, in
exchange for the premium, becomes obligated (if the option is exercised) to enter into an
underlying swap on agreed-upon terms. 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 great deal of flexibility is possible in the way swap transactions are structured. However,
generally a Fund will enter into interest rate, total return, credit and mortgage swaps 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, total return, credit
and mortgage swaps do not normally involve the delivery of securities, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate, total return, credit and
mortgage swaps is normally limited to the net amount of payments that a Fund is contractually
obligated to make. If the other party to an interest rate, total return, credit or mortgage swap
defaults, a Funds risk of loss consists of the net amount of interest payments that such 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 gross payment stream in another
designated currency. Therefore, the 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.
A credit swap may have as reference obligations one or more securities that may, or may not,
be currently held by a Fund. The protection buyer in a credit swap is generally obligated to pay
the protection seller an upfront or a periodic stream of payments over the term of the swap
provided that no credit event, such as a default, on a reference obligation has occurred. If a
credit event occurs, the seller generally must pay the buyer the par value (full notional value)
of the swap in exchange for an equal face amount of deliverable obligations of the reference entity
described in the swap, or the seller may be required to deliver the related net cash amount, if the
swap is cash settled. A Fund may be either the buyer or seller in the transaction. If the Fund is a
buyer and no credit event occurs, the Fund may recover nothing if the swap is held through its
termination date. However, if a credit event occurs, the buyer generally may elect to receive the
full notional value of the swap in exchange for an equal face amount of deliverable obligations of
the reference entity whose value may have significantly decreased. As a seller, a Fund generally
receives an upfront payment or a rate of income throughout the term of the swap provided that there
is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because,
in addition to its total net assets, a Fund would be subject to investment exposure on the notional
amount of the swap. If a credit event occurs, the value of any deliverable obligation received by
the Fund as seller, coupled with the upfront or periodic payments previously received, may be less
than the full notional value it pays to the buyer, resulting in a loss of value to the Fund.
To the extent that a Funds exposure in a transaction involving a swap, swaption or an
interest rate floor, cap or collar is covered by the segregation of cash or liquid assets, or is
covered by other means in accordance with SEC guidance, the Funds and the Investment Adviser
believe that the transactions do not constitute senior securities under the Act and, accordingly,
will not treat them as being subject to a Funds borrowing restrictions.
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The Funds will not enter into any interest rate, total return, mortgage or credit swap
transactions unless the unsecured commercial paper, senior debt or claims-paying ability of the
other party is rated either A or A-1 or better by Standard & Poors or A or P-1 or better by
Moodys or their equivalent ratings. Core Fixed Income, Core Plus Fixed Income, Investment Grade
Credit, Global Income, High Yield, High Yield Floating Rate, Strategic Income, Emerging Markets
Debt, Local Emerging Markets Debt, and Inflation Protected Securities Funds will not enter into any
currency swap transactions unless the unsecured commercial paper, senior debt or claimspaying
ability of the other party thereto is rated investment grade by Standard & Poors or Moodys, or,
if unrated by such rating organization, determined to be of comparable quality by the Investment
Adviser. If there is a default by the other party to such a transaction, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The use of interest rate, mortgage, credit, total return 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. The use of a swap requires an understanding not only of the referenced asset,
reference rate, or index but also of the swap itself, without the benefit of observing the
performance of the swap under all possible market conditions. If the Investment Adviser is
incorrect in its forecasts of market values, credit quality, interest rates and currency exchange
rates, the investment performance of a Fund would be less favorable than it would have been if
these investment instruments were not used.
In addition, these transactions can involve greater risks than if a Fund had invested in the
reference obligation directly because, in addition to general market risks, swaps are subject to
illiquidity risk, counterparty risk, credit risk and pricing risk. Because they are two party
contracts and because they may have terms of greater than seven days, swap transactions may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a swap counterparty.
Many swaps are complex and often valued subjectively. Swaps may be subject to pricing or basis
risk, which exists when a particular swap becomes extraordinarily expensive relative to historical
prices or the price of corresponding cash market instruments. Under certain market conditions it
may not be economically feasible to imitate a transaction or liquidate a position in time to avoid
a loss or take advantage of an opportunity. If a swap transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a
position at an advantageous time or price, which may result in significant losses.
The swap market has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid in comparison with the
markets for other similar instruments which are traded in the interbank market. The Investment
Adviser, under the supervision of the Board of Trustees, is responsible for determining and
monitoring the liquidity of the Funds transactions in swaps, swaptions, caps, floors and collars.
MMD Rate Loans. Certain Funds may purchase and sell Municipal Market Data AAA Cash
Curve swaps, also known as MMD rate locks. A Fund may use these transactions for hedging purposes
or, to the extent consistent with its investment policies, to enhance income or gain or to increase
the Funds yield, for example, during periods of steep interest rate yield curves (i.e., wide
differences between short term and long term interest rates).
An MMD rate lock permits a Fund to lock in a specified municipal interest rate for a portion
of its portfolio to preserve a return on a particular investment, as a duration management
technique, or to protect against any increase in the price of securities to be purchased at a later
date. By using an MMD rate lock, a Fund can create a synthetic long or short position, allowing the
Fund to select the most attractive part of the yield curve. An MMD rate lock is a contract between
a Fund and an MMD rate lock provider pursuant to which the parties agree to make payments to each
other on a notional amount, contingent upon whether the Municipal Market Data AAA General
Obligations Scale is above or below a specified level on the expiration date of the contract. In
connection with investments in MMD rate locks, there is a risk that municipal yields will move in
the opposite direction than that anticipated by a Fund, which would cause the Fund to make payments
to its counterparty in the transaction that could adversely affect the Funds performance.
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 or on any securities index consisting of securities in which
it may invest. A Fund may write such options on securities that are listed on national domestic
securities exchanges or foreign securities exchanges or traded in the over-the-counter market. A
call option written by a Fund obligates that Fund to sell specified securities to the holder of the
option at a specified price if the option is exercised on or before the expiration date. Depending
upon the type of call option, the purchaser of a call option either (i) has the right to any
appreciation in the value of the security over a fixed price (the exercise price) on a certain
date in the future (the expiration date) or (ii) has the right to any appreciation in the value
of the security over the exercise price at any time prior to the expiration of the option. If the
purchaser does not exercise the option, a Fund pays the purchaser the difference between the price
of the security and the
B-48
exercise price of the option. The premium, the exercise price and the market value of the
security determine the gain or loss realized by a Fund as the seller of the call option. A Fund can
also repurchase the call option prior to the expiration date, ending its obligation. In this case,
the cost of entering into closing purchase transactions will determine the gain or loss realized by
the Fund. All call options written by a Fund are covered, which means that such Fund will own the
securities subject to the option so long as the option is outstanding or such Fund will use the
other methods described below. A Funds purpose in writing covered call options is to realize
greater income than would be realized on portfolio securities transactions alone. However, a Fund
may forego the opportunity to profit from an increase in the market price of the underlying
security.
A put option written by a Fund obligates the Fund to purchase specified securities from the
option holder at a specified price if the option is exercised on or before the expiration date. All
put options written by a Fund would be covered, which means that such Fund will segregate cash or
liquid assets with a value at least equal to the exercise price of the put option (less any margin
on deposit) or will use the other methods described below. The purpose of writing such options is
to generate additional income for the Fund. However, in return for the option premium, 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.
In the case of a call option, the option is covered if a Fund owns the instrument underlying
the call or has an absolute and immediate right to acquire that instrument without additional cash
consideration (or, if additional cash consideration is required, liquid assets in such amount are
segregated) upon conversion or exchange of other instruments held by it. A call option is also
covered if a Fund holds a call on the same instrument as the option written where the exercise
price of the option held is (i) equal to or less than the exercise price of the option written, or
(ii) greater than the exercise price of the option written provided the Fund segregates liquid
assets in the amount of the difference. A put option is also covered if a Fund holds a put on the
same security as the option written where the exercise price of the option held is (i) equal to or
higher than the exercise price of the option written, or (ii) less than the exercise price of the
option written provided the Fund segregates liquid assets in the amount of the difference. A Fund
may also cover call options on securities by segregating cash or liquid assets, as permitted by
applicable law, with a value when added to any margin on deposit, that is equal to the market value
of the securities in the case of a call option. In the case of the Core Fixed Income Fund, Core
Plus Fixed Income Fund, Investment Grade Credit Fund, Global Income Fund, High Yield Fund, High
Yield Floating Rate Fund, Strategic Income Fund, Emerging Markets Debt Fund, or Local Emerging
Markets Debt Fund, segregated cash or liquid assets may be quoted or denominated in any currency.
A Fund may terminate its obligations under an exchange-traded call or put option by purchasing
an option identical to the one it has written. Obligations under over-the-counter options may be
terminated only by entering into an offsetting transaction with the counterparty to such option.
Such purchases are referred to as closing purchase transactions.
Each Fund may also write (sell) covered call and put options on any securities index
consisting of securities in which it may invest. Options on securities indices are similar to
options on securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single security.
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 if additional cash
consideration is required, liquid assets in such amount are segregated) upon conversion or exchange
of other securities held by it. The Funds may also cover call and put options on a securities index
by segregating cash or liquid assets, as permitted by applicable law, with a value, when added to
any margin on deposit, that is equal to the market value of the underlying securities in the case
of a call option or the exercise price in the case of a put option or by owning offsetting options
as described above.
The writing of options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities transactions. The use
of options to seek to increase total return involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices or interest rates. The successful
use of options for hedging purposes also depends in part on the ability of the Investment Adviser
to predict future price fluctuations and the degree of correlation between the options and
securities markets. If the Investment Adviser is incorrect in its expectation of changes in
securities prices or determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Funds investment portfolio, the
investment performance of the Fund will be less favorable than it would have been in the absence of
such options transactions. The writing of options could increase a Funds portfolio turnover rate
and, therefore, associated brokerage commissions or spreads.
Purchasing Options. Each Fund may purchase put and call options on any securities in
which it may invest or any securities index consisting of securities in which it may invest. A Fund
(except the U.S. Mortgages Fund) may also, to the extent that it invests in
B-49
foreign securities, purchase put and call options on foreign currencies. In addition, a Fund
may enter into closing sale transactions in order to realize gains or minimize losses on options it
had purchased.
A Fund may purchase call options in anticipation of an increase, or put options in
anticipation of a decrease (protective puts), in the market value of securities of the type in
which it may invest. The purchase of a call option would entitle 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 on the purchase of a call option if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and transaction costs;
otherwise the Fund would realize either no gain or a loss on the purchase of the call option. The
purchase of a put option would entitle 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 Funds 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 cover the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options
may be offset by countervailing changes in the value of the underlying portfolio securities.
A Fund may purchase put and call options on securities indices for the same purposes as it may
purchase options on securities. Options on securities indices are similar to options on securities,
except that the exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the securities market rather than
price fluctuations in a single security.
Writing and Purchasing Currency Call and Put Options. Core Fixed Income, Core Plus
Fixed Income, Investment Grade Credit, Global Income, High Yield, High Yield Floating Rate,
Strategic Income, Emerging Markets Debt, Local Emerging Markets Debt, and Inflation Protected
Securities Funds may write covered put and call options and purchase put and call options on
foreign currencies in an attempt to protect against declines in the U.S. dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign securities to be
acquired. A Fund may also use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to seek to hedge against changes in exchange rates for a
different currency with a pattern of correlation. 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 an option that a Fund has written is exercised, 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 fluctuations; however, in the event of exchange rate movements adverse to a
Funds position, the Fund may forfeit the entire amount of the premium plus related transaction
costs. In addition, Core Fixed Income, Core Plus Fixed Income, Global Income, High Yield, High
Yield Floating Rate, Strategic Income, Local Emerging Markets Debt, and Inflation Protected
Securities Funds may purchase call options on currency to seek to increase total return.
A currency call option written by a Fund obligates the 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 currency put option written by a Fund obligates the 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 currencys market value or be required to purchase currency subject to a put at a price that
exceeds the currencys market value.
A Fund may terminate its obligations under a written call or put option by purchasing an
option identical to the one written. Such purchases are referred to as closing purchase
transactions. A Fund may enter into closing sale transactions in order to realize gains or
minimize losses on purchased options.
A Fund may purchase call options in anticipation of an increase in the U.S. dollar value of
currency in which securities to be acquired by the Fund are denominated or quoted. The purchase of
a call option would entitle a 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 may purchase put options in anticipation of a decline in the U.S. dollar value of
currency in which securities in its portfolio are denominated or quoted (protective puts). The
purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell
specified currency at a specified price during the option period. The purchase of protective puts
is designed merely to offset or hedge against a decline in the U.S. dollar value of a Funds
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
B -50
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 currency.
In addition to using options for the hedging purposes described above, Core Fixed Income, Core
Plus Fixed Income, Investment Grade Credit, Global Income, High Yield, High Yield Floating Rate,
Strategic Income, Emerging Markets Debt, Local Emerging Markets Debt, and Inflation Protected
Securities Funds may use options on currency to seek to increase total return. These Funds may
write (sell) covered put and call options on any currency in an attempt to realize greater income
than would be realized on portfolio securities transactions alone. However, in writing covered call
options for additional income, the Funds may forego the opportunity to profit from an increase in
the market value of the underlying currency. Also, when writing put options, the Funds accept, in
return for the option premium, the risk that they may be required to purchase the underlying
currency at a price in excess of the currencys market value at the time of purchase.
The Funds may purchase call options to seek to increase total return in anticipation of an
increase in the market value of a currency. The Funds 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 Funds would realize either no gain or a loss on the
purchase of the call option. Put options may be purchased by the Funds for the purpose of
benefiting from a decline in the value of currencies which they do not own. The Funds 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 Funds would realize either no gain or a loss on the purchase of the put
option.
Yield Curve Options. Each Fund may enter into options on the yield spread or
differential between two securities. Such transactions are referred to as yield curve options. In
contrast to other types of options, a yield curve option is based on the difference between the
yields of designated securities, rather than the prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profitable to the holder if
this differential widens (in the case of a call) or narrows (in the case of a put), regardless of
whether the yields of the underlying securities increase or decrease.
A Fund may purchase or write yield curve options for the same purposes as other options on
securities. For example, a Fund may purchase a call option on the yield spread between two
securities if the Fund owns one of the securities and anticipates purchasing the other security and
wants to hedge against an adverse change in the yield spread between the two securities. A Fund may
also purchase or write yield curve options in an effort to increase current income if, in the
judgment of the Investment Adviser, the 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 a risk of loss even if the yield of one of the underlying securities remains
constant, or if the spread moves in a direction or to an extent which was not anticipated.
Yield curve options written by a Fund will be covered. A call (or put) option is covered if
the Fund holds another call (or put) option on the spread between the same two securities and
segregates cash or liquid assets sufficient to cover the Funds net liability under the two
options. Therefore, a Funds liability for such a covered option is generally limited to the
difference between the amount of the Funds liability under the option written by the Fund less the
value of the option held by the 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
established trading markets for these options may not exist.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any particular
exchange-traded option or at any particular time. If 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.
Reasons for the absence of a liquid secondary market on an exchange include, but are not
limited to, the following: (i) there may be insufficient trading interest in certain options; (ii)
restrictions may be imposed by an exchange on opening or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with respect to particular classes
or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on
an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the secondary market on that
exchange (or in that class or series of options) would cease to exist although outstanding options
on that exchange that had been issued by the Options Clearing Corporation as a result of trades on
that exchange would continue to be exercisable in accordance with their terms.
B-51
There can be no assurance that higher trading activity, order flow or other unforeseen events
might not, at times, render certain of the facilities of the Options Clearing Corporation or
various exchanges inadequate. Such events have, in the past, resulted in the institution by an
exchange of special procedures, such as trading rotations, restrictions on certain types of order
or trading halts or suspensions with respect to one or more options. These special procedures may
limit liquidity.
A 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 and other types of institutions that 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 the broker-dealers or financial
institutions participating in such transactions will not fulfill their obligations.
Transactions by a Fund in options will be subject to limitations established by each of the
exchanges, boards of trade or other trading facilities on which such options are traded governing
the maximum number of options in each class which may be written or purchased by a single investor
or group of investors acting in concert regardless of whether the options are written or purchased
on the same or different exchanges, boards of trade or other trading facilities or are held in one
or more accounts or through one or more brokers. Thus, the number of options which a Fund may write
or purchase may be affected by options written or purchased by other investment advisory clients of
an Investment Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may impose certain other
sanctions.
The writing and purchase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part on the ability of
the Investment Adviser to manage future price fluctuations and the degree of correlation between
the options and securities (or currency) markets. If the Investment Adviser is incorrect in its
expectation of changes in securities prices or determination of the correlation between the
securities or securities indices on which options are written and purchased and the securities in a
Funds investment portfolio, the Fund may incur losses that it would not otherwise incur. The
writing of options could increase a Funds portfolio turnover rate and, therefore, associated
brokerage commissions or spreads.
Futures Contracts and Options on Futures Contracts
Each Fund may purchase and sell various kinds of futures contracts, and purchase and write
call and put options on any of such futures contracts. A Fund may also enter into closing purchase
and sale transactions with respect to any of such contracts and options. The futures contracts may
be based on various securities (such as U.S. Government Securities), securities indices, foreign
currencies in the case of the Global Income, Core Fixed Income, Core Plus Fixed Income, Investment
Grade Credit, High Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local
Emerging Markets Debt and Inflation Protected Securities Funds and any other financial instruments
and indices. Financial futures contracts used by each of the Funds include interest rate futures
contracts including, among others, Eurodollar futures contracts. Eurodollar futures contracts are
U.S. dollar-denominated futures contracts that are based on the implied forward LIBOR of a
three-month deposit.
A Fund may engage in futures and related options transactions in order to seek to increase
total return or to hedge against changes in interest rates, securities prices or, if a Fund invests
in foreign securities (except the U.S. Mortgages Fund and Enhanced Income Fund), currency exchange
rates, or to otherwise manage its term structure, sector selection and duration in accordance with
its investment objective and policies. Each Fund may also enter into closing purchase and sale
transactions with respect to such contracts and options. The Trust, on behalf of each Fund, has
claimed an exclusion from the definition of the term commodity pool operator under the Commodity
Exchange Act and, therefore, is not subject to registration or regulation as a pool operator under
that Act with respect to the Funds.
Futures contracts entered into by a Fund have historically been traded on U.S. exchanges or
boards of trade that are licensed and regulated by the Commodity Futures Trading Commission
(CFTC) or on foreign exchanges. More recently, certain futures may also be traded either
over-the-counter or on trading facilities such as derivatives transaction execution facilities,
exempt boards of trade or electronic trading facilities that are licensed and/or regulated to
varying degrees by the CFTC. Also, certain single stock futures and narrow based security index
futures may be traded either over-the-counter or on trading facilities such as contract markets,
derivatives transaction execution facilities and electronic trading facilities that are licensed
and/or regulated to varying degrees by both the CFTC and the SEC or on foreign exchanges.
Neither the CFTC, National Futures Association, SEC nor any domestic exchange regulates
activities of any foreign exchange or boards of trade, including the execution, delivery and
clearing of transactions, or has the power to compel enforcement of the rules of a foreign exchange
or board of trade or any applicable foreign law. This is true even if the exchange is formally
linked to a domestic
B-52
market so that a position taken on the market may be liquidated by a transaction on another
market. Moreover, such laws or regulations will vary depending on the foreign country in which the
foreign futures or foreign options transaction occurs. For these reasons, a Funds investments in
foreign futures or foreign options transactions may not be provided the same protections in respect
of transactions on United States exchanges. In particular, persons who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures provided by the
Commodity Exchange Act, the CFTCs regulations and the rules of the National Futures Association
and any domestic exchange, including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures Association or any domestic futures
exchange. Similarly, these persons may not have the protection of the U.S. securities laws.
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or currencies for an agreed
price during a designated month (or to deliver the final cash settlement price, in the case of a
contract relating to an index or otherwise not calling for physical delivery at the end of trading
in the contract).
When interest rates are rising or securities prices are falling, a Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of futures contracts.
When interest rates are falling or securities prices are rising, a Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases. Core Fixed Income, Core Plus Fixed Income,
Investment Grade Credit, Global Income, High Yield, High Yield Floating Rate, Strategic Income,
Emerging Markets Debt, Local Emerging Markets Debt and Inflation Protected Securities Funds may
purchase and sell futures contracts on a specified currency in order to seek to increase total
return or to protect against changes in currency exchange rates. For example, these Funds may seek
to offset anticipated changes in the value of a currency in which its portfolio securities, or
securities that it intends to purchase, are quoted or denominated by purchasing and selling futures
contracts on such currencies. As another example, certain Funds may enter into futures transactions
to seek a closer correlation between a Funds overall currency exposures and the currency exposures
of a Funds performance benchmark.
Positions taken in the futures markets are not normally held to maturity but are instead
liquidated through offsetting transactions which may result in a profit or a loss. While futures
contracts on securities or currency will usually be liquidated in this manner, a Fund may instead
make or take delivery of the underlying securities or currency whenever it appears economically
advantageous to do so. A clearing corporation associated with the exchange on which futures on
securities or currency are traded guarantees that, if still open, the sale or purchase will be
performed on the settlement date.
Hedging Strategies. When a Fund uses futures for hedging purposes, the Fund often
seeks to establish with more certainty than would otherwise be possible the effective price or rate
of return on portfolio securities (or securities that the Fund proposes to acquire) or the exchange
rate of currencies in which portfolio securities are quoted or denominated. A Fund may, for
example, take a short position in the futures market by selling futures contracts to seek to
hedge against an anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the U.S. dollar value of the Funds portfolio
securities. Such futures contracts may include contracts for the future delivery of securities held
by a Fund or securities with characteristics similar to those of a Funds portfolio securities.
Similarly, Core Fixed Income, Core Plus Fixed Income, Investment Grade Credit, Global Income, High
Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local Emerging Markets
Debt, and Inflation Protected Securities Funds may each sell futures contracts on any currencies in
which its portfolio securities are quoted or denominated or sell futures contracts on one currency
to seek to hedge against fluctuations in the value of securities quoted or denominated in a
different currency if there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for a Funds portfolio securities and futures contracts based on
other financial instruments, securities indices or other indices, the Funds may also enter into
such futures contracts as part of a hedging strategy. Although under some circumstances prices of
securities in a Funds portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this volatility difference
based on historical patterns and compensate for any such differential by having 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 Funds portfolio securities. When hedging of this character is
successful, any depreciation in the value of portfolio securities will be substantially offset by
appreciation in the value of the futures position. On the other hand, any unanticipated
appreciation in the value of a Funds 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 futures contracts. This
may 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
B-53
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 Funds 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 exercise price. 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 (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may have a value lower than the
exercise price. Thus, the loss incurred by a Fund in writing options on futures is potentially
unlimited and may exceed the amount of the premium received. The Funds will incur transaction costs
in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its position by selling
or purchasing an offsetting option on the same financial instrument. There is no guarantee that
such closing transactions can be effected. A Funds ability to establish and close out positions on
such options will be subject to the development and maintenance of a liquid market.
Other Considerations. A Fund will engage in transactions in futures contracts and
related options transactions only to the extent such transactions are consistent with the
requirements of the Code for maintaining their qualifications as regulated investment companies for
federal income tax purposes. Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in certain cases, require the Funds to segregate cash
or liquid assets. The Funds may cover their transactions in futures contracts and related options
through the segregation of cash or liquid assets or by other means, in any manner permitted by
applicable law.
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. When futures
contracts and options are used for hedging purposes, perfect correlation between a Funds futures
positions and portfolio positions may be impossible to achieve, particularly where futures
contracts based on individual equity or corporate fixed income securities are currently not
available. In the event of 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.
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 unrelated to
currency fluctuations. The profitability of a Funds trading in futures depends upon the ability of
the Investment Adviser to analyze correctly the futures markets.
Combined Transactions
Each of the Funds may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions (as
applicable)(including forward currency contracts) and multiple interest rate and other swap
transactions and any combination of futures, options, currency and swap transactions (component
transactions) as part of a single or combined strategy when, in the opinion of the Investment
Adviser, it is in the best interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions. Although combined
transactions are normally entered into based on the Investment Advisers judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or hinder achievement of
the portfolio management objective.
Short Sales
The Strategic Income Fund may engage in short sales. Short sales are transactions in which the
Fund sells a security it does not own in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow the security to make delivery to the
buyer. The Fund then is obligated to replace the security borrowed by purchasing it at the market
price at the time of replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund. Until the security is replaced, the Fund is required to
pay to the lender amounts equal to any dividend which accrues during the period of the loan. To
borrow the security, the Fund also may be required to pay a premium, which would increase the cost
of the security sold. There will also be other costs associated with short sales.
The Fund will incur a loss as a result of the short sale if the price of the security
increases between the date of the short sale and the date on which the Fund replaces the borrowed
security. The Fund will realize a gain if the security declines in price between those
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dates. This result is the opposite of what one would expect from a cash purchase of a long
position in a security. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or amounts in lieu of interest the Fund may be required to
pay in connection with a short sale, and will be also decreased by any transaction or other costs.
Until the Fund replaces a borrowed security in connection with a short sale, the Fund will (a)
segregate cash or liquid assets at such a level that the segregated assets plus any amount
deposited with the broker as collateral will equal the current value of the security sold short or
(b) otherwise cover its short position in accordance with applicable law.
There is no guarantee that the Fund will be able to close out a short position at any
particular time or at an acceptable price. During the time that the Fund is short a security, it is
subject to the risk that the lender of the security will terminate the loan at a time when the Fund
is unable to borrow the same security from another lender. If that occurs, the Fund may be bought
in at the price required to purchase the security needed to close out the short position, which
may be a disadvantageous price.
Short Sales Against the Box. Each of the Funds may engage in short sales against the box. As
noted above, a short sale is made by selling a security the seller does not own. A short sale is
against the box to the extent that the seller contemporaneously owns or has the right to obtain,
at no added cost, securities identical to those sold short. A Fund may enter into a short sale
against the box, for example, to lock in a sales price for a security the Fund does not wish to
sell immediately. If a Fund sells securities short against the box, it may protect itself from
loss if the price of the securities declines in the future, but will lose the opportunity to profit
on such securities if the price rises. If the Fund effects a short sale of securities at a time
when it has an unrealized gain on the securities, it may be required to recognize that gain as if
it had actually sold the securities (as a constructive sale) on the date it effects the short
sale. However, such constructive sale treatment may not apply if the Fund closes out the short
sale with securities other than the appreciated securities held at the time of the short sale and
if certain other conditions are satisfied. Uncertainty regarding the tax consequences of effecting
short sales may limit the extent to which a Fund may effect short sales.
Mortgage Dollar Rolls
The Taxable Funds (other than Enhanced Income Fund, High Yield Fund, High Yield Floating Rate
Fund, Emerging Markets Debt Fund, Local Emerging Markets Debt Fund and Inflation Protected
Securities Fund) may enter into mortgage dollar rolls in which a Fund sells securities for delivery
in the current month and simultaneously contracts with the same counterparty to repurchase similar,
but not identical securities on a specified future date. During the roll period, a Fund loses the
right to receive principal and interest paid on the securities sold. However, a 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 or fee income plus the interest earned on the cash proceeds
of the securities sold until the settlement date of the forward purchase. All cash proceeds will be
invested in instruments that are permissible investments for the applicable Fund. Each Fund will
segregate until the settlement date cash or liquid assets, as permitted by applicable law, in an
amount equal to its forward purchase price.
For financial reporting and tax purposes, the Funds treat mortgage dollar rolls as two
separate transactions; one involving the purchase of a security and a separate transaction
involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls for
financing and do not treat them as borrowings.
Mortgage dollar rolls involve certain risks including the following: if the broker-dealer to
whom a Fund sells the security becomes insolvent, a Funds right to purchase or repurchase the
mortgage-related securities subject to the mortgage dollar roll may be restricted. Also, the
instrument which a Fund is required to repurchase may be worth less than an instrument which a Fund
originally held. Successful use of mortgage dollar rolls will depend upon the Investment Advisers
ability to manage a Funds interest rate and mortgage prepayments exposure. For these reasons,
there is no assurance that mortgage dollar rolls can be successfully employed. The use of this
technique may diminish the investment performance of a Fund compared with what such performance
would have been without the use of mortgage dollar rolls.
Convertible Securities
The Enhanced Income, Short Duration Tax-Free, Municipal Income, Core Fixed Income, Core Plus
Fixed Income, Investment Grade Credit, High Yield Municipal, High Yield, High Yield Floating Rate,
Strategic Income, Emerging Markets Debt and Local Emerging Markets Debt Funds may invest in
convertible securities. Convertible securities are bonds, debentures, notes, preferred stocks or
other securities that may be converted into or exchanged for a specified amount of common stock (or
other securities) of the same or different issuer within a particular period of time at a specified
price or formula. A convertible security entitles the holder to receive interest that is generally
paid or accrued on debt or a dividend that is paid or accrued on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convertible securities have
unique investment characteristics, in that they generally (i) have higher yields than common
stocks, but lower yields than comparable non-convertible securities, (ii) are less subject
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to fluctuation in value than the underlying common stock due to their fixed income
characteristics and (iii) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its investment value (determined by its
yield in comparison with the yields of other securities of comparable maturity and quality that do
not have a conversion privilege) and its conversion value (the securitys worth, at market value,
if converted into the underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value normally declining as interest rates
increase and increasing as interest rates decline. The credit standing of the issuer and other
factors may also have an effect on the convertible securitys investment value. The conversion
value of a convertible security is determined by the market price of the underlying common stock.
If the conversion value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value. To the extent the market price of the
underlying common stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible security generally
will sell at a premium over its conversion value by the extent to which investors place value on
the right to acquire the underlying common stock while holding a fixed income security.
A convertible security may be subject to redemption at the option of the issuer at a price
established in the convertible securitys governing instrument. If a convertible security held by a
Fund is called for redemption, the Fund will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third party. Any of these
actions could have an adverse effect on a Funds ability to achieve its investment objective,
which, in turn, could result in losses to the Fund. To the extent that a Fund holds a convertible
security, or a security that is otherwise converted or exchanged for common stock (e.g., as a
result of a restructuring), the Fund may, consistent with its investment objective, hold such
common stock in its portfolio.
Lending of Portfolio Securities
Each Fund (other than High Yield Floating Rate Fund) may lend its portfolio securities to
brokers, dealers and other institutions, including Goldman Sachs, although none presently intends
to do so. By lending its securities, a Fund attempts to increase its net investment income.
Securities loans are required to be secured continuously by collateral in cash, cash
equivalents, letters of credit or U.S. Government Securities equal to at least 100% of the value of
the loaned securities. This collateral must be valued, or marked to market, daily. Borrowers are
required to furnish additional collateral to the Fund as necessary to fully cover their
obligations.
With respect to loans that are collateralized by cash, the Fund may reinvest that cash in
short-term investments and pay the borrower a pre-negotiated fee or rebate from any return earned
on the investment. Investing the collateral subjects it to market depreciation or appreciation,
and a Fund is responsible for any loss that may result from its investment of the borrowed
collateral. Cash collateral may be invested in, among other things, other registered or
unregistered funds, including private investing funds or money market funds that are managed by the
Investment Adviser or its affiliates, and which pay the Investment Adviser or its affiliates for
their services. If the Fund would receive non-cash collateral, the Fund receives a fee from the
borrower equal to a negotiated percentage of the market value of the loaned securities.
For the duration of any securities loan, the Fund will continue to receive the equivalent of
the interest, dividends or other distributions paid by the issuer on the loaned securities. The
Fund will not have the right to vote its loaned securities during the period of the loan, but a
Fund may attempt to recall a loaned security in anticipation of a material vote if it desires to do
so. A Fund will have the right to terminate a loan at any time and recall the loaned securities
within the normal and customary settlement time for securities transactions.
Securities lending involves certain risks. The Fund may lose money on its investment of cash
collateral, resulting in a loss of principal, or may fail to earn sufficient income on its
investment to cover the fee or rebate it has agreed to pay the borrower. A Fund may incur losses
in connection with its securities lending activities that exceed the value of the interest income
and fees received in connection with such transactions. Securities lending subjects a Fund to the
risk of loss resulting from problems in the settlement and accounting process, and to additional
credit, counterparty and market risk. These risks could be greater with respect to non-U.S.
securities. Engaging in securities lending could have a leveraging effect, which may intensify the
other risks associated with investments in the Fund. In addition, a Fund bears the risk that the
price of the securities on loan will increase while they are on loan, or that the price of the
collateral will decline in value during the period of the loan, and that the counterparty will not
provide, or will delay in providing, additional collateral. A Fund also bears the risk that a
borrower may fail to return securities in a timely manner or at all, either because the borrower
fails financially or for other reasons. If a borrower of securities fails financially, a Fund may
also lose its rights in the collateral. A Fund could experience delays and costs in recovering
loaned securities or in gaining access to and liquidating the collateral, which could result in
actual financial loss and which could interfere with portfolio management decisions or
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the exercise of ownership rights in the loaned securities. If a Fund is not able to recover
the securities lent, the Fund may sell the collateral and purchase replacement securities in the
market. However, the Fund will incur transaction costs on the purchase of replacement securities.
These events could trigger adverse tax consequences for the Fund. In determining whether to lend
securities to a particular borrower, and throughout the period of the loan, the creditworthiness of
the borrower will be considered and monitored. Loans will only be made to firms deemed to be of
good standing, and where the consideration that can be earned currently from securities loans of
this type is deemed to justify the attendant risk. It is intended that the value of securities
loaned by a Fund will not exceed one-third of the value of a Funds total assets (including the
loan collateral).
The Fund will consider the loaned securities as assets of the Fund, but will not consider any
collateral as a Fund asset except when determining total assets for the purpose of the above
one-third limitation. Loan collateral (including any investment of the collateral) is not subject
to the percentage limitations stated elsewhere in this SAI or in the Prospectuses regarding
investing in fixed income securities and cash equivalents.
A Funds Board of Trustees may approve the Funds participation in a securities lending
program and adopt policies and procedures relating thereto. A Fund may retain an affiliate of the
Investment Adviser to serve as its securities lending agent.
For its services, the securities lending agent may receive a fee from a Fund, including a fee
based on the returns earned on the Funds investment of cash received as collateral for the loaned
securities. In addition, a Fund may make brokerage and other payments to Goldman Sachs and its
affiliates in connection with the Funds portfolio investment transactions. A Funds Board of
Trustees periodically reviews securities loan transactions for which a Goldman Sachs affiliate has
acted as lending agent for compliance with the Funds securities lending procedures. Goldman Sachs
may also be approved as a borrower under a Funds securities lending program, subject to certain
conditions.
Restricted and Illiquid Securities
Each Fund may purchase securities that are not registered or that are offered in an exempt
non-public offering (Restricted Securities) under the Securities Act of 1933, as amended (1933
Act), including securities eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the 1933 Act. However, a Fund will not invest more than 15% of its net assets in
illiquid investments, which include repurchase agreements with a notice or demand period of more
than seven days, certain SMBS, certain municipal leases, certain over-the-counter options,
securities that are not readily marketable and Restricted Securities unless, based upon a review of
the trading markets for the specific Restricted Securities, such Restricted Securities are
determined to be liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the function of determining and monitoring the liquidity of the Funds portfolio
securities. This investment practice could have the effect of increasing the level of illiquidity
in a Fund to the extent that qualified institutional buyers become for a time uninterested in
purchasing these Restricted Securities.
The purchase price and subsequent valuation of Restricted Securities may reflect a discount
from the price at which such securities trade when they are not restricted, because the restriction
makes them less liquid. The amount of the discount from the prevailing market price is expected to
vary depending upon the type of security, the character of the issuer, the party who will bear the
expenses of registering the Restricted Securities and prevailing supply and demand conditions.
When-Issued and Forward Commitment Securities
Each Fund may purchase securities on a when-issued basis or purchase or sell securities on a
forward commitment basis beyond the customary settlement time. 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. The Funds will generally purchase securities on a
when-issued basis or purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the securities. If
deemed advisable as a matter of investment strategy, however, the Funds may dispose of or negotiate
a commitment after entering into it. A Fund may also sell securities it has committed to purchase
before those securities are delivered to the Fund on the settlement date. The Funds may realize
capital gains or losses in connection with these transactions. For purposes of determining each
Funds duration, the maturity of when-issued or forward commitment securities for fixed-rate
obligations will be calculated from the commitment date. Each Fund is generally required to
segregate, until three days prior to settlement date, cash and liquid assets in an amount
sufficient to meet the purchase price unless the Funds obligations are otherwise covered.
Alternatively, each 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.
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Other Investment Companies
Each Fund may invest in securities of other investment companies, including ETFs. 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 management fees (and other expenses)
paid by the Fund. A Funds investments in other investment companies are subject to statutory
limitations prescribed by the Act, including in certain circumstances a prohibition on the Fund
acquiring more that 3% of the voting shares of any other investment company, and a prohibition on
investing more than 5% of the Funds total assets in securities of any one investment company or
more than 10% of its total assets in the securities of all investment companies. Many ETFs,
however, have obtained exemptive relief from the SEC to permit unaffiliated funds (such as the
Funds) to invest in their shares beyond these statutory limits, subject to certain conditions and
pursuant to contractual arrangements between the ETFs and the investing funds. A Fund may rely on
these exemptive orders in investing in ETFs. Moreover, pursuant to an exemptive order obtained
from the SEC or under an exemptive rule adopted by the SEC, the Funds may invest in investment
companies and money market funds for which an Investment Adviser, or any of its affiliates, serves
as investment adviser, administrator and/or distributor. However, to the extent that a Fund
invests in a money market fund for which an Investment Adviser or any of its affiliates acts as
investment adviser, the management fees payable by the Fund to the Investment Adviser will, to the
extent required by the SEC, be reduced by an amount equal to the Funds proportionate share of the
management fees paid by such money market fund to its investment adviser. Although the Funds do not
expect to do so in the foreseeable future, each Fund is authorized to invest substantially all of
its assets in a single open-end investment company or series thereof that has substantially the
same investment objective, policies and fundamental restrictions as the Fund. Additionally, to the
extent that any Fund serves as an underlying Fund to another Goldman Sachs Fund, that underlying
Fund may invest a percentage of its assets in other investment companies if those investments are
consistent with applicable law and/or exemptive orders obtained from the SEC.
Core Fixed Income Fund, Core Plus Fixed Income, Investment Grade Credit, Global Income Fund,
High Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Inflation Protected
Securities and Local Emerging Markets Debt Funds may purchase shares of investment companies
investing primarily in foreign securities, including country funds. Country funds have portfolios
consisting primarily of securities of issuers located in specified foreign countries or regions.
ETFs are shares of unaffiliated investment companies issuing shares which are traded like
traditional equity securities on a national stock exchange. An ETF represents a portfolio of
securities, which is often designed to track a particular market segment or index. An investment
in an ETF, like one in any investment company, carries the same risks as those of its underlying
securities. An ETF may fail to accurately track the returns of the market segment or index that it
is designed to track, and the price of an ETFs shares may fluctuate or lose money. In addition,
because they, unlike other investment companies, are traded on an exchange, ETFs are subject to the
following risks: (i) the market price of the ETFs shares may trade at a premium or discount to the
ETFs net asset value; (ii) an active trading market for an ETF may not develop or be maintained;
and (iii) there is no assurance that the requirements of the exchange necessary to maintain the
listing of the ETF will continue to be met or remain unchanged. In the event substantial market or
other disruptions affecting ETFs should occur in the future, the liquidity and value of a Funds
shares could also be substantially and adversely affected.
Repurchase Agreements
Each Fund may enter into repurchase agreements with banks, brokers, and dealers which furnish
collateral at least equal in value or market price to the amount of their repurchase obligation.
With respect to Enhanced Income Fund, Core Fixed Income Fund, Core Plus Fixed Income, Global Income
Fund, High Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local Emerging
Markets Debt, and Inflation Protected Securities Funds, these repurchase agreements may involve
foreign government securities. 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 for the duration of the agreement. Custody of the securities is maintained
by each Funds custodian (or sub-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 generally 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 always 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 value of the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, the Fund may be required to return the
security to the sellers estate and be treated as an
B-58
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.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the risk that the
seller may fail to repurchase the security. However, if the market value of the security subject to
the repurchase agreement becomes less than the repurchase price (including accrued interest), each
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.
The Funds, together with other registered investment companies having management agreements
with the Investment 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.
Reverse Repurchase Agreements
Each Fund (other than the Enhanced Income Fund) may borrow money by entering into transactions
called reverse repurchase agreements. Under these arrangements, a Fund will sell portfolio
securities to dealers in U.S. Government Securities or members of the Federal Reserve System, with
an agreement to repurchase the security on an agreed date, price and interest payment. In the case
of the Core Fixed Income, Core Plus Fixed Income, Investment Grade Credit, Global Income, High
Yield, High Yield Floating Rate, Strategic Income, Emerging Markets Debt, Local Emerging Markets
Debt, and Inflation Protected Securities Funds, these reverse repurchase agreements may involve
foreign government securities. Reverse repurchase agreements involve the possible risk that the
value of portfolio securities a Fund relinquishes may decline below the price a Fund must pay when
the transaction closes. Borrowings may magnify the potential for gain or loss on amounts invested
resulting in an increase in the speculative character of a Funds outstanding shares.
When a Fund enters into a reverse repurchase agreement, it places in a separate custodial
account either liquid assets or other high grade debt securities that have a value equal to or
greater than the repurchase price. The account is then continuously monitored by the Investment
Adviser to make sure that an appropriate value is maintained. Reverse repurchase agreements are
considered to be borrowings under the Act.
Taxable Investments and the Tax-Exempt Funds
The Tax Exempt Funds may invest in the taxable money market instruments described in the
foregoing sections. When a Funds assets are invested in such instruments, a Fund may not be
achieving its investment objective of providing income except from federal and/or applicable state
or local taxes.
Portfolio Maturity
Dollar-weighted average maturity is derived by multiplying the value of each investment by the
time remaining to its maturity, adding these calculations, and then dividing the total by the value
of a Funds portfolio. An obligations maturity is typically determined on a stated final maturity
basis, although there are some exceptions. For example, if an issuer of an instrument takes
advantage of a maturity-shortening device, such as a call, refunding, or redemption provision, the
date on which the instrument is expected to be called, refunded, or redeemed may be considered to
be its maturity date. There is no guarantee that the expected call, refund or redemption will occur
and a Funds average maturity may lengthen beyond the Investment Advisers expectations should the
expected call refund or redemption not occur. Similarly, in calculating its dollar-weighted average
maturity, a fund may determine the maturity of a variable or floating rate obligation according
to the interest rate reset date, or the date principal can be recovered on demand, rather than
the date of ultimate maturity.
Temporary Investments
Each Fund may, for temporary defensive purposes (and to the extent that it is permitted to
invest in the following), invest a certain percentage of its total assets in: U.S. Government
Securities; commercial paper rated at least A-2 by Standard & Poors, P-2 by Moodys or having a
comparable rating by another NRSRO (or if unrated, determined by the Investment Adviser to be of
comparable quality); certificates of deposit; bankers acceptances; repurchase agreements;
non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of
less than one year; ETFs and other investment companies; and cash items. When a Funds assets are
invested in such instruments, the Fund may not be achieving its investment objective.
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Portfolio Turnover
Each Fund may engage in active short-term trading to benefit from yield disparities among
different issues of securities or among the markets for fixed income securities, or for other
reasons. As a result of active management, it is anticipated that the portfolio turnover rate of
each Fund will vary from year to year, and may be affected by changes in the holdings of specific
issuers, changes in country and currency weightings, cash requirements for redemption of shares and
by requirements which enable the Funds to receive favorable tax treatment. The Funds are not
restricted by policy with regard to portfolio turnover and will make changes in their investment
portfolio from time to time as business and economic conditions as well as market prices may
dictate. When a Fund purchases a TBA mortgage, it can either receive the underlying pools of the
TBA mortgage or roll it forward a month. The portfolio turnover rate increases when a Fund rolls
the TBA forward. During the fiscal year ended March 31, 2011, the Government Income and Short
Duration Government Funds portfolio turnover rates increased significantly from the prior fiscal
because of an increase in mortgage-based transactions and, for the Short Duration Government Fund,
a shift from quasi-government and agency debentures into U.S. Treasury securities. The Inflation
Protected Securities Funds portfolio turnover rate increased significantly from the prior fiscal
year because of increased trading activity focusing on risk reduction and generating alpha through
relative value trades. The U.S. Mortgages Funds portfolio turnover rate increased significantly
from the prior fiscal year due to an increase in trading activity around non-U.S. Government
investments. The Core Plus Fixed Income Funds portfolio turnover rate increased significantly from
the prior fiscal year due to increased market liquidity and trading opportunities. Finally, the
Global Income Funds portfolio turnover rate increased significantly due to an increase in market
opportunities in duration positioning.
Special Note Regarding Market Events
Events in the financial sector over the past several years have resulted in reduced liquidity
in credit and fixed income markets and in an unusually high degree of volatility in the financial
markets, both domestically and internationally. While entire markets have been impacted, issuers
that have exposure to the real estate, mortgage and credit markets have been particularly affected.
These events and the potential for continuing market turbulence may have an adverse effect on the
Funds investments. It is uncertain how long these conditions will continue.
The instability in the financial markets led the U.S. government to take a number of
unprecedented actions designed to support certain financial institutions and certain segments of
the financial markets. Federal, state, and foreign governments, regulatory agencies, and self
-regulatory organizations may take actions that affect the regulation of the instruments in which
the Funds invest, or the issuers of such instruments, in ways that are
unforeseeable. Such legislation or regulation could limit or preclude a Funds ability to
achieve its investment objective.
Governments or their agencies may also acquire distressed assets from financial institutions
and acquire ownership interests in those institutions. The implications of government ownership and
disposition of these assets are unclear, and such ownership or disposition may have positive or
negative effects on the liquidity, valuation and performance of the Funds portfolio holdings.
Non-Diversified Status
Because Global Income Fund, High Yield Municipal Fund, Emerging Markets Debt Fund, and Local
Emerging Markets Debt Fund are each non-diversified under the Act, they are subject only to
certain federal tax diversification requirements. Under federal tax laws, Global Income Fund, High
Yield Municipal Fund, Emerging Markets Debt Fund and Local Emerging Markets Debt Fund may each,
with respect to 50% of its total assets, invest up to 25% of its total assets in the securities of
any issuer. With respect to the remaining 50% of each Funds total assets, (i) the Fund may not
invest more than 5% of its total assets in the securities of any one issuer, and (ii) the Fund may
not acquire more than 10% of the outstanding voting securities of any one issuer. These tests apply
at the end of each quarter of the taxable year and are subject to certain conditions and
limitations under the Code. These tests do not apply to investments in United States Government
Securities and regulated investment companies.
B-60
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the Trust as fundamental
policies that cannot be changed without the affirmative vote of the holders of a majority of the
outstanding voting securities (as defined in the Act) of the affected Fund. In addition, the
policies of Short Duration Tax-Free Fund, Municipal Income Fund and High Yield Municipal Fund to
invest under normal market conditions at least 80% of their respective Net Assets in Municipal
Securities the interest on which is exempt from regular federal income tax (i.e., excluded from
gross income for federal income tax purposes) and, in the case of the Short Duration Tax-Free Fund
only, is not a tax preference item under the federal alternative minimum tax, are fundamental
policies. The policy of Inflation Protected Securities Fund to invest under normal circumstances at
least 80% of its Net Assets in IPS of varying maturities, including TIPS and CIPS, is a fundamental
policy. The investment objective of each Fund and all other investment policies or practices of
the Funds are considered by the Trust not to be fundamental and accordingly may be changed without
shareholder approval. As defined in the Act, a majority of the outstanding voting securities of a
Fund means the vote of (i) 67% or more of the shares of a Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of a Fund are present or represented by proxy, or (ii)
more than 50% of the shares of a Fund.
For the purposes of the limitations (except for the asset coverage requirement with respect to
borrowings), any limitation which involves a maximum percentage shall not be considered violated
unless an excess over the percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Fund. With respect to the Tax Exempt
Funds and the Strategic Income Fund, the identification of the issuer of a Municipal Security that
is not a general obligation is made by the Investment Adviser based on the characteristics of the
Municipal Security, the most important of which is the source of funds for the payment of principal
and interest on such security.
As a matter of fundamental policy, a Fund may not:
|
(1) |
|
Make any investment inconsistent with the Funds classification as a diversified company under the Act. This restriction does not, however, apply to any Fund classified as a non-diversified company under the Act; |
|
|
(2) |
|
Invest more than 25% of its total assets in the securities of one or more issuers conducting
their principal business activities in the same industry (excluding the U.S. Government or its agencies
or instrumentalities); provided that during normal market conditions, the U.S. Mortgages Fund intends to
invest at least 25% of the value of its total assets in mortgage-related securities. (For the purposes of this restriction,
state and municipal governments and their agencies, authorities and instrumentalities
are not deemed to be industries; telephone companies are considered to be a separate industry
from water, gas or electric utilities; personal credit finance companies and business credit
finance companies are deemed to be separate industries; and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are primarily related to
financing the activities of their parents.) This restriction does not apply to investments in Municipal
Securities which have been pre-refunded by the use of obligations of the U.S. government or any of its
agencies or instrumentalities. Each of the Municipal Income, Short Duration Tax-Free and High Yield Municipal
Funds may invest 25% or more of the value of its total assets in Municipal Securities which are related in such
a way that an economic, business or political development or change affecting one Municipal Security would also
affect the other Municipal Securities. These Municipal Securities include (a) Municipal Securities, the interest
on which is paid solely from revenues of similar projects such as hospitals, electric utility systems, multi-family
housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b)
Municipal Securities whose issuers are in the same state; and (c) industrial development obligations; |
|
|
(3) |
|
Borrow money, except (a) each Fund (other than the U.S. Mortgages Fund,
Investment Grade Credit Fund, High Yield Floating Rate Fund, Strategic Income Fund, Emerging Markets
Debt Fund and Local Emerging Markets Debt Fund), may borrow from banks (as defined in the Act) or through
reverse repurchase agreements in amounts up to 33-1/3% of its total assets (including the amount borrowed);
(b) the U.S. Mortgages Fund, Investment Grade Credit Fund, High Yield Floating Rate Fund, Strategic Income Fund,
Emerging Markets Debt Fund and Local Emerging Markets Debt Fund to the extent permitted by applicable law, may
borrow from banks (as defined in the Act), other affiliated investment companies and other persons or through
reverse repurchase agreements in amounts up to 33-1/3% of its total assets (including the amount borrowed); (c) a
Fund may, to the extent permitted by applicable law, borrow up to an additional 5% of its total assets for
temporary purposes; (d) a Fund may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities; (e) a Fund may purchase securities on margin to the extent permitted
by applicable law; and (f) a Fund (other than Local Emerging Markets Debt Fund) may engage in transactions in
mortgage dollar rolls which are accounted for as financings. |
|
|
|
The following interpretation applies to, but is not part of, this fundamental policy: In determining whether a particular investment in portfolio instruments or participation in portfolio transactions is subject to this borrowing policy, the accounting treatment of such instrument or participation shall be considered, but shall not by itself be determinative. Whether a particular instrument or transaction constitutes a borrowing shall be determined by the Board, after consideration of all of the relevant circumstances. |
B-61
|
(4) |
|
Make loans, except through (a) the purchase of debt obligations in accordance with the Funds investment
objective and policies; (b) repurchase agreements with banks, brokers, dealers and other financial institutions; (c) loans of securities as permitted by applicable law; and (d) (U.S. Mortgages, Investment Grade Credit, High Yield Floating Rate, Strategic Income, Emerging Markets Debt and Local Emerging Markets Debt Funds only) loans to affiliates of the Fund to the extent permitted by law; |
|
|
(5) |
|
Underwrite securities issued by others, except to the extent that the sale of portfolio securities by the Fund may be deemed to be an underwriting; |
|
|
(6)(a) |
|
For each Fund other than Core Fixed Income Fund and Core Plus Fixed Income Fund, purchase, hold or deal in real estate, although a Fund may purchase and sell securities that are secured by real estate or interests therein, securities of real estate investment trusts and mortgage-related securities and may hold and sell real estate acquired by a Fund as a result of the ownership of securities; |
|
|
(6)(b) |
|
In the case of Core Fixed Income Fund and Core Plus Fixed Income Fund, 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, may purchase mortgage-related securities and may hold and sell real estate acquired by the Fund as a result of the ownership of securities; |
|
|
(7) |
|
Invest in commodities or commodity contracts, except that the Fund may invest in currency and financial instruments and contracts that are commodities or commodity contracts; and |
|
|
(8) |
|
Issue senior securities to the extent such issuance would violate applicable law. |
Notwithstanding any other fundamental investment restriction or policy, each Fund may invest some or all of its assets in a single open-end investment company or series thereof with substantially the same fundamental investment objective, restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have adopted the following non-fundamental policies which can be changed or amended by action of the Trustees without approval of shareholders. Again, 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 of securities by the Fund.
A Fund may not:
|
(1) |
|
Invest in companies for the purpose of exercising control or management; |
|
|
(2) |
|
Invest more than 15% of the Funds net assets in illiquid investments, including illiquid repurchase agreements with a notice or demand period of more than seven days, securities which are not readily marketable and restricted securities not eligible for resale pursuant to Rule 144A under the 1933 Act; |
|
|
(3) |
|
Purchase additional securities if the Funds borrowings, as permitted by the Funds borrowing policy, exceed 5% of its net assets. (Mortgage dollar rolls are not subject to this limitation); or |
|
|
(4) |
|
For all Funds except Strategic Income Fund, make short sales of securities, except short sales against-the-box. |
B-62
TRUSTEES AND OFFICERS
The Trusts Leadership Structure
The business and affairs of the Funds are managed under the direction of the Board of Trustees
(the Board), subject to the laws of the State of Delaware and the Trusts Declaration of Trust.
The Trustees are responsible for deciding matters of overall policy and reviewing the actions of
the Trusts service providers. The officers of the Trust conduct and supervise each Funds daily
business operations. Trustees who are not deemed to be interested persons of the Trust as
defined in the Act are referred to as Independent Trustees. Trustees who are deemed to be
interested persons of the Trust are referred to as Interested Trustees. The Board is currently
composed of seven Independent Trustees and two Interested Trustees. The Board has selected an
Independent Trustee to act as Chairman, whose duties include presiding at meetings of the Board and
acting as a focal point to address significant issues that may arise between regularly scheduled
Board and Committee meetings. In the performance of the Chairmans duties, the Chairman will
B-63
consult with the other Independent Trustees and the Funds officers and legal counsel, as
appropriate. The Chairman may perform other functions as requested by the Board from time to time.
The Board meets as often as necessary to discharge its responsibilities. Currently, the Board
conducts regular, in-person meetings at least six times a year, and holds special in-person or
telephonic meetings as necessary to address specific issues that require attention prior to the
next regularly scheduled meeting. In addition, the Independent Trustees meet at least annually to
review, among other things, investment management agreements, distribution (Rule 12b-1) and/or
service plans and related agreements, transfer agency agreements and certain other agreements
providing for the compensation of Goldman Sachs and/or its affiliates by the Funds, and to consider
such other matters as they deem appropriate.
The Board has established six standing committees Audit, Governance and Nominating,
Compliance, Valuation, Dividend and Contract Review Committees. The Board may establish other
committees, or nominate one or more Trustees to examine particular issues related to the Boards
oversight responsibilities, from time to time. Each Committee meets periodically to perform its
delegated oversight functions and reports its findings and recommendations to the Board. For more
information on the Committees, see the section STANDING BOARD COMMITTEES, below.
The Trustees have determined that the Trusts leadership structure is appropriate because it
allows the Trustees to effectively perform their oversight responsibilities.
Trustees of the Trust
Information pertaining to the Trustees of the Trust as of June 15, 2012 is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Trustees |
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Term of Office and |
|
|
|
Portfolios in Fund |
|
Other Directorships |
Name, Address and |
|
Position(s) Held |
|
Length of Time |
|
Principal Occupation(s) |
|
Complex Overseen by |
|
Held by |
Age1 |
|
with the Trust |
|
Served2 |
|
During Past 5 Years |
|
Trustee3 |
|
Trustee4 |
Ashok
N. Bakhru
Age: 70
|
|
Chairman of the
Board of Trustees
|
|
Since 1996 (Trustee
since 1991)
|
|
Mr. Bakhru is retired.
He is President, ABN
Associates (19941996
and 1998Present);
Director, Apollo
Investment Corporation
(a business
development company)
(2008-Present); Member
of Cornell University
Council (19922004
and 2006Present);
and was formerly
Trustee, Scholarship
America (19982005);
Trustee, Institute for
Higher Education
Policy (20032008);
Director, Private
Equity InvestorsIII
and IV (19982007),
and Equity-Linked
Investors II (April
20022007).
|
|
|
104 |
|
|
Apollo Investment
Corporation (a
business
development
company) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Board
of TrusteesGoldman
Sachs Mutual Fund
Complex. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald C. Burke
Age: 52
|
|
Trustee
|
|
Since 2010
|
|
Mr. Burke is retired.
He is Director, Avista
Corp. (2011-Present);
and was formerly a
Director, BlackRock
Luxembourg and Cayman
Funds (20062010);
President and Chief
|
|
|
104 |
|
|
Avista Corp. (an
energy company) |
B-64
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Trustees |
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Term of Office and |
|
|
|
Portfolios in Fund |
|
Other Directorships |
Name, Address and |
|
Position(s) Held |
|
Length of Time |
|
Principal Occupation(s) |
|
Complex Overseen by |
|
Held by |
Age1 |
|
with the Trust |
|
Served2 |
|
During Past 5 Years |
|
Trustee3 |
|
Trustee4 |
|
|
|
|
|
|
Executive Officer,
BlackRock U.S. Funds
(20072009); Managing
Director, BlackRock,
Inc. (20062009);
Managing Director,
Merrill Lynch
Investment Managers,
L.P. (MLIM) (2006);
First Vice President,
MLIM (19972005);
Chief Financial
Officer and Treasurer,
MLIM U.S. Funds
(19992006). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund Complex. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Coblentz,
Jr.
Age: 71
|
|
Trustee
|
|
Since 2003
|
|
Mr. Coblentz is
retired. Formerly, he
was Partner, Deloitte
& Touche LLP
(19752003);
Director, Emerging
Markets Group, Ltd.
(20042006); and
Director, Elderhostel,
Inc. (2006 Present).
|
|
|
104 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund
Complex. |
|
|
|
|
|
|
Diana M. Daniels
Age: 62
|
|
Trustee
|
|
Since 2007
|
|
Ms. Daniels is
retired. Formerly, she
was Vice President,
General Counsel and
Secretary, The
Washington Post
Company (19912006).
Ms. Daniels is a Vice
Chairman of the Board
of Trustees, Cornell
University
(2009Present);
Member, Advisory
Board, Psychology
Without Borders
(international
humanitarian aid
organization) (since
2007), and former
Member of the Legal
Advisory Board, New
York Stock Exchange
(20032006) and of
the Corporate Advisory
Board, Standish Mellon
Management Advisors
(20062007).
|
|
|
104 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund Complex. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph P. LoRusso
Age: 55
|
|
Trustee
|
|
Since 2010
|
|
Mr. LoRusso is
retired. Formerly, he
was President,
Fidelity Investments
Institutional Services
Co. (FIIS)
(20022008);
Director, FIIS
(20022008);
Director, Fidelity
Investments
Institutional
Operations Company
(20032007);
Executive Officer,
Fidelity Distributors
Corporation
(20072008).
|
|
|
104 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund Complex. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica Palmer
|
|
Trustee
|
|
Since 2007
|
|
Ms. Palmer is retired.
She is Director,
|
|
|
104 |
|
|
None |
B-65
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent Trustees |
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Term of Office and |
|
|
|
Portfolios in Fund |
|
Other Directorships |
Name, Address and |
|
Position(s) Held |
|
Length of Time |
|
Principal Occupation(s) |
|
Complex Overseen by |
|
Held by |
Age1 |
|
with the Trust |
|
Served2 |
|
During Past 5 Years |
|
Trustee3 |
|
Trustee4 |
Age: 63
|
|
|
|
|
|
Emerson Center for the
Arts and Culture
(2011Present); and
was formerly a
Consultant, Citigroup
Human Resources
Department
(2007-2008); Managing
Director, Citigroup
Corporate and
Investment Banking
(previously, Salomon
Smith Barney/Salomon
Brothers)
(19842006). Ms.
Palmer was a Member of
the Board of Trustees
of Indian Mountain
School (private
elementary and
secondary school)
(20042009). |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund Complex. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Strubel
Age: 72
|
|
Trustee
|
|
Since 1987
|
|
Mr. Strubel is
retired. Formerly, he
was Director, Cardean
Learning Group
(provider of
educational services
via the internet)
(20032008); Trustee
Emeritus, The
University of Chicago
(1987-Present).
|
|
|
104 |
|
|
The Northern Trust
Mutual Fund Complex
(64 Portfolios)
(Chairman of the
Board of Trustees);
Gildan Activewear
Inc. (a clothing
marketing and
manufacturing
company) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund Complex. |
|
|
|
|
|
|
B-66
|
|
|
|
|
|
|
|
|
|
|
|
|
Interested Trustees |
James A. McNamara*
Age: 49
|
|
President and Trustee
|
|
Since 2007
|
|
Managing Director, Goldman
Sachs (December
1998Present); Director of
Institutional Fund Sales,
GSAM (April 1998December
2000); and Senior Vice
President and Manager,
Dreyfus Institutional
Service Corporation (January
1993April 1998).
|
|
|
104 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PresidentGoldman Sachs
Mutual Fund Complex
(November 2007 Present);
Senior Vice President
Goldman Sachs Mutual Fund
Complex
(May 2007November 2007);
and
Vice PresidentGoldman Sachs
Mutual Fund Complex
(20012007). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund
Complex (November 2007 and
December 2002May 2004). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan A. Shuch*
Age: 62
|
|
Trustee
|
|
Since 1990
|
|
Advisory DirectorGSAM (May
1999 Present); Consultant
to GSAM (December 1994May
1999); and Limited Partner,
Goldman Sachs (December
1994May 1999).
|
|
|
104 |
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrusteeGoldman Sachs
Mutual Fund
Complex. |
|
|
|
|
|
|
|
|
|
* |
|
These persons are considered to be Interested Trustees because they hold positions with Goldman Sachs and own securities issued by The Goldman Sachs Group, Inc. Each Interested
Trustee holds comparable positions with certain other companies of which Goldman Sachs, GSAM or an affiliate thereof is the investment adviser, administrator and/or distributor. |
|
1 |
|
Each Trustee may be contacted by writing to the Trustee, c/o Goldman Sachs, 200 West Street, New York, New York, 10282, Attn: Peter V. Bonanno. |
|
2 |
|
Each Trustee holds office for an indefinite term until the earliest of: (a) the election of his or her successor; (b) the date the Trustee resigns or is removed by the Board of
Trustees or shareholders, in accordance with the Funds Declaration of Trust; (c) the conclusion of the first Board meeting held subsequent to the day the Trustee attains the age
of 74 years (in accordance with the current resolutions of the Board of Trustees, which may be changed by the Trustees without shareholder vote); or (d) the termination of the
Funds. |
|
3 |
|
The Goldman Sachs Mutual Fund Complex consists of the Trust, Goldman Sachs Municipal Opportunity Fund, Goldman Sachs Credit Strategies Fund and Goldman Sachs Variable Insurance
Trust. As of April 27, 2012, the Goldman Sachs Trust consisted of 90 portfolios (87 of which currently offer shares to the public), Goldman Sachs Variable Insurance Trust
consisted of 12 portfolios, and the Goldman Sachs Municipal Opportunity Fund did not offer shares to the public. |
|
4 |
|
This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e., public companies) or other investment
companies registered under the Act. |
The significance or relevance of a Trustees particular experience, qualifications,
attributes and/or skills is considered by the Board on an individual basis. Experience,
qualifications, attributes and/or skills common to all Trustees include the ability to critically
review, evaluate and discuss information provided to them and to interact effectively with the
other Trustees and with representatives of the Investment Adviser and its affiliates, other service
providers, legal counsel and the Funds independent registered public accounting firm, the capacity
to address financial and legal issues and exercise reasonable business judgment, and a commitment
to the representation of the interests of the Funds and their shareholders. The Governance and
Nominating Committees charter contains certain other factors that are considered by the Governance
and Nominating Committee in identifying and evaluating potential nominees to serve as Independent
Trustees. Based on each Trustees experience, qualifications, attributes and/or skills, considered
B-67
individually and with respect to the experience, qualifications, attributes and/or skills of
other Trustees, the Board has concluded that each Trustee should serve as a Trustee. Below is a
brief discussion of the experience, qualifications, attributes and/or skills of each individual
Trustee as of April 27, 2012 that led the Board to conclude that such individual should serve as a
Trustee.
Ashok N. Bakhru. Mr. Bakhru has served as a Trustee since 1991 and Chairman of the Board since
1996. Mr. Bakhru serves as President of ABN Associates, a management and financial consulting firm,
and is a Director of Apollo Investment Corporation, a business development company. Previously, Mr.
Bakhru was the Chief Financial Officer, Chief Administrative Officer and Director of Coty Inc., a
multinational cosmetics, fragrance and personal care company. Previously, Mr. Bakhru held several
senior management positions at Scott Paper Company, a major manufacturer of paper products,
including Senior Vice President and Chief Financial Officer. Mr. Bakhru also serves on the
Governing Council of the Independent Directors Council and the Board of Governors of the Investment
Company Institute. He also serves on the Advisory Board of BoardIQ, an investment publication. In
addition, Mr. Bakhru has served as Director of Equity-Linked Investments II and Private Equity
Investors III and IV, which are private equity partnerships based in New York City. Mr. Bakhru was
also a Director of Arkwright Mutual Insurance Company. Based on the foregoing, Mr. Bakhru is
experienced with financial and investment matters.
Donald C. Burke. Mr. Burke has served as Trustee since 2010. Mr. Burke serves as a Director of
Avista Corp., an energy company. Mr. Burke was a Managing Director of BlackRock, Inc., where he was
President and Chief Executive Officer of BlackRocks U.S. funds and a director and chairman of
several offshore funds advised by BlackRock. As President and Chief Executive Officer of
BlackRocks U.S. funds, he was responsible for all accounting, tax and regulatory reporting
requirements for over 300 open-end and closed-end BlackRock funds. Previously, he was a Managing
Director, First Vice President and Vice President of Merrill Lynch Investment Managers, L.P.
(MLIM), where he worked for 16 years prior to MLIMs merger with BlackRock, and was instrumental
in the integration of BlackRocks and MLIMs operating infrastructure following the merger. While
at MLIM, he was Chief Financial Officer and Treasurer of MLIMs U.S. funds and Head of Global
Operations and Client Services, where he was responsible for the development and maintenance of
MLIMs operating infrastructure across the Americas, Europe and the Pacific Rim. He also developed
controls for the MLIM U.S. funds financial statement certification process to comply with the
Sarbanes-Oxley Act of 2002, worked with fund auditors in connection with the funds annual audits
and established the department responsible for all tax issues impacting the MLIM U.S. funds.
Previously, Mr. Burke was Tax Manager at Deloitte & Touche, where he was designated as one of the
firms lead specialists in the investment company industry, and advised multinational corporations,
partnerships, universities and high net worth individuals in tax matters. Mr. Burke is a certified
public accountant. Based on the foregoing, Mr. Burke is experienced with accounting, financial and
investment matters.
John P. Coblentz, Jr. Mr. Coblentz has served as Trustee since 2003. Mr. Coblentz has been
designated as the Boards audit committee financial expert given his extensive accounting and
finance experience. Mr. Coblentz was a partner with Deloitte & Touche LLP for 28 years. While at
Deloitte & Touche LLP, Mr. Coblentz was lead partner responsible for all auditing and accounting
services to a variety of large, global companies, a significant portion of which operated in the
financial services industry. Mr. Coblentz was also the national managing partner for the firms
risk management function, a member of the firms Management Committee and the first managing
partner of the firms Financial Advisory Services practice, which brought together the firms
mergers and acquisition services, forensic and dispute services, corporate finance, asset valuation
and reorganization businesses under one management structure. He served as a member of the firms
Board of Directors. Mr. Coblentz also currently serves as a Director of Elderhostel, Inc., a
not-for-profit organization. Mr. Coblentz is a certified public accountant. Based on the foregoing,
Mr. Coblentz is experienced with accounting, financial and investment matters.
Diana M. Daniels. Ms. Daniels has served as Trustee since 2007. Ms. Daniels also serves as Vice
Chair of the Board of Trustees of Cornell University. Ms. Daniels held several senior management
positions at The Washington Post Company and its subsidiaries, where she worked for 29 years. While
at The Washington Post Company, Ms. Daniels served as Vice Present, General Counsel, Secretary to
the Board of Directors and Secretary to the Audit Committee. Previously, Ms. Daniels served as Vice
President and General Counsel of Newsweek, Inc. Ms. Daniels has also served as a member of the
Corporate Advisory Board of Standish Mellon Management Advisors and of the Legal Advisory Board of
New York Stock Exchange. Ms. Daniels is also a member of the American Law Institute and of the
Advisory Council of the Inter-American Press Association. Based on the foregoing, Ms. Daniels is
experienced with legal, financial and investment matters.
Joseph P. LoRusso. Mr. LoRusso has served as Trustee since 2010. Mr. LoRusso held a number of
senior management positions at Fidelity Investments for over 15 years, where he was most recently
President of Fidelity Investments Institutional Services Co. (FIIS). As President of FIIS, Mr.
LoRusso oversaw the development, distribution and servicing of Fidelitys investment and retirement
products through various financial intermediaries. Previously, he served as President, Executive
Vice President and Senior Vice President of Fidelity Institutional Retirement Services Co., where
he helped establish Fidelitys 401(k) business and built it into
B-68
the largest in the U.S. In these positions, he oversaw sales, marketing, implementation, client
services, operations and technology. Mr. LoRusso also served on Fidelitys Executive Management
Committee. Prior to his experience with Fidelity, he was Second Vice President in the Investment
and Pension Group of John Hancock Mutual Life Insurance, where he had responsibility for developing
and running the companys 401(k) business. Previously, he worked at The Equitable (now a
subsidiary of AXA Financial), where he was Product Manager of the companys then-nascent 401(k)
business, and at Arthur Andersen & Co. (now Accenture), as a Senior Consultant within the firms
consulting practice. Based on the foregoing, Mr. LoRusso is experienced with financial and
investment matters.
Jessica Palmer. Ms. Palmer has served as Trustee since 2007. Ms. Palmer serves as a Director of
Emerson Center for the Arts and Culture, a not-for-profit organization. Ms. Palmer worked at
Citigroup Corporate and Investment Banking (previously, Salomon Smith Barney/Salomon Brothers) for
over 20 years, where she was a Managing Director. While at Citigroup Corporate and Investment
Banking, Ms. Palmer was Head of Global Risk Management, Chair of the Global Commitment Committee,
Co-Chair of International Investment Banking (New York) and Head of Fixed Income Capital Markets.
Ms. Palmer was also a member of the Management Committee and Risk Management Operating Committee of
Citigroup, Inc. Prior to that, Ms. Palmer was a Vice President at Goldman Sachs in its
international corporate finance department. Ms. Palmer was also Assistant Vice President of the
International Division at Wells Fargo Bank, N.A. Ms. Palmer was also a member of the Board of
Trustees of a private elementary and secondary school. Based on the foregoing, Ms. Palmer is
experienced with financial and investment matters.
Richard P. Strubel. Mr. Strubel has served as Trustee since 1987. Mr. Strubel also serves as
Chairman of the Northern Funds, a family of retail and institutional mutual funds managed by The
Northern Trust Company. He also serves on the board of Gildan Activewear Inc., which is listed on
the New York Stock Exchange (NYSE). Mr. Strubel was Vice-Chairman of the Board of Cardean
Learning Group (formerly known as Unext), and previously served as Unexts President and Chief
Operating Officer. Mr. Strubel was Managing Director of Tandem Partners, Inc., a privately-held
management services firm, and served as President and Chief Executive Officer of Microdot, Inc.
Previously, Mr. Strubel served as President of Northwest Industries, then a NYSE-listed company, a
conglomerate with various operating entities located around the country. Before joining Northwest,
Mr. Strubel was an associate and later managing principal of Fry Consultants, a management
consulting firm based in Chicago. Mr. Strubel is also a Trustee Emeritus of the University of
Chicago and is an adjunct professor at the University of Chicago Booth School of Business. Based on
the foregoing, Mr. Strubel is experienced with financial and investment matters.
James A. McNamara. Mr. McNamara has served as Trustee and President of the Trust since 2007 and has
served as an officer of the Trust since 2001. Mr. McNamara is a Managing Director at Goldman Sachs.
Mr. McNamara is currently head of Global Third Party Distribution at GSAM, where he was previously
head of U.S. Third Party Distribution. Prior to that role, Mr. McNamara served as Director of
Institutional Fund Sales. Prior to joining Goldman Sachs, Mr. McNamara was Vice President and
Manager at Dreyfus Institutional Service Corporation. Based on the foregoing, Mr. McNamara is
experienced with financial and investment matters.
Alan A. Shuch. Mr. Shuch has served as a Trustee since 1990. Mr. Shuch is an Advisory Director to
Goldman Sachs. Mr. Shuch serves on the Board of Trustees of a number of offshore funds managed by
GSAM. He serves on GSAMs Valuation and Brokerage Allocation Committees. Prior to retiring as a
general partner of Goldman Sachs in 1994, Mr. Shuch was president and chief operating officer of
GSAM which he founded in 1988. Mr. Shuch joined the Goldman Sachs Fixed Income Division in 1976. He
was instrumental in building Goldman Sachs Corporate Bond Department and served as co-head of the
Global Fixed Income Sales and the High Yield Bond and Preferred Stock Departments. He headed the
Portfolio Restructuring and Fixed Income Quantitative and Credit Research Departments. Mr. Shuch
also served on a variety of firm-wide committees including the International Executive, New Product
and Strategic Planning Committees and was a member of the Stone Street/Bridge Street Private Equity
Board. Mr. Shuch serves on Whartons Graduate Executive Board. Based on the foregoing, Mr. Shuch is
experienced with financial and investment matters.
B-69
Officers of the Trust
Information pertaining to the officers of the Trust as of June 15, 2012 is set forth below.
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Officers of the Trust |
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Term of |
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Office and |
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Position(s) |
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Length of |
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Name, Age And |
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Held |
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Time |
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Address |
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With the Trust |
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Served1 |
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Principal Occupation(s) During Past 5 Years |
James A. McNamara
200 West Street
New York, NY
10282
Age: 49
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Trustee and
President
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Since 2007
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Managing Director, Goldman Sachs (December
1998-Present); Director of Institutional Fund
Sales, GSAM (April 1998December 2000); and
Senior Vice President and Manager, Dreyfus
Institutional Service Corporation (January 1993
April 1998). |
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PresidentGoldman Sachs Mutual Fund Complex
(November 2007 Present); Senior Vice President
Goldman Sachs Mutual Fund Complex (May 2007
November 2007); and Vice PresidentGoldman Sachs
Mutual Fund Complex (2001 2007). |
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Trustee Goldman Sachs Mutual Fund Complex
(November 2007-Present and December 2002 May
2004). |
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Scott McHugh
200 West Street
New York, NY
10282
Age: 40
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Treasurer and
Senior Vice
President
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Since 2009
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Vice President, Goldman Sachs (February
2007Present); Assistant Treasurer of certain
mutual funds administered by DWS Scudder
(20052007); and Director (20052007), Vice
President (20002005), Assistant Vice President
(19982000), Deutsche Asset Management or its
predecessor (19982007). |
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TreasurerGoldman Sachs Mutual Fund Complex
(October 2009-Present); Senior Vice
PresidentGoldman Sachs Mutual Fund Complex
(November 2009-Present); and Assistant
TreasurerGoldman Sachs Mutual Fund Complex (May
2007-October 2009). |
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George F. Travers
30 Hudson Street
Jersey City, NJ
07302
Age: 44
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Senior Vice
President and
Principal Financial
Officer
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Since 2009
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Managing Director, Goldman Sachs (2007-present);
Managing Director, UBS Ag (2005-2007); and
Partner, Deloitte & Touche LLP (1990-2005,
partner from 2000-2005).
Senior Vice President and Principal Financial
OfficerGoldman Sachs
Mutual Fund Complex. |
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Philip V. Giuca, Jr.
30 Hudson Street
Jersey City, NJ
07302
Age: 50
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Assistant Treasurer
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Since 1997
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Vice President, Goldman Sachs (May 1992Present).
Assistant Treasurer Goldman Sachs Mutual Fund
Complex. |
B-70
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Officers of the Trust |
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Term of |
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Office and |
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Position(s) |
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Length of |
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Name, Age And |
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Held |
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Time |
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Address |
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With the Trust |
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Served1 |
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Principal Occupation(s) During Past 5 Years |
Peter Fortner
30 Hudson Street
Jersey City, NJ
07302
Age: 54
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Assistant Treasurer
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Since 2000
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Vice President, Goldman Sachs (July
2000Present); Principal Financial Officer,
Commerce Bank Mutual Fund Complex (2008-Present);
Associate, Prudential Insurance Company of
America (November 1985June 2000); and Assistant
Treasurer, certain closed-end funds administered
by Prudential (19992000). |
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Assistant Treasurer Goldman Sachs Mutual Fund
Complex. |
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Kenneth G. Curran
30 Hudson Street
Jersey City, NJ
07302
Age: 48
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Assistant Treasurer
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Since 2001
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Vice President, Goldman Sachs (November
1998Present); and Senior Tax Manager, KPMG Peat
Marwick (accountants) (August 1995October
1998). |
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Assistant TreasurerGoldman Sachs Mutual Fund
Complex. |
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Jesse Cole
71 South Wacker
Drive
Chicago, IL 60606
Age: 49
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Vice President
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Since 1998
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Managing Director, Goldman Sachs (December
2006Present); Vice President, GSAM (June
1998Present); and Vice President, AIM
Management Group, Inc. (investment adviser)
(April 1996June 1998).
Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Kerry K. Daniels
71 South Wacker
Drive
Chicago, IL 60606
Age: 49
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Vice President
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Since 2000
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Manager, Financial Control Shareholder
Services, Goldman Sachs (1986 Present).
Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Mark Hancock
71 South Wacker
Drive
Chicago, IL 60606
Age: 44
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Vice President
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Since 2007
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Managing Director, Goldman Sachs (November
2005Present); Vice President, Goldman Sachs
(August 2000November 2005); Senior Vice
PresidentDreyfus Service Corp (19992000); and
Vice PresidentDreyfus Service Corp
(19961999). |
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Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Jeffrey D. Matthes
30 Hudson Street
Jersey City, NJ
07302
Age: 42
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Vice President
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Since 2007
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Vice President, Goldman Sachs (December
2004Present); and Associate, Goldman Sachs
(December 2002December 2004).
Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Carlos W. Samuels
30 Hudson Street
Jersey City, NJ
07302
Age: 37
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Vice President
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Since 2007
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Vice President, Goldman Sachs (December
2007Present); Associate, Goldman Sachs
(December 2005December 2007); Analyst, Goldman
Sachs (January 2004December 2005).
Vice PresidentGoldman Sachs Mutual Fund Complex. |
B-71
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Officers of the Trust |
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Term of |
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Office and |
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Position(s) |
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Length of |
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Name, Age And |
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Held |
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Time |
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Address |
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With the Trust |
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Served1 |
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Principal Occupation(s) During Past 5 Years |
Miriam Cytryn
200 West Street
New York, NY
10282
Age: 53
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Vice President
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Since 2008
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Vice President, GSAM (2008-Present); Vice
President of Divisional Management, Investment
Management Division (2007-2008); Vice President
and Chief of Staff, GSAM US Distribution
(2003-2007); and Vice President of Employee
Relations, Goldman Sachs (1996-2003). |
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Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Glen Casey
200 West Street
New York, NY
10282
Age: 47
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Vice President
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Since 2008
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Managing Director, Goldman Sachs (2007-Present);
and Vice President, Goldman Sachs (1997-2007).
Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Mark Heaney
Christchurch Court
10-15 Newgate Street
London, EC1A 7HD, UK
Age: 44
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Vice President
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Since 2010
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Executive Director, GSAM (May 2005-Present);
Director of Operations (UK and Ireland), Invesco
Asset Management (May 2004-March 2005); Global
Head of Investment Administration, Invesco Asset
Management (September 2001-May 2004); Managing
Director (Ireland), Invesco Asset Management
(March 2000-September 2001); Director of
Investment Administration, Invesco Asset
Management (December 1998-March 2000). |
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Vice PresidentGoldman Sachs Mutual Fund Complex. |
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Peter V. Bonanno
200 West Street
New York, NY
10282
Age: 44
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Secretary
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Since 2003
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Managing Director, Goldman Sachs (December
2006Present); Associate General Counsel,
Goldman Sachs (2002Present); Vice President,
Goldman Sachs (19992006); and Assistant General
Counsel, Goldman Sachs (1999-2002). |
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SecretaryGoldman Sachs Mutual Fund Complex
(2006Present); and Assistant SecretaryGoldman
Sachs Mutual Fund Complex (2003 2006). |
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David Fishman
200 West Street
New York, NY 10282
Age: 47
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Assistant Secretary
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Since 2001
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Managing Director, Goldman Sachs (December
2001Present); and Vice President, Goldman Sachs
(1997December 2001).
Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
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Danny Burke
200 West Street
New York, NY 10282
Age: 49
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Assistant Secretary
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Since 2001
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Vice President, Goldman Sachs (1987Present).
Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
B-72
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Officers of the Trust |
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Term of |
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Office and |
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Position(s) |
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Length of |
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Name, Age And |
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Held |
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Time |
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Address |
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With the Trust |
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Served1 |
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Principal Occupation(s) During Past 5 Years |
Deborah Farrell
30 Hudson Street
Jersey City, NJ
07302
Age: 40
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Assistant Secretary
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Since 2007
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Vice President, Goldman Sachs (2005-Present);
Associate,
Goldman Sachs (2001-2005); and Analyst, Goldman
Sachs
(1994-2005). |
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Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
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Patrick T.
OCallaghan
200 West Street
New York, NY 10282
Age: 40
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Assistant Secretary
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Since 2009
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Vice President, Goldman Sachs (2000-Present);
Associate, Goldman Sachs (1998-2000); Analyst,
Goldman Sachs (1995-1998).
Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
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James A. McCarthy
200 West Street
New York, NY 10282
Age: 48
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Assistant Secretary
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Since 2009
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Managing Director, Goldman Sachs (2003-Present);
Vice President, Goldman Sachs (1996-2003);
Portfolio Manager, Goldman Sachs (1995-1996).
Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
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Andrew Murphy
200 West Street
New York, NY 10282
Age: 39
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Assistant Secretary
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Since 2010
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Vice President, Goldman Sachs (April
2009-Present); Assistant General Counsel, Goldman
Sachs (April 2009-Present); Attorney, Axiom Legal
(2007-2009); Vice President and Counsel,
AllianceBernstein, L.P. (2001-2007). |
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Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
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Robert Griffith
200 West Street
New York, NY 10282
Age: 37
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Assistant Secretary
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Since 2011
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Vice President, Goldman Sachs (August
2011Present); Assistant General Counsel,
Goldman Sachs (August 2011Present); Vice
President and Counsel, Nomura Holding America,
Inc. (20102011); Associate, Simpson Thacher &
Bartlett LLP (20052010). |
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Assistant SecretaryGoldman Sachs Mutual Fund
Complex. |
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Caroline Kraus
200 West Street
New York, NY 10282
Age: 35
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Assistant Secretary
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Since 2012
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Vice President, Goldman Sachs
(August 2006Present); Associate General Counsel, Goldman
Sachs (2012Present); Assistant General Counsel, Goldman Sachs (August 2006December 2011); Associate, Weil, Gotshal &
MangesLLP (2002-2006). |
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Assistant Secretary Goldman Sachs Mutual Fund Complex. |
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1 |
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Officers hold office at the pleasure of the Board of Trustees or until their successors are duly elected and
qualified. Each officer holds comparable positions with certain other companies of which Goldman Sachs, GSAM or an affiliate
thereof is the investment adviser, administrator and/or distributor.
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B-73
Standing Board Committees
The Audit Committee oversees the audit process and provides assistance to the Board with
respect to fund accounting, tax compliance and financial statement matters. In performing its
responsibilities, the Audit Committee selects and recommends annually to the Board an independent
registered public accounting firm to audit the books and records of the Trust for the ensuing year,
and reviews with the firm the scope and results of each audit. All of the Independent Trustees
serve on the Audit Committee. The Audit Committee held four meetings during the fiscal year ended
March 31, 2011.
The Governance and Nominating Committee has been established to: (i) assist the Board in
matters involving mutual fund governance, which includes making recommendations to the Board with
respect to the effectiveness of the Board in carrying out its responsibilities in governing the
Funds and overseeing their management; (ii) select and nominate candidates for appointment or
election to serve as Independent Trustees; and (iii) advise the Board on ways to improve its
effectiveness. All of the Independent Trustees serve on the Governance and Nominating Committee.
The Governance and Nominating Committee held three meetings during the fiscal year ended March 31,
2011. As stated above, each Trustee holds office for an indefinite term until the occurrence of
certain events. In filling Board vacancies, the Governance and Nominating Committee will consider
nominees recommended by shareholders. Nominee recommendations should be submitted to the Trust at
its mailing address stated in the Funds Prospectuses and should be directed to the attention of
the Goldman Sachs Trust Governance and Nominating Committee.
The Compliance Committee has been established for the purpose of overseeing the compliance
processes: (i) of the Funds; and (ii) insofar as they relate to services provided to the Funds, of
the Funds investment adviser, distributor, administrator (if any), and transfer agent, except that
compliance processes relating to the accounting and financial reporting processes, and certain
related matters, are overseen by the Audit Committee. In addition, the Compliance Committee
provides assistance to the full Board with respect to compliance matters. The Compliance Committee
met three times during the fiscal year ended March 31, 2011. All of the Independent Trustees serve
on the Compliance Committee.
The Valuation Committee is authorized to act for the Board in connection with the valuation of
portfolio securities held by the Funds in accordance with the Trusts Valuation Procedures. Messrs.
McNamara and Shuch serve on the Valuation Committee, together with certain employees of GSAM who
are not Trustees. The Valuation Committee met twelve times during the fiscal year ended March 31,
2011. The Valuation Committee reports periodically to the Board.
The Dividend Committee is authorized, subject to the ratification of Trustees who are not
members of the committee, to declare dividends and capital gain distributions consistent with each
Funds Prospectus. Messrs. McNamara and McHugh serve on the Dividend Committee. The Dividend
Committee met twelve times during the fiscal year ended March 31, 2011.
The Contract Review Committee has been established for the purpose of overseeing the processes
of the Board for reviewing and monitoring performance under the Funds investment management,
distribution, transfer agency, and certain other agreements with the Funds Investment Advisers and
their affiliates. The Contract Review Committee is also responsible for overseeing the Boards
processes for considering and reviewing performance under the operation of the Funds distribution,
service, shareholder administration and other plans, and any agreements related to the plans,
whether or not such plans and agreements are adopted pursuant to Rule 12b-1 under the Act. The
Contract Review Committee also provides appropriate assistance to the Board in connection with the
Boards approval, oversight and review of the Funds other service providers including, without
limitation, the Funds custodian/accounting agent, sub-transfer agents, professional (legal and
accounting) firms and printing firms. The Contract Review Committee met three times during the
fiscal year ended March 31, 2011. All of the Independent Trustees serve on the Contract Review
Committee.
Risk Oversight
The Board is responsible for the oversight of the activities of the Funds, including oversight
of risk management. Day-to-day risk management with respect to the Funds is the responsibility of
GSAM or other service providers (depending on the nature of the risk), subject to supervision by
GSAM. The risks of the Funds include, but are not limited to, investment risk, compliance risk,
operational risk, reputational risk, credit risk and counterparty risk. Each of GSAM and the other
service providers have their own independent interest in risk management and their policies and
methods of risk management may differ from the Funds and each others in the setting of priorities,
the resources available or the effectiveness of relevant controls. As a result, the Board
recognizes that it is not possible to identify all of the risks that may affect the Funds or to
develop processes and controls to eliminate or mitigate their occurrence or effects, and that some
risks are simply beyond the control of the Funds or GSAM, its affiliates or other service
providers.
The Board effectuates its oversight role primarily through regular and special meetings of the
Board and Board committees. In certain cases, risk management issues are specifically addressed in
presentations and discussions. For example, GSAM has an
B-74
independent dedicated Market Risk Group that assists GSAM in managing investment risk.
Representatives from the Market Risk Group regularly meet with the Board to discuss their analysis
and methodologies. In addition, investment risk is discussed in the context of regular
presentations to the Board on Fund strategy and performance. Other types of risk are addressed as
part of presentations on related topics (e.g. compliance policies) or in the context of
presentations focused specifically on one or more risks. The Board also receives reports from GSAM
management on operational risks, reputational risks and counterparty risks relating to the Funds.
Board oversight of risk management is also performed by various Board committees. For
example, the Audit Committee meets with both the Funds independent registered public accounting
firm and the GSAMs internal audit group to review risk controls in place that support the Funds as
well as test results, and the Compliance Committee meets with the CCO and representatives of GSAMs
compliance group to review testing results of the Funds compliance policies and procedures and
other compliance issues. Board oversight of risk is also performed as needed between meetings
through communications between the GSAM and the Board. The Board may, at any time and in its
discretion, change the manner in which it conducts risk oversight. The Boards oversight role does
not make the Board a guarantor of the Funds investments or activities.
Trustee Ownership of Fund Shares
The following table shows the dollar range of shares beneficially owned by each Trustee in the
Funds and other portfolios of the Trust and Goldman Sachs Variable Insurance Trust as of December
31, 2010, unless otherwise noted.
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Aggregate Dollar Range of |
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Equity Securities in All |
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Portfolios in Fund |
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Dollar Range of |
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Complex Overseen By |
Name of Trustee |
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Equity Securities in the Funds1 |
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Trustee2 |
Ashok N. Bakhru
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High Yield Fund: Over $100,000
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Over $100,000 |
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Donald C. Burke
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Short Duration Government Fund: $1-$10,000
Short Duration Tax-Free Fund: $1-$10,000
High Yield Fund: $1-$10,000
Enhanced Income Fund: $1-$10,000
Emerging Markets Debt Fund: $1-$10,000
Core Plus Fixed Income Fund: $1-$10,000
Inflation Protected Securities Fund: $1-$10,000
Local Emerging Markets Debt Fund: $1-$10,000
|
|
Over $100,000 |
|
|
|
|
|
John P. Coblentz, Jr.
|
|
High Yield Fund: Over $100,000
Core Fixed Income Fund: $10,001 $50,000
|
|
Over $100,000 |
|
|
|
|
|
Diana M. Daniels
|
|
Municipal Income Fund: $50,001-$100,000
Local Emerging Markets Debt Fund: $10,001 $50,000
Short Duration Tax-Free Fund: Over $100,000
Inflation Protected Securities Fund: $50,001 $100,000
|
|
Over $100,000 |
|
|
|
|
|
Joseph P. LoRusso
|
|
None
|
|
Over $100,000 |
|
|
|
|
|
James A. McNamara
|
|
Short Duration Government Fund: Over $100,000
High Yield Fund: $50,001-$100,000
High Yield Municipal Fund: $1-$10,000
|
|
Over $100,000 |
|
|
|
|
|
Jessica Palmer
|
|
Municipal Income Fund: $50,001 $100,000
|
|
Over $100,000 |
|
|
|
|
|
Alan A. Shuch
|
|
None.
|
|
Over $100,000 |
|
|
|
|
|
Richard P. Strubel
|
|
None.
|
|
Over $100,000 |
|
|
|
1 |
|
Includes the value of shares beneficially owned by each Trustee in each Fund described in
this SAI. |
|
2 |
|
The Goldman Sachs Mutual Fund Complex consists of the Trust, Goldman Sachs Municipal
Opportunity Fund and Goldman Sachs Variable Insurance Trust. As of December 31, 2010, the
Trust consisted of 77 portfolios, the Goldman Sachs Variable Insurance Trust consisted of 11
portfolios, and the Goldman Sachs Municipal Opportunity Fund did not offer shares to the
public. |
As of July 29, 2011, the Trustees and Officers of the Trust as a group owned less than 1%
of the outstanding shares of beneficial interest of each class of the Funds.
B-75
Board Compensation
For the period ended December 31, 2010, the Trust paid each Independent Trustee an annual fee
for his or her services as a Trustee of the Trust, plus an additional fee for each regular and
special telephonic Board meeting, Governance and Nominating Committee meeting, Compliance Committee
meeting, Contract Review Committee meeting, and Audit Committee meeting attended by such Trustee.
As of January 1, 2011, each Independent Trustee is compensated with a unitary annual fee for his or
her services as a Trustee of the Trust and as a member of the Governance and Nominating Committee,
Compliance Committee, Contract Review Committee, and Audit Committee in lieu of each Independent
Trustee receiving an annual fee plus additional fees for each meeting attended. Under this new
compensation structure, the Chairman and audit committee financial expert will continue to
receive additional compensation for their services. The Independent Trustees are also reimbursed
for travel expenses incurred in connection with attending such meetings. The Trust may also pay the
incidental costs of a Trustee to attend training or other types of conferences relating to the
investment company industry.
The following tables set forth certain information with respect to the compensation of each
Trustee of the Trust for the fiscal year ended March 31, 2011:
Trustee Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short |
|
|
Short |
|
|
|
|
|
|
|
|
|
Enhanced |
|
|
Ultra-Short |
|
|
Duration |
|
|
Duration |
|
|
Government |
|
|
Municipal |
|
Name of Trustee |
|
Income |
|
|
Duration Government |
|
|
Government |
|
|
Tax-Free |
|
|
Income |
|
|
Income |
|
Ashok N. Bakhru1 |
|
$ |
3,721 |
|
|
$ |
3,514 |
|
|
$ |
4,863 |
|
|
$ |
4,483 |
|
|
$ |
3,686 |
|
|
$ |
3,559 |
|
Donald C. Burke2 |
|
|
1,554 |
|
|
|
1,469 |
|
|
|
1,995 |
|
|
|
1,897 |
|
|
|
2,681 |
|
|
|
1,499 |
|
John P. Coblentz3 |
|
|
2,725 |
|
|
|
2,573 |
|
|
|
3,567 |
|
|
|
3,282 |
|
|
|
2,697 |
|
|
|
2,605 |
|
Diana M. Daniels |
|
|
2,554 |
|
|
|
2,413 |
|
|
|
3,338 |
|
|
|
3,078 |
|
|
|
2,531 |
|
|
|
2,444 |
|
Patrick T. Harker4 |
|
|
1,256 |
|
|
|
1,182 |
|
|
|
1,683 |
|
|
|
1,491 |
|
|
|
1,233 |
|
|
|
1,187 |
|
Joseph P. LoRusso2 |
|
|
1,554 |
|
|
|
1,469 |
|
|
|
1,995 |
|
|
|
1,897 |
|
|
|
2,681 |
|
|
|
1,499 |
|
James A. McNamara5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica Palmer |
|
|
2,417 |
|
|
|
2,283 |
|
|
|
3,161 |
|
|
|
2,911 |
|
|
|
2,394 |
|
|
|
2,312 |
|
Alan A. Shuch5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Strubel |
|
|
2,417 |
|
|
|
2,283 |
|
|
|
3,161 |
|
|
|
2,911 |
|
|
|
2,394 |
|
|
|
2,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Plus |
|
|
Investment |
|
|
|
|
|
|
|
|
|
U.S. |
|
|
Core Fixed |
|
|
Fixed |
|
|
Grade |
|
|
Global |
|
|
High Yield |
|
Name of Trustee |
|
Mortgages |
|
|
Income |
|
|
Income |
|
|
Credit |
|
|
Income |
|
|
Municipal |
|
Ashok N. Bakhru1 |
|
$ |
3,463 |
|
|
$ |
4,087 |
|
|
$ |
3,405 |
|
|
$ |
3,559 |
|
|
$ |
3,685 |
|
|
$ |
4,976 |
|
Donald C. Burke2 |
|
|
1,461 |
|
|
|
1,722 |
|
|
|
1,437 |
|
|
|
1,498 |
|
|
|
1,551 |
|
|
|
2,060 |
|
John P. Coblentz3 |
|
|
2,534 |
|
|
|
2,991 |
|
|
|
2,491 |
|
|
|
2,605 |
|
|
|
2,698 |
|
|
|
3,649 |
|
Diana M. Daniels |
|
|
2,378 |
|
|
|
2,807 |
|
|
|
2,339 |
|
|
|
2,444 |
|
|
|
2,530 |
|
|
|
3,414 |
|
Patrick T. Harker4 |
|
|
1,151 |
|
|
|
1,367 |
|
|
|
1,132 |
|
|
|
1,189 |
|
|
|
1,233 |
|
|
|
1,710 |
|
Joseph P. LoRusso2 |
|
|
1,461 |
|
|
|
1,722 |
|
|
|
1,437 |
|
|
|
1,498 |
|
|
|
1,551 |
|
|
|
2,060 |
|
James A. McNamara5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica Palmer |
|
|
2,249 |
|
|
|
2,654 |
|
|
|
2,212 |
|
|
|
2,311 |
|
|
|
2,393 |
|
|
|
3,232 |
|
Alan A. Shuch5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Strubel |
|
|
2,249 |
|
|
|
2,654 |
|
|
|
2,212 |
|
|
|
2,311 |
|
|
|
2,393 |
|
|
|
3,232 |
|
B-76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield |
|
|
|
|
|
|
Emerging |
|
|
Inflation |
|
|
Local |
|
|
|
|
|
|
|
Floating |
|
|
Strategic |
|
|
Markets |
|
|
Protected |
|
|
Emerging |
|
Name of Trustee |
|
High Yield |
|
|
Rate6 |
|
|
Income7 |
|
|
Debt |
|
|
Securities |
|
|
Markets Debt |
|
Ashok N. Bakhru1 |
|
$ |
6,056 |
|
|
$ |
0 |
|
|
$ |
2,713 |
|
|
$ |
3,526 |
|
|
$ |
3,360 |
|
|
$ |
4,064 |
|
Donald C. Burke2 |
|
|
2,556 |
|
|
|
0 |
|
|
|
1,533 |
|
|
|
1,500 |
|
|
|
1,416 |
|
|
|
1,752 |
|
John P. Coblentz3 |
|
|
4,431 |
|
|
|
0 |
|
|
|
1,935 |
|
|
|
2,493 |
|
|
|
2,458 |
|
|
|
2,968 |
|
Diana M. Daniels |
|
|
4,163 |
|
|
|
0 |
|
|
|
1,871 |
|
|
|
2,422 |
|
|
|
2,307 |
|
|
|
2,794 |
|
Patrick T. Harker4 |
|
|
2,006 |
|
|
|
0 |
|
|
|
529 |
|
|
|
1,160 |
|
|
|
1,119 |
|
|
|
1,310 |
|
Joseph P. LoRusso2 |
|
|
2,556 |
|
|
|
0 |
|
|
|
1,533 |
|
|
|
1,500 |
|
|
|
1,416 |
|
|
|
1,752 |
|
James A. McNamara5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jessica Palmer |
|
|
3,936 |
|
|
|
0 |
|
|
|
1,730 |
|
|
|
2,289 |
|
|
|
2,182 |
|
|
|
2,638 |
|
Alan A. Shuch5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Strubel |
|
|
3,936 |
|
|
|
0 |
|
|
|
1,730 |
|
|
|
2,289 |
|
|
|
2,182 |
|
|
|
2,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension or |
|
|
|
|
|
|
Aggregate |
|
|
Retirement Benefits |
|
|
|
|
|
|
Compensation from |
|
|
Accrued as Part of |
|
|
Total Compensation |
|
|
|
the |
|
|
the |
|
|
From Fund Complex |
|
Name of Trustee |
|
Funds |
|
|
Trusts Expenses |
|
|
(including the Funds) 8 |
|
Ashok N. Bakhru1 |
|
$ |
71,912 |
|
|
$ |
0 |
|
|
$ |
389,625 |
|
Donald C. Burke2 |
|
|
31,526 |
|
|
|
0 |
|
|
|
161,617 |
|
John P. Coblentz3 |
|
|
52,011 |
|
|
|
0 |
|
|
|
295,250 |
|
Diana M. Daniels |
|
|
49,225 |
|
|
|
0 |
|
|
|
257,500 |
|
Patrick T. Harker4 |
|
|
23,821 |
|
|
|
0 |
|
|
|
127,000 |
|
Joseph P. LoRusso2 |
|
|
31,527 |
|
|
|
0 |
|
|
|
161,617 |
|
James A. McNamara5 |
|
|
|
|
|
|
|
|
|
|
|
|
Jessica Palmer |
|
|
46,573 |
|
|
|
0 |
|
|
|
253,000 |
|
Alan A. Shuch5 |
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Strubel |
|
|
46,571 |
|
|
|
0 |
|
|
|
257,500 |
|
|
|
|
1 |
|
Includes compensation as Board Chairman. |
|
2 |
|
Messrs. Burke and LoRusso were appointed to the Board effective August 19, 2010. |
|
3 |
|
Includes compensation as audit committee financial expert, as defined in Item 3 of Form N-CSR. |
|
4 |
|
Effective September 30, 2010, Mr. Harker resigned from the Board of Trustees. |
|
5 |
|
Messrs. McNamara and Shuch are Interested Trustees, and as such, receive no compensation from the Funds or the Goldman Sachs Mutual Fund Complex. |
|
6 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
7 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
|
8 |
|
Represents fees paid to each Trustee during the fiscal year ended March 31, 2011 from the
Goldman Sachs Mutual Fund Complex. The Fund Complex consists of the Trust, Goldman Sachs
Municipal Opportunity Fund, Goldman Sachs Credit Strategies Fund and Goldman Sachs Variable
Insurance Trust. As of March 31, 2011 the Trust consisted of 83 portfolios and Goldman Sachs
Variable Insurance Trust consisted of 11 portfolios. The Goldman Sachs Municipal Opportunity
Fund does not currently offer shares to the public. |
Miscellaneous
Class A Shares of the Funds may be sold at NAV without payment of any sales charge to Goldman
Sachs, its affiliates and their respective officers, partners, directors or employees (including
retired employees and former partners), any partnership of which Goldman Sachs is a general
partner, any Trustee or officer of the Trust and designated family members of any of the above
individuals. These and the Funds other sales load waivers are due to the nature of the investors
and/or the reduced sales effort and expense that are needed to obtain such investments.
The Trust, its Investment Advisers and principal underwriter have adopted codes of ethics
under Rule 17j-1 of the Act that permit personnel subject to their particular codes of ethics to
invest in securities, including securities that may be purchased or held by the Funds.
B-77
MANAGEMENT SERVICES
As stated in the Funds Prospectuses, GSAM, 200 West Street, New York, New York 10282, serves
as the Investment Adviser to each Fund, except the Global Income Fund, pursuant to Management
Agreements. GSAM is a subsidiary of The Goldman Sachs Group, Inc. and an affiliate of Goldman
Sachs. Prior to the end of April, 2003, Goldman Sachs Asset Management, a business unit of the
Investment Management Division of Goldman Sachs served as the investment adviser to the Enhanced
Income Fund, Short Duration Tax-Free Fund, Government Income Fund, Municipal Income Fund, Core
Fixed Income Fund, High Yield Municipal Fund and High Yield Fund. On or about April 26, 2003, GSAM
assumed investment advisory responsibilities for those Funds. GSAMI, Procession House, Christchurch
Court, 10-15 Newgate Street, London, England EC1A7HD, an affiliate of Goldman Sachs, serves as
Investment Adviser to Global Income Fund pursuant to a Management Agreement. As a company with
unlimited liability under the laws of England, GSAMI is regulated by the Investment Management
Regulatory Organization Limited, a United Kingdom self-regulatory organization, in the conduct of
its investment advisory business. GSAMI is also an affiliate of Goldman Sachs. See Service
Providers in the Funds Prospectuses for a description of the applicable Investment Advisers
duties to the Funds.
Founded in 1869, Goldman Sachs Group, Inc. is a financial holding company and a leading global
investment banking, securities and investment management firm. 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 with
offices in countries throughout the world. It has trading professionals throughout the United
States, as well as in London, Frankfurt, Tokyo, Seoul, Sao Paulo and other major financial centers
around the world. The active participation of Goldman Sachs in the worlds financial markets
enhances its ability to identify attractive investments. Goldman Sachs has agreed to permit the
Funds to use the name Goldman Sachs or a derivative thereof as part of each Funds name for as
long as each Funds Management Agreement is in effect.
The Investment Advisers are able to draw on the substantial research and market expertise of
Goldman Sachs, whose investment research effort is one of the largest in the industry. Our Global
Investment Research division provides original fundamental insights and analysis for clients in the
equity, fixed income and currency and commodities markets. The group covers areas such as
economics, portfolio strategy, derivatives and equity and credit securities in more than 25 stock
markets and 50 economies and regions around the world. The in-depth information and analyses
generated by Goldman Sachs research analysts are available to the Investment Advisers subject to
Chinese Wall restrictions.
In addition, many of Goldman Sachs economists, securities analysts, portfolio strategists and
credit analysts have consistently been highly ranked in respected industry surveys conducted in the
United States and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure and evaluate
portfolios. For example, Goldman Sachs options evaluation model analyzes a securitys term, coupon
and call option, providing an overall analysis of the securitys value relative to its interest
risk.
In planning the Tax Exempt Funds strategies, the portfolio managers also evaluate and monitor
individual issues by using analytical techniques that have traditionally been applied to corporate
bonds and Mortgage-Backed Securities. In particular, the Investment Advisers embedded option
valuation model provides a picture of an individual securitys relative value and the portfolios
overall interest rate risk. By constantly reviewing the positions of securities within the
portfolio, the Investment Adviser looks for opportunities to enhance the Tax Exempt Funds yields
by fine-tuning the portfolio, using quantitative tools designed for municipal portfolio management.
The Investment Adviser has assembled an experienced team of professionals for selection of the Tax
Exempt Funds portfolio securities.
In structuring the Ultra-Short Duration Government, Short Duration Government, Government Income,
Core Fixed Income, Core Plus Fixed Income and Strategic Income Funds respective securities
portfolios, the Investment Adviser will review the existing overall economic and mortgage market
trends. The Investment Adviser will then study yield spreads, the implied volatility and the shape
of the yield curve. The Investment Adviser will then apply this analysis to a list of eligible
securities that meet the respective Funds investment guidelines. With respect to Ultra-Short Duration Government Fund, this analysis is used to plan a two-part portfolio, which will consist of a
core portfolio of ARMs and a relative value portfolio of other mortgage assets that can enhance
portfolio returns and lower risk (such as investments in CMO floating-rate tranches and
interest-only SMBS).
With respect to Ultra-Short Duration Government Fund, Short Duration Government Fund, Government
Income Fund, Core Fixed Income Fund, Core Plus Fixed Income Fund and Strategic Income Fund, the
applicable Investment Adviser expects to utilize Goldman Sachs sophisticated option-adjusted
analytics to help make strategic asset allocations within the markets for U.S. Government
Securities, Mortgage-Backed Securities and other securities and to employ this technology
periodically to re-evaluate the Funds investments as market conditions change. Goldman Sachs has
also developed a prepayment model designed to estimate
B-78
mortgage prepayments and cash flows under different interest rate scenarios. Because a
Mortgage-Backed Security incorporates the borrowers right to prepay the mortgage, the Investment
Adviser uses a sophisticated option-adjusted spread (OAS) model to measure expected returns. A
securitys OAS is a function of the level and shape of the yield curve, volatility and the
applicable Investment Advisers expectation of how a change in interest rates will affect
prepayment levels. Since the OAS model assumes a relationship between prepayments and interest
rates, the Investment Adviser considers it a better way to measure a securitys expected return and
absolute and relative values than yield to maturity. In using OAS technology, the Investment
Adviser will first evaluate the absolute level of a securitys OAS and consider its liquidity and
its interest rate, volatility and prepayment sensitivity. The Investment Adviser will then analyze
its value relative to alternative investments and to its own investments. The Investment Adviser
will also measure a securitys interest rate risk by computing an option adjusted duration (OAD).
The Investment Adviser believes a securitys OAD is a better measurement of its price sensitivity
than cash flow duration, which systematically misstates portfolio duration. The Investment Adviser
also evaluates returns for different mortgage market sectors and evaluates the credit risk of
individual securities. This sophisticated technical analysis allows the Investment Adviser to
develop portfolio and trading strategies using Mortgage-Backed Securities that are believed to be
superior investments on a risk-adjusted basis and which provide the flexibility to meet the
respective Funds duration targets and cash flow pattern requirements.
Because the OAS is adjusted for the differing characteristics of the underlying securities,
the OAS of different Mortgage-Backed Securities can be compared directly as an indication of their
relative value in the market. The Investment Adviser also expects to use OAS-based pricing methods
to calculate projected security returns under different, discrete interest rate scenarios, and
Goldman Sachs proprietary prepayment model to generate yield estimates under these scenarios. The
OAS, scenario returns, expected returns, and yields of securities in the mortgage market can be
combined and analyzed in an optimal risk-return matching framework.
The Investment Adviser will use OAS analytics to choose what it believes is an appropriate
portfolio of investments for Ultra-Short Duration Government Fund, Short Duration Government Fund,
Government Income Fund, Core Fixed Income Fund, Core Plus Fixed Income Fund and Strategic Income
Fund from a universe of eligible investments. In connection with initial portfolio selections, in
addition to using OAS analytics as an aid to meeting each Funds particular composition and
performance targets, the Investment Adviser will also take into account important market criteria
like the available supply and relative liquidity of various mortgage securities in structuring the
portfolio.
The Investment Adviser also expects to use OAS analytics to evaluate the mortgage market on an
ongoing basis. Changes in the relative value of various Mortgage-Backed Securities could suggest
tactical trading opportunities for the Funds. The Investment Adviser will have access to both
current market analysis as well as historical information on the relative value relationships among
different Mortgage-Backed Securities. Current market analysis and historical information is
available in the Goldman Sachs database for most actively traded Mortgage-Backed Securities.
Goldman Sachs has agreed to provide the Investment Adviser, on a non-exclusive basis, use of
its mortgage prepayment model, OAS model and any other proprietary services which it now has or may
develop, to the extent such services are made available to other similar customers. Use of these
services by the Investment Adviser with respect to a Fund does not preclude Goldman Sachs from
providing these services to third parties or using such services as a basis for trading for its own
account or the account of others.
With respect to the Enhanced Income Fund, the Investment Adviser will review the existing
overall economic trends in structuring the Funds securities portfolio. The Investment Adviser will
then study yield spreads, the implied volatility and the shape of the yield curve. The Investment
Adviser will then apply this analysis to a list of eligible securities that meet the Funds
investment guidelines. The Investment Adviser expects to utilize Goldman Sachs sophisticated
option-adjusted analytics to help make strategic asset allocations within the markets for U.S.
government and other securities and to employ this technology periodically to re-evaluate the
Funds investments as market conditions change.
The fixed income research capabilities of Goldman Sachs available to the Investment Advisers
include the Goldman Sachs Fixed Income Research Department and the Credit Department. The Fixed
Income Research Department monitors developments in U.S. and foreign fixed income markets, assesses
the outlooks for various sectors of the markets and provides relative value comparisons, as well as
analyzes trading opportunities within and across market sectors. The Fixed Income Research
Department is at the forefront in developing and using computer-based tools for analyzing fixed
income securities and markets, developing new fixed income products and structuring portfolio
strategies for investment policy and tactical asset allocation decisions. The Credit Department
tracks specific governments, regions and industries and from time to time may review the credit
quality of a Funds investments.
In addition to fixed income research and credit research, the Investment Adviser is supported
by 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 movements 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
B-79
\
research team has brought wide recognition to its members. The team has earned top rankings in
various external surveys such as Pensions and Investments, Forbes and Dalbar. These rankings
acknowledge the achievements of the firms economists, strategists and equity analysts.
In allocating assets in the applicable Funds portfolios among currencies, the Investment
Adviser will have access to the Global Asset Allocation Model. The model is based on the
observation that the prices of all financial assets, including foreign currencies, will adjust
until investors globally are comfortable holding the pool of outstanding assets. Using the model,
the Investment Adviser will estimate the total returns from each currency sector which are
consistent with the average investor holding a portfolio equal to the market capitalization of the
financial assets among those currency sectors. These estimated equilibrium returns are then
combined with the expectations of Goldman Sachs research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given its investment
objectives and criteria.
The Management Agreements provide that GSAM and GSAMI, in their capacity as Investment
Advisers, may each render similar services to others so long as the services under the Management
Agreements are not impaired thereby. The Funds Management Agreements were most recently approved
by the Trustees of the Trust, including a majority of the Trustees of the Trust who are not parties
to such agreement or interested persons (as such term is defined in the Act) of any party thereto
(the non-interested Trustees), on June 16, 2011 with respect to the Funds. These management
arrangements were last approved by the shareholders of the Funds then in existence on April 21,
1997. The management arrangements for those Funds which commenced investment operations after April
21, 1997 were last approved by the initial sole shareholder of each such Fund prior to the Funds
commencement of operations. A discussion regarding the Trustees basis for approving the Management
Agreements for each Fund in 2010 (2011 in the case of the High Yield Floating Rate Fund) is
available in the Funds semi-annual reports for the period ended September 30, 2010 (the annual
report dated March 31, 2011 in the case of the High Yield Floating Rate Fund), and a discussion
regarding the Trustees basis for approving the Management Agreements for each Fund in 2011 will be
available in the Trusts semi-annual report for the period ended September 30, 2011.
Each Management Agreement will remain in effect until June 30, 2011 and will continue in
effect with respect to each Fund from year to year thereafter provided such continuance is
specifically approved at least annually by (i) the vote of a majority of the outstanding voting
securities of such Fund or a majority of the Trustees of the Trust, and (ii) the vote of a majority
of the non-interested Trustees of the Trust cast in person at a meeting called for the purpose of
voting on such approval.
Each Management Agreement will terminate automatically if assigned (as defined in the Act).
Each Management Agreement is also terminable at any time without penalty by the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the applicable Fund on 60
days written notice to the applicable Investment Adviser and by the Investment Adviser on 60 days
written notice to the Trust.
Pursuant to the Management Agreements, the Investment Advisers are entitled to receive the
fees set forth below, payable monthly based on such respective Funds average daily net assets.
Also included below are the actual management fee rates paid by each Fund (after reflection of any
voluntary management fee waivers, as indicated) for the fiscal year ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
Actual Rate for the Fiscal Year Ended |
Fund |
|
Contractual Rate |
|
March 31, 2011 |
GSAM-Advised Funds |
|
|
|
|
|
|
Enhanced Income Fund
|
|
0.25% on the first $1 billion
|
|
0.20%1
|
|
|
0.23% on the next $1 billion |
|
|
|
|
|
|
0.22% on the next $3 billion |
|
|
|
|
|
|
0.22% on the next $3 billion |
|
|
|
|
|
|
0.22% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Ultra-Short Duration Government Fund
|
|
0.40% on the first $1 billion
|
|
0.38%1
|
|
|
0.36% on the next $1 billion |
|
|
|
|
|
|
0.34% on the next $3 billion |
|
|
|
|
|
|
0.33% on the next $3 billion |
|
|
|
|
|
|
0.32% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Short Duration Government Fund
|
|
0.50% on the first $1 billion
|
|
0.44%1
|
|
|
0.45% on the next $1 billion |
|
|
|
|
|
|
0.43% on the next $3 billion |
|
|
|
|
|
|
0.42% on the next $3 billion |
|
|
|
|
|
|
0.41% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Short Duration Tax-Free Fund
|
|
0.40% on the first $1 billion
|
|
0.35%1
|
|
|
0.36% on the next $1 billion |
|
|
|
|
|
|
0.34% on the next $3 billion |
|
|
|
|
B-80
|
|
|
|
|
|
|
|
|
|
|
Actual Rate for the Fiscal Year Ended |
Fund |
|
Contractual Rate |
|
March 31, 2011 |
|
|
0.33% on the next $3 billion |
|
|
|
|
|
|
0.32% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Government Income Fund
|
|
0.54% on the first $1 billion
|
|
|
0.54 |
% |
|
|
0.49% on the next $1 billion |
|
|
|
|
|
|
0.47% on the next $3 billion |
|
|
|
|
|
|
0.46% on the next $3 billion |
|
|
|
|
|
|
0.45% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Municipal Income Fund
|
|
0.55% on the first $1 billion
|
|
|
0.50 |
%1 |
|
|
0.50% on the next $1 billion |
|
|
|
|
|
|
0.48% on the next $3 billion |
|
|
|
|
|
|
0.47% on the next $3 billion |
|
|
|
|
|
|
0.46% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgages Fund
|
|
0.40% on the first $1 billion
|
|
|
0.33 |
% |
|
|
0.36% on the next $1 billion |
|
|
|
|
|
|
0.34% on the next $3 billion |
|
|
|
|
|
|
0.33% on the next $3 billion |
|
|
|
|
|
|
0.32% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund
|
|
0.40% on the first $1 billion
|
|
|
0.38 |
% |
|
|
0.36% on the next $1 billion |
|
|
|
|
|
|
0.34% on the next $3 billion |
|
|
|
|
|
|
0.33% on the next $3 billion |
|
|
|
|
|
|
0.32% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Core Plus Fixed Income Fund
|
|
0.45% on the first $1 billion
|
|
|
0.45 |
% |
|
|
0.41% on the next $1 billion |
|
|
|
|
|
|
0.39% on the next $3 billion |
|
|
|
|
|
|
0.38% on the next $3 billion |
|
|
|
|
|
|
0.37% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Investment Grade Credit Fund
|
|
0.40% on the first $1 billion
|
|
|
0.33 |
%1 |
|
|
0.36% on the next $1 billion |
|
|
|
|
|
|
0.34% on the next $3 billion |
|
|
|
|
|
|
0.33% on the next $3 billion |
|
|
|
|
|
|
0.32% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
High Yield Municipal Fund
|
|
0.55% on the first $2 billion
|
|
|
0.53 |
% |
|
|
0.50% on the next $3 billion |
|
|
|
|
|
|
0.48% on the next $3 billion |
|
|
|
|
|
|
0.47% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
High Yield Fund
|
|
0.70% on the first $2 billion
|
|
|
0.65 |
% |
|
|
0.63% on the next $3 billion |
|
|
|
|
|
|
0.60% on the next $3 billion |
|
|
|
|
|
|
0.59% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
High Yield Floating Rate Fund
|
|
0.60% on the first $1 billion
|
|
|
0.60 |
% |
|
|
0.54% on the next $1 billion |
|
|
|
|
|
|
0.51% on the next $3 billion |
|
|
|
|
|
|
0.50% on the next $3 billion |
|
|
|
|
|
|
0.49% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Strategic Income Fund
|
|
0.60% on the first $1 billion
|
|
|
0.59 |
% |
|
|
0.54% on the next $1 billion |
|
|
|
|
|
|
0.51% on the next $3 billion |
|
|
|
|
|
|
0.50% on the next $3 billion |
|
|
|
|
|
|
0.49% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund
|
|
0.80% on the first $2 billion
|
|
|
0.80 |
% |
|
|
0.72% on the next $3 billion |
|
|
|
|
|
|
0.68% on the next $3 billion |
|
|
|
|
|
|
0.67% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Local Emerging Markets Debt Fund
|
|
0.90% on the first $2 billion
|
|
|
0.90 |
% |
|
|
0.81% on the next $3 billion |
|
|
|
|
|
|
0.77% on the next $3 billion |
|
|
|
|
|
|
0.75% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
Inflation Protected Securities Fund
|
|
0.33% on the first $1 billion
|
|
|
0.25 |
%1 |
|
|
0.30% on the next $1 billion |
|
|
|
|
B-81
|
|
|
|
|
|
|
|
|
|
|
Actual Rate for the Fiscal Year Ended |
Fund |
|
Contractual Rate |
|
March 31, 2011 |
|
|
0.28% on the first $3 billion |
|
|
|
|
|
|
0.27% on the next $3 billion |
|
|
|
|
|
|
0.26% over $8 billion |
|
|
|
|
|
|
|
|
|
|
|
GSAMI-Advised Fund |
|
|
|
|
|
|
Global Income Fund
|
|
0.65% on the first $1 billion
|
|
|
0.65 |
% |
|
|
0.59% on the next $1 billion |
|
|
|
|
|
|
0.56% on the first $3 billion |
|
|
|
|
|
|
0.55% on the next $3 billion |
|
|
|
|
|
|
0.54% over $8 billion |
|
|
|
|
|
|
|
1 |
|
Inclusive of management fee waivers equal to 0.05%, 0.05%, 0.05%, 0.02%, 0.05%, 0.07%,
0.07% and 0.08% based on the average daily net assets of the Enhanced Income, Short Duration
Government, Ultra-Short Duration Government, Short Duration Tax-Free, Municipal Income, U.S.
Mortgages, Investment Grade Credit and Inflation Protected Securities Funds, respectively (fee
waivers for Short Duration Government and Ultra-Short Duration Government Funds were effective as
of November 1, 2010). These fee waivers will remain in place through at least July 29, 2012
and prior to such date the Investment Advisor may not terminate the arrangements without the
approval of the Board of Trustees. In the absence of such fee waivers, the management fees for
the Enhanced Income, Short Duration Government, Ultra-Short Duration Government, Short Duration
Tax-Free, Municipal Income, U.S. Mortgages, Investment Grade Credit and Inflation Protected
Securities Funds would have been equal to 0.25%, 0.40%, 0.46%, 0.37%, 0.55%, 0.40%, 0.40% and
0.33%, respectively. |
For the fiscal years ended March 31, 2011, March 31, 2010, and March 31, 2009, the
amounts of the fees (net of fee waivers, as applicable) incurred by each Fund then in existence
under its Management Agreement were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year ended |
|
|
Fiscal Year ended |
|
|
Fiscal Year ended |
|
Fund |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Enhanced Income Fund(1) |
|
|
2,033,897 |
|
|
$ |
1,684,050 |
|
|
$ |
483,092 |
|
Ultra-Short Duration Government Fund(2) |
|
|
2,230,909 |
|
|
|
2,235,040 |
|
|
|
1,533,651 |
|
Short Duration Government Fund(3) |
|
|
15,083,973 |
|
|
|
13,647,512 |
|
|
|
7,126,484 |
|
Short Duration Tax-Free Fund(4) |
|
|
8,840,845 |
|
|
|
5,134,971 |
|
|
|
1,552,210 |
|
Government Income Fund |
|
|
4,951,024 |
|
|
|
5,282,824 |
|
|
|
5,118,632 |
|
Municipal Income Fund(5) |
|
|
3,203,796 |
|
|
|
3,008,356 |
|
|
|
3,142,715 |
|
Core Fixed Income Fund |
|
|
6,718,958 |
|
|
|
5,829,377 |
|
|
|
7,240,470 |
|
Global Income Fund |
|
|
5,957,969 |
|
|
|
5,839,182 |
|
|
|
7,449,845 |
|
High Yield Municipal Fund |
|
|
19,162,597 |
|
|
|
15,651,431 |
|
|
|
19,663,521 |
|
High Yield Fund |
|
|
38,169,496 |
|
|
|
35,125,901 |
|
|
|
23,268,117 |
|
High Yield Floating Rate Fund(6) |
|
|
1,838 |
|
|
|
|
|
|
|
|
|
Strategic Income(7) |
|
|
2,633,608 |
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund |
|
|
4,396,342 |
|
|
|
1,887,492 |
|
|
|
1,565,711 |
|
U.S. Mortgages Fund(8) |
|
|
1,482,071 |
|
|
|
1,525,974 |
|
|
|
2,439,399 |
|
Investment Grade Credit Fund(9) |
|
|
2,163,324 |
|
|
|
1,587,703 |
|
|
|
785,841 |
|
Core Plus Fixed Income Fund |
|
|
1,464,646 |
|
|
|
897,364 |
|
|
|
533,419 |
|
Inflation Protected Securities Fund(10) |
|
|
580,286 |
|
|
|
395,803 |
|
|
|
186,867 |
|
Local Emerging Markets Debt Fund |
|
|
14,366.746 |
|
|
|
2,205,875 |
|
|
|
1,121,739 |
|
|
|
|
(1) |
|
Had fee waiver arrangements not been in effect, Enhanced Income Fund would have paid
advisory fees of $2,542,371, $2,105,062 and $603,866, respectively, for the fiscal years ended
March 31, 2011, March 31, 2010 and March 31, 2009. |
|
(2) |
|
Had fee waiver arrangements not been in effect, Ultra-Short Duration Government Fund would have
paid advisory fees of $2,326,021 for the fiscal year ended March 31, 2011. |
|
(3) |
|
Had fee waiver arrangements not been in effect, Short Duration Government Fund would have
paid advisory fees of $15,711,742 for the fiscal year ended March 31, 2011. |
|
(4) |
|
Had fee waiver arrangements not been in effect, Short Duration Tax-Free Fund would have paid
advisory fees of $9,440,880, $5,687,646 and $1,774,772, respectively, for the fiscal years
ended March 31, 2011, March 31, 2010 and March 31, 2009. |
|
(5) |
|
Had fee waiver arrangements not been in effect, Municipal Income Fund would have paid
advisory fees of $3,524,183, $3,309,199 and $3,456,979, respectively, for the fiscal years
ended March 31, 2011, March 31, 2010 and March 31, 2009. |
|
(6) |
|
The High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
(7) |
|
The Strategic Income Fund commenced operations on June 30, 2010. |
|
(8) |
|
Had fee waiver arrangements not been in effect, U.S. Mortgages Fund would have paid advisory
fees of $1,796,449, $1,849,666 and $2,956,848, respectively, for the fiscal years ended March
31, 2011, March 31, 2010 and March 31, 2009. |
|
(9) |
|
Had fee waiver arrangements not been in effect, Investment Grade Credit Fund would have paid
advisory fees of $2,622,211, $1,924,703 and $952,536, respectively, for the fiscal years ended
March 31, 2011, March 31, 2010 and March 31, 2009. |
|
(10) |
|
Had fee waiver arrangements not been in effect, Inflation Protected Securities Fund would
have paid advisory fees of $765,976, $522,459 and $246,664, respectively, for the fiscal years
ended March 31, 2011, March 31, 2010 and March 31, 2009. |
B-82
In addition to the management fee waivers described above, as of June 30, 2011 the
Investment Adviser has agreed to waive a portion of its managament fee in order to achieve
effective net management fee rates of 0.80%, 0.53%, 0.20%, 0.40%, 0.35% and 0.31%, respectively, as
an annual percentage rate of the average daily net assets of the Local Emerging Markets Debt Fund,
Government Income Fund, Inflation Protected Securities Fund, Municipal Income Fund, Short Duration
Tax-Free Fund and Ultra-Short Duration Government Fund. These fee waiver arrangements will remain in
effect through at least July 29, 2011 and prior to such date the Investment Adviser may not
terminate the arrangements without the approval of the Board of Trustees.
Each Investment Adviser performs administrative services for the applicable Funds under the
Management Agreement. Such administrative services include, subject to the general supervision of
the Trustees of the Trust, (i) providing supervision of all aspects of the Funds non-investment
operations (other than certain operations performed by others pursuant to agreements with the
Funds); (ii) providing the Funds, to the extent not provided pursuant to the agreement with the
Trusts custodian, transfer and dividend disbursing agent or agreements with other institutions,
with personnel to perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Funds; (iii) arranging, to the extent not
provided pursuant to such agreements, for the preparation, at the Funds expense, of each Funds
tax returns, reports to shareholders, periodic updating of the Funds prospectuses and statements
of additional information, and reports filed with the SEC and other regulatory authorities; (iv)
providing the Funds, to the extent not provided pursuant to such agreements, with adequate office
space and certain related office equipment and services; and (v) maintaining all of the Funds
records other than those maintained pursuant to such agreements.
B-83
Portfolio Managers Other Accounts Managed by the Portfolio Managers
The following tables discloses other accounts within each type of category listed below for
which the portfolio managers are jointly and primarily responsible for day to day portfolio
management (unless otherwise noted, the information below is provided as of March 31, 2011).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Portfolio Manager |
|
Number of Other Accounts Managed and Total Assets by Account Type |
|
Number of Accounts and Total Assets for Which Advisory Fee is Performance Based |
|
|
Registered Investment |
|
Other Pooled Investment |
|
|
|
|
|
Registered Investment |
|
Other Pooled Investment |
|
|
|
|
|
Companies |
|
Vehicles |
|
Other Accounts |
|
Companies |
|
Vehicles |
|
Other Accounts |
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
Enhanced Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James McCarthy |
|
11 |
|
$7.38 billion |
|
3 |
|
$245 million |
|
90 |
|
$40.51 billion |
|
|
|
|
|
|
|
|
|
1 |
|
$183 million |
Dave Fishman |
|
11 |
|
$7.38 billion |
|
3 |
|
$245 million |
|
90 |
|
$40.51 billion |
|
|
|
|
|
|
|
|
|
1 |
|
$183 million |
Ultra-Short Duration Government Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income- Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James McCarthy |
|
11 |
|
$7.38 billion |
|
3 |
|
$245 million |
|
90 |
|
$40.51 billion |
|
|
|
|
|
|
|
|
|
1 |
|
$183 million |
Dave Fishman |
|
11 |
|
$7.38 billion |
|
3 |
|
$245 million |
|
90 |
|
$40.51 billion |
|
|
|
|
|
|
|
|
|
1 |
|
$183 million |
Short Duration Government Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income- Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James McCarthy |
|
11 |
|
$7.38 billion |
|
3 |
|
$245 million |
|
90 |
|
$40.51 billion |
|
|
|
|
|
|
|
|
|
1 |
|
$183 million |
Dave Fishman |
|
11 |
|
$7.38 billion |
|
3 |
|
$245 million |
|
90 |
|
$40.51 billion |
|
|
|
|
|
|
|
|
|
1 |
|
$183 million |
Short Duration Tax-Free Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income- Municipal Investment
Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben Barber |
|
3 |
|
$6.06 billion |
|
|
|
|
|
1,270 |
|
$20.18 billion |
|
|
|
|
|
|
|
|
|
|
|
|
Scott Diamond |
|
3 |
|
$6.06 billion |
|
|
|
|
|
1,270 |
|
$20.18 billion |
|
|
|
|
|
|
|
|
|
|
|
|
Government Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income- Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Van Wyk |
|
122 |
|
$29.68 billion |
|
110 |
|
$34.1 billion |
|
658 |
|
$172.94 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
14 |
|
$5.09 billion |
Michael Swell |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Municipal Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income- Municipal Investment
Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben Barber |
|
3 |
|
$6.06 billion |
|
|
|
|
|
1,270 |
|
$20.18 billion |
|
|
|
|
|
|
|
|
|
|
|
|
Scott Diamond |
|
3 |
|
$6.06 billion |
|
|
|
|
|
1,270 |
|
$20.18 billion |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgages Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income- Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom Teles |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Peter D. Dion |
|
83 |
|
$22.6 billion |
|
73 |
|
$18.71 billion |
|
546 |
|
$152.65 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
14 |
|
$5.66 billion |
Christopher Creed |
|
83 |
|
$22.6 billion |
|
73 |
|
$18.71 billion |
|
546 |
|
$152.65 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
14 |
|
$5.66 billion |
Christopher Hogan |
|
83 |
|
$22.6 billion |
|
73 |
|
$18.71 billion |
|
546 |
|
$152.65 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
14 |
|
$5.66 billion |
Strategic Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan Beinner |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Michael Swell |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
B-84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Portfolio Manager |
|
Number of Other Accounts Managed and Total Assets by Account Type |
|
Number of Accounts and Total Assets for Which Advisory Fee is Performance Based |
|
|
Registered Investment |
|
Other Pooled Investment |
|
|
|
|
|
Registered Investment |
|
Other Pooled Investment |
|
|
|
|
|
Companies |
|
Vehicles |
|
Other Accounts |
|
Companies |
|
Vehicles |
|
Other Accounts |
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
Number of |
|
|
|
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
|
Accounts |
|
Assets Managed |
Core
Fixed Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan A. Beinner |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Michael Swell |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Core Plus Fixed Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan A. Beinner |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Michael Swell |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Investment Grade Credit Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lale Topcuoglu |
|
43 |
|
$8.68 billion |
|
91 |
|
$27.21 billion |
|
744 |
|
$180.04 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
10 |
|
$23.52 billion |
Ben Johnson |
|
43 |
|
$8.68 billion |
|
91 |
|
$27.21 billion |
|
744 |
|
$180.04 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
10 |
|
$23.52 billion |
Global Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Wilson |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Iain Lindsay |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
High Yield Municipal Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-Municipal Investment
Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ben Barber |
|
3 |
|
$6.06 billion |
|
|
|
|
|
1,270 |
|
$20.18 billion |
|
|
|
|
|
|
|
|
|
|
|
|
Scott Diamond |
|
3 |
|
$6.06 billion |
|
|
|
|
|
1,270 |
|
$20.18 billion |
|
|
|
|
|
|
|
|
|
|
|
|
High Yield Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-High Yield Investment
Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rob Cignarella |
|
30 |
|
$7.37 billion |
|
94 |
|
$35.12 billion |
|
496 |
|
$119.1 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
8 |
|
$1.74 billion |
Rachel C. Golder |
|
59 |
|
$14.42 billion |
|
101 |
|
$35.55 billion |
|
785 |
|
$185.97 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
11 |
|
$2.7 billion |
Michael Goldstein |
|
30 |
|
$7.37 billion |
|
94 |
|
$35.12 billion |
|
496 |
|
$119.1 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
8 |
|
$1.74 billion |
High Yield Floating Rate Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Fixed Income-High Yield Investment
Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Goldstein |
|
30 |
|
$7.37 billion |
|
94 |
|
$35.12 billion |
|
496 |
|
$119.1 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
8 |
|
$1.74 billion |
Michael Chang |
|
50 |
|
$9.86 billion |
|
85 |
|
$27.91 billion |
|
584 |
|
$123.75 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
9 |
|
$2.39 billion |
Jean Joseph |
|
50 |
|
$9.86 billion |
|
85 |
|
$27.91 billion |
|
584 |
|
$123.75 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
9 |
|
$2.39 billion |
Emerging Markets Debt Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel Finkelstein |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Ricardo Penfold |
|
95 |
|
$24.4 billion |
|
88 |
|
$26.21 billion |
|
532 |
|
$140.69 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
7 |
|
$1.48 billion |
Inflation Protected Securities Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matt Kaiser |
|
66 |
|
$20.45 billion |
|
31 |
|
$7.98 billion |
|
448 |
|
$126.74 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
9 |
|
$4.44 billion |
Mark Van Wyk |
|
122 |
|
$29.68 billion |
|
110 |
|
$34.1 billion |
|
658 |
|
$172.94 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
14 |
|
$5.09 billion |
Local Emerging Markets Debt Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Fixed Income-Investment Management Team |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Samuel Finkelstein |
|
148 |
|
$42.66 billion |
|
139 |
|
$48.52 billion |
|
2,019 |
|
$212.91 billion |
|
|
|
|
|
20 |
|
$4.28 billion |
|
29 |
|
$8.26 billion |
Ricardo Penfold |
|
95 |
|
$24.4 billion |
|
88 |
|
$26.21 billion |
|
532 |
|
$140.69 billion |
|
|
|
|
|
12 |
|
$3.45 billion |
|
7 |
|
$1.48 billion |
B-85
Conflicts of Interest. The Investment Advisers portfolio managers are often
responsible for managing one or more of the Funds as well as other accounts, including proprietary
accounts, separate accounts and other pooled investment vehicles, such as unregistered hedge funds.
A portfolio manager may manage a separate account or other pooled investment vehicle which may have
materially higher fee arrangements than the Funds and may also have a performance-based fee. The
side-by-side management of these funds may raise potential conflicts of interest relating to cross
trading, the allocation of investment opportunities and the aggregation and allocation of trades.
The Investment Adviser has a fiduciary responsibility to manage all client accounts in a fair
and equitable manner. The Investment Adviser seeks to provide best execution of all securities
transactions and aggregate and then allocate securities to client accounts in a fair and timely
manner. To this end, the Investment Adviser has developed policies and procedures designed to
mitigate and manage the potential conflicts of interest that may arise from side-by-side
management. In addition, the Investment Adviser and the Funds have adopted policies limiting the
circumstances under which cross-trades may be effected between a Fund and another client account.
The Investment Adviser conducts periodic reviews of trades for consistency with these policies. For
more information about conflicts of interests that may arise in connection with the portfolio
managers management of the Funds investments and the investments of other accounts, see
Potential Conflicts of Interest Potential Conflicts Relating to the Allocation of Investment
Opportunities Among the Funds and Other Goldman Sachs Accounts and Potential Conflicts Relating to
Goldman Sachs and the Investment Advisers Proprietary Activities and Activities on Behalf of
Other Accounts.
Portfolio Managers Compensation
Compensation for portfolio managers of the Investment Advisers is comprised of a base salary
and discretionary variable compensation. The base salary is fixed from year to year. Year-end
discretionary variable compensation is primarily a function of each portfolio managers individual
performance and his or her contribution to overall team performance; the performance of the
Investment Advisers and Goldman Sachs; the teams net revenues for the past year which in part is
derived from advisory fees, and for certain accounts, performance-based fees; and anticipated
compensation levels among competitor firms. Portfolio managers are rewarded, in part, for their
delivery of investment performance, measured on a pre-tax basis, which is reasonably expected to
meet or exceed the expectations of clients and fund shareholders in terms of: excess return over an
applicable benchmark, peer group ranking, risk management and factors specific to certain funds
such as yield or regional focus. Performance is judged over 1-3- and 5-year time horizons.
The benchmarks for these Funds are:
Enhanced Income Fund: Goldman Sachs Enhanced Income Fund Composite Index (comprised of the Six-Month U.S. Treasury Bill Index (50%) and One-Year U.S. Treasury Note Index (50%))
Ultra-Short Duration Government Fund: Goldman Sachs Ultra-Short Duration Fund Composite Index (comprised of the Six-Month U.S. Treasury Bill Index (50%) and One-Year U.S. Treasury Note Index (50%))
Short Duration Government Fund: Two-Year U.S. Treasury Note Index
Short Duration Tax-Free Fund: Barclays Capital 1-3 Year Municipal Bond Index
Government Income Fund: Barclays Capital Government/Mortgage Index
Municipal Income Fund: Barclays Capital Aggregate Municipal Bond Index
U.S. Mortgages Fund: Barclays Capital U.S. Securitized Bond Index
Core Fixed Income Fund: Barclays Capital U.S. Aggregate Bond Index
Core Plus Fixed Income Fund: Barclays Capital U.S. Aggregate Bond Index
Investment Grade Credit Fund: Barclays Capital U.S. Credit Index
Global Income Fund: Barclays Capital Global Aggregate Index
High Yield Municipal Fund: Goldman Sachs High Yield Municipal Fund Composite Index (comprised of
the Barclays Capital Aggregate Municipal Bond Index (formerly, the Lehman Brothers Aggregate
Municipal Bond Index) (40%) and the Barclays Capital High Yield Municipal Bond Index (formerly, the
Lehman Brothers High Yield Municipal Bond Index) (60%))
High Yield Fund: Barclays Capital U.S. Corporate High Yield Bond Index2% Issuer Capped (formerly,
the Lehman Brothers U.S. Corporate High Yield Bond Index2% Issuer Capped)
High Yield Floating Rate Fund: Barclays Capital Leveraged Loan Index
Strategic Income Fund: 3-Month LIBOR (USD)
Emerging Markets Debt Fund: J.P. Morgan EMBI Global Diversified Index
Local Emerging Markets Debt Fund: J.P. Morgan GBI-EM Global Diversified Index
Inflation Protected Securities Fund: Barclays Capital U.S. TIPS Index
B-86
The discretionary variable compensation for portfolio managers is also significantly
influenced by: (1) effective participation in team research discussions and process; and (2)
management of risk in alignment with the targeted risk parameter and investment objective of the
fund. Other factors may also be considered including: (1) general client/shareholder orientation
and (2) teamwork and leadership. Portfolio managers may receive equity-based awards as part of
their discretionary variable compensation.
Other CompensationIn addition to base salary and discretionary variable
compensation, the Investment Adviser has a number of additional benefits in place including (1) a
401k program that enables employees to direct a percentage of their pretax salary and bonus income
into a tax-qualified retirement plan; and (2) investment opportunity programs in which certain
professionals may participate subject to certain eligibility requirements.
Portfolio Managers Portfolio Managers Ownership of Shares of the Funds They Manage
The following table shows the portfolio managers ownership of shares of the Funds they manage
as of March 31, 2011.
|
|
|
|
|
Name of Portfolio Manager |
|
Dollar Range of Equity Securities Beneficially Owned by Portfolio Manager |
Enhanced Income Fund |
|
|
|
|
James McCarthy
|
|
|
$10,001 $50,000
|
|
Dave Fishman
|
|
|
0 |
|
Ultra-Short Duration Government Fund |
|
|
|
|
James McCarthy
|
|
|
50,001 100,000
|
|
Dave Fishman
|
|
|
50,001 100,000
|
|
Short Duration Government Fund |
|
|
|
|
James McCarthy
|
|
|
0 |
|
Dave Fishman
|
|
|
100,001 500,000
|
|
Short Duration Tax-Free Fund |
|
|
|
|
Ben Barber
|
|
|
10,001 50,000
|
|
Scott Diamond
|
|
|
10,001 50,000
|
|
Government Income Fund |
|
|
|
|
Michael Swell
|
|
|
10,001 50,000
|
|
Mark Van Wyk
|
|
|
50,001 100,000
|
|
Municipal Income Fund |
|
|
|
|
Ben Barber
|
|
|
10,001 50,000
|
|
Scott Diamond
|
|
|
10,001 50,000
|
|
U.S. Mortgages Fund |
|
|
|
|
Thomas D. Teles
|
|
|
50,001 100,000
|
|
Peter D. Dion
|
|
|
100,001 500,000
|
|
Christopher Creed
|
|
|
50,001 100,000
|
|
Christopher Hogan
|
|
|
10,001 50,000
|
|
Core Fixed Income Fund |
|
|
|
|
Jonathan A. Beinner
|
|
|
100,001 500,000
|
|
Michael Swell
|
|
|
10,001 50,000
|
|
Core Plus Fixed Income Fund |
|
|
|
|
Jonathan A. Beinner
|
|
|
0 |
|
Michael Swell
|
|
|
10,001 50,000
|
|
Investment Grade Credit Fund |
|
|
|
|
Lale Topcuoglu
|
|
|
0 |
|
Ben Johnson
|
|
|
100,001 500,000
|
|
Global Income Fund |
|
|
|
|
Andrew Wilson
|
|
|
0 |
|
Ian Lindsay
|
|
|
0 |
|
High Yield Municipal Fund |
|
|
|
|
Ben Barber
|
|
|
500,001 1,000,000
|
|
Scott Diamond
|
|
|
10,001 50,000
|
|
High Yield Fund |
|
|
|
|
Rob Cignarella
|
|
|
100,001 500,000
|
|
Rachel C. Golder
|
|
|
100,001 500,000
|
|
Michael Goldstein
|
|
|
0 |
|
High Yield Floating Rate Fund |
|
|
|
|
Michael Goldstein
|
|
|
0 |
|
Michael Chang
|
|
|
0 |
|
Jean Joseph
|
|
|
0 |
|
Strategic Income Fund |
|
|
|
|
Jonathan Beinner
|
|
|
500,001 1,000,000
|
|
Michael Swell
|
|
|
10,001 50,000
|
|
Emerging Markets Debt Fund |
|
|
|
|
Samuel Finkelstein
|
|
|
50,001 100,000
|
|
Ricardo Penfold
|
|
|
0 |
|
B-87
|
|
|
|
|
Name of Portfolio Manager |
|
Dollar Range of Equity Securities Beneficially Owned by Portfolio Manager |
Local Emerging Markets Debt Fund |
|
|
|
|
Samuel Finkelstein
|
|
|
50,001 100,000
|
|
Ricardo Penfold
|
|
|
0 |
|
Inflation Protected Securities Fund |
|
|
|
|
Matt Kaiser
|
|
|
0 |
|
Mark Van Wyk
|
|
|
50,001 100,000
|
|
Distributor and Transfer Agent
Distributor. Goldman Sachs, 200 West Street, New York, New York 10282 serves as the exclusive
distributor of shares of the Funds pursuant to a best efforts arrangement as provided by a
distribution agreement with the Trust on behalf of each Fund. Shares of the Funds are offered and
sold on a continuous basis by Goldman Sachs, acting as agent. Pursuant to the distribution
agreement, after the Funds Prospectuses and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution of copies thereof
used in connection with the offering to prospective investors. Goldman Sachs will also pay for
other supplementary sales literature and advertising costs. Goldman Sachs may enter into sales
agreements with certain Authorized Institutions to solicit subscriptions for Class A, Class B,
Class C, Class R and Class IR Shares of each of the Funds that offer such classes of shares.
Goldman Sachs receives a portion of the sales load imposed on the sale, in the case of Class A
Shares, or redemption in the case of Class A, Class B and Class C Shares, of such Fund shares.
Goldman Sachs retained approximately the following combined commissions on sales of Class A, B and
C Shares during the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
|
March 31, 2010 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Enhanced Income Fund(1) |
|
$ |
3,577 |
|
|
$ |
11,428 |
|
|
$ |
1,712 |
|
Ultra-Short Duration Government Fund(2) |
|
|
3,317 |
|
|
|
19,567 |
|
|
|
8,392 |
|
Short Duration Government Fund |
|
|
38,535 |
|
|
|
103,184 |
|
|
|
87,920 |
|
Short Duration Tax-Free Fund |
|
|
15,721 |
|
|
|
49,470 |
|
|
|
75,659 |
|
Government Income Fund |
|
|
21,810 |
|
|
|
54,129 |
|
|
|
51,888 |
|
Municipal Income Fund |
|
|
50,380 |
|
|
|
93,543 |
|
|
|
50,758 |
|
Core Fixed Income Fund |
|
|
30,276 |
|
|
|
84,062 |
|
|
|
77,141 |
|
Global Income Fund |
|
|
32,927 |
|
|
|
23,501 |
|
|
|
9,453 |
|
High Yield Municipal Fund |
|
|
92,064 |
|
|
|
124,845 |
|
|
|
138,205 |
|
High Yield Fund |
|
|
97,725 |
|
|
|
156,600 |
|
|
|
123,179 |
|
High Yield Floating Rate Fund(3)(4) |
|
|
0 |
|
|
|
|
|
|
|
|
|
Strategic Income Fund(3)(5) |
|
|
115,729 |
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund(3) |
|
|
58,193 |
|
|
|
25,670 |
|
|
|
5,034 |
|
U.S. Mortgages Fund(2) |
|
|
292 |
|
|
|
1,900 |
|
|
|
135 |
|
Investment Grade Credit Fund(2) |
|
|
2,528 |
|
|
|
5,881 |
|
|
|
2,895 |
|
Core Plus Fixed Income Fund |
|
|
23,239 |
|
|
|
25,160 |
|
|
|
17,514 |
|
Inflation Protected Securities Fund(3) |
|
|
25,088 |
|
|
|
54,627 |
|
|
|
28,424 |
|
Local Emerging Markets Debt Fund(3) |
|
|
61,176 |
|
|
|
5,700 |
|
|
|
426 |
|
|
|
|
(1) |
|
Enhanced Income Fund does not currently offer Class C Shares. |
|
(2) |
|
Ultra-Short Duration Government Fund, U.S. Mortgages Fund, and Investment Grade Credit Fund do not
currently offer Class B and Class C Shares. |
|
(3) |
|
High Yield Floating Rate Fund, Strategic Income Fund, Emerging Markets Debt Fund, Inflation
Protected Securities Fund, and Local Emerging Markets Debt Fund do not currently offer Class B
Shares. |
|
(4) |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
(5) |
|
Strategic Income Fund commenced operations on June 30, 2010. |
Dealer Reallowances. Class A Shares of the Funds are sold subject to a front-end sales
charge, as described in the prospectuses and in this SAI in the section SHARES OF THE TRUST.
Goldman Sachs pays commissions to Authorized Institutions that sell Class A shares of the Funds in
the form of a reallowance of all or a portion of the sales charge paid on the purchase of those
shares. Goldman Sachs reallows the following amounts, expressed as a percentage of each Funds
offering price with respect to purchases under $100,000 for Government Income Fund, U.S. Mortgages
Fund, Core Fixed Income Fund, Investment Grade Credit Fund, Global Income Fund, High Yield Fund,
High Yield Floating Rate Fund, Strategic Income Fund, Inflation Protected Securities Fund, Emerging
Markets Debt Fund, Local Emerging Markets Debt Fund, Core Plus Fixed Income Fund, Municipal Income
Fund and High Yield Municipal Fund; and under $500,000 for Short Duration Government Fund, Short
Duration Tax-Free Fund, Enhanced Income Fund and Ultra-Short Duration Government Fund:
B-88
|
|
|
|
|
% of sales charge |
Fund |
|
re-allowed to broker/dealers |
Enhanced Income |
|
1.23% |
Ultra-Short Duration Government |
|
1.27% |
Short Duration Government |
|
2.42% |
Short Duration Tax-Free |
|
1.44% |
Government Income |
|
3.36% |
Municipal Income |
|
3.28% |
Core Fixed Income |
|
3.29% |
Global Income |
|
3.24% |
High Yield Municipal |
|
3.97% |
High Yield |
|
3.99% |
High Yield Floating Rate |
|
* |
Strategic Income |
|
3.36% |
Emerging Markets Debt |
|
4.00% |
U.S. Mortgages |
|
3.18% |
Investment Grade Credit |
|
3.32% |
Core Plus Fixed Income |
|
3.23% |
Local Emerging Markets Debt Fund |
|
4.03% |
Inflation Protected Securities Fund |
|
3.29% |
|
|
|
* |
|
High Yield Floating Rate Fund commenced operations on
March 31, 2011. The only trade completed for this fund
during the fiscal period ended March 31, 2011 was seed
capital and no commission was collected. |
Dealer allowances may be changed periodically. During special promotions, the entire
sales charge may be reallowed to Authorized Institutions. Authorized Institutions to whom
substantially the entire sales charge is reallowed may be deemed to be underwriters under the
Securities Act of 1933.
Transfer Agent. Goldman Sachs, 71 South Wacker Drive, Chicago, IL 60606 serves as the Trusts
transfer and dividend disbursing agent. Under its transfer agency agreement with the Trust, Goldman
Sachs has undertaken with the Trust with respect to each Fund to: (i) record the issuance, transfer
and redemption of shares; (ii) provide purchase and redemption confirmations and quarterly
statements, as well as certain other statements; (iii) provide certain information to the Trusts
custodian and the relevant subcustodian in connection with redemptions; (iv) provide dividend
crediting and certain disbursing agent services; (v) maintain shareholder accounts; (vi) provide
certain state Blue Sky and other information; (vii) provide shareholders and certain regulatory
authorities with tax-related information; (viii) respond to shareholder inquiries; and (ix) render
certain other miscellaneous services. For its transfer agency services, Goldman Sachs is entitled
to receive a transfer agency fee equal, on an annualized basis, to 0.04% of average daily net
assets with respect to each Funds Institutional, Administration, Service, and Separate Account
Institutional Shares and 0.13% of average daily net assets with respect to each Funds Class A,
Class B, Class C, Class R and Class IR Shares (less transfer agency expenses borne by a share
class). Goldman Sachs may pay to certain intermediaries who perform transfer agent services to
shareholders a networking or sub-transfer agent fee. These payments will be made from the transfer
agency fees noted above and in the Funds Prospectuses.
As compensation for the services rendered to the Trust by Goldman Sachs as transfer and
dividend disbursing agent and the assumption by Goldman Sachs of the expenses related thereto,
Goldman Sachs received fees for the fiscal years ended March 31, 2011, March 31, 2010 and March 31,
2009, from each Fund then in existence as follows under the fee schedules then in effect:
Fiscal Year Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A, B |
|
|
Class R |
|
|
Class IR |
|
|
Institutional |
|
|
Service |
|
|
Administration |
|
|
Separate Account |
|
|
|
and C Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Institutional |
|
Enhanced Income Fund1 |
|
$ |
407,201 |
|
|
|
|
|
|
|
0 |
|
|
$ |
279,898 |
|
|
|
|
|
|
|
1,588 |
|
|
|
|
|
Ultra-Short Duration Government Fund |
|
|
273,046 |
|
|
|
|
|
|
|
577 |
|
|
|
147,792 |
|
|
|
618 |
|
|
|
|
|
|
|
|
|
Short Duration Government Fund |
|
|
1,872,209 |
|
|
|
|
|
|
|
7,446 |
|
|
|
735,166 |
|
|
|
64,315 |
|
|
|
|
|
|
|
|
|
Short Duration Tax-Free Fund |
|
|
1,275,029 |
|
|
|
|
|
|
|
25 |
|
|
|
614,411 |
|
|
|
9,838 |
|
|
|
|
|
|
|
|
|
Government Income Fund |
|
|
716,821 |
|
|
|
12,623 |
|
|
|
799 |
|
|
|
100,374 |
|
|
|
41,678 |
|
|
|
|
|
|
|
|
|
Municipal Income Fund |
|
|
546,595 |
|
|
|
|
|
|
|
69 |
|
|
|
88,024 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund |
|
|
1,068,771 |
|
|
|
21 |
|
|
|
1,639 |
|
|
|
370,867 |
|
|
|
1,876 |
|
|
|
|
|
|
|
|
|
B-89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A, B |
|
|
Class R |
|
|
Class IR |
|
|
Institutional |
|
|
Service |
|
|
Administration |
|
|
Separate Account |
|
|
|
and C Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Institutional |
|
Global Income Fund |
|
|
310,270 |
|
|
|
|
|
|
|
18 |
|
|
|
271,285 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
High Yield Municipal Fund |
|
|
696,964 |
|
|
|
|
|
|
|
215 |
|
|
|
1,238,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield Fund |
|
|
1,588,412 |
|
|
|
12,477 |
|
|
|
2,071 |
|
|
|
1,849,475 |
|
|
|
8,606 |
|
|
|
|
|
|
|
|
|
High Yield Floating Rate Fund2 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Income Fund3 |
|
|
291,285 |
|
|
|
11 |
|
|
|
6,061 |
|
|
|
86,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund1 |
|
|
236,161 |
|
|
|
|
|
|
|
913 |
|
|
|
146,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgages Fund4 |
|
|
10,847 |
|
|
|
|
|
|
|
|
|
|
|
22,870 |
|
|
|
|
|
|
|
|
|
|
|
153,437 |
|
Investment Grade Credit Fund4 |
|
|
237,122 |
|
|
|
|
|
|
|
|
|
|
|
77,510 |
|
|
|
|
|
|
|
|
|
|
|
111,751 |
|
Core Plus Fixed Income Fund |
|
|
157,260 |
|
|
|
50 |
|
|
|
447 |
|
|
|
81,645 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Inflation Protected Securities Fund |
|
|
132,478 |
|
|
|
801 |
|
|
|
164 |
|
|
|
51,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Emerging Markets Debt Fund1 |
|
|
1,100,675 |
|
|
|
|
|
|
|
3,620 |
|
|
|
298,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A, B |
|
|
Class R |
|
|
Class IR |
|
|
Institutional |
|
|
Service |
|
|
Administration |
|
|
Separate Account |
|
|
|
and C Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Institutional |
|
Enhanced Income Fund1 |
|
$ |
289,370 |
|
|
|
|
|
|
|
|
|
|
$ |
246,685 |
|
|
|
|
|
|
|
1,088 |
|
|
|
|
|
Ultra-Short Duration Government Fund |
|
|
307,238 |
|
|
|
|
|
|
|
273 |
|
|
|
127,881 |
|
|
|
1,004 |
|
|
|
|
|
|
|
|
|
Short Duration Government Fund |
|
|
1,836,898 |
|
|
|
|
|
|
|
1,397 |
|
|
|
565,142 |
|
|
|
55,045 |
|
|
|
|
|
|
|
|
|
Short Duration Tax-Free Fund |
|
|
881,990 |
|
|
|
|
|
|
|
|
|
|
|
313,262 |
|
|
|
2,872 |
|
|
|
|
|
|
|
|
|
Government Income Fund |
|
|
812,268 |
|
|
|
2,112 |
|
|
|
141 |
|
|
|
102,023 |
|
|
|
38,711 |
|
|
|
|
|
|
|
|
|
Municipal Income Fund |
|
|
521,895 |
|
|
|
|
|
|
|
|
|
|
|
79,985 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund |
|
|
998,607 |
|
|
|
15 |
|
|
|
79 |
|
|
|
293,368 |
|
|
|
2,603 |
|
|
|
|
|
|
|
|
|
Global Income Fund |
|
|
283,364 |
|
|
|
|
|
|
|
|
|
|
|
272,060 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
High Yield Municipal Fund |
|
|
1,341,224 |
|
|
|
|
|
|
|
|
|
|
|
759,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield Fund |
|
|
2,072,225 |
|
|
|
1,513 |
|
|
|
296 |
|
|
|
1,504,248 |
|
|
|
7,654 |
|
|
|
|
|
|
|
|
|
High Yield Floating Rate Fund2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Income Fund3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund1 |
|
|
92,729 |
|
|
|
|
|
|
|
|
|
|
|
65,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgages Fund4 |
|
|
12,418 |
|
|
|
|
|
|
|
|
|
|
|
36,067 |
|
|
|
|
|
|
|
|
|
|
|
145,086 |
|
Investment Grade Credit Fund4 |
|
|
181,406 |
|
|
|
|
|
|
|
|
|
|
|
49,612 |
|
|
|
|
|
|
|
|
|
|
|
87,046 |
|
Core Plus Fixed Income Fund |
|
|
108,342 |
|
|
|
34 |
|
|
|
142 |
|
|
|
46,371 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Inflation Protected Securities Fund |
|
|
104,969 |
|
|
|
137 |
|
|
|
119 |
|
|
|
30,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Emerging Markets Debt Fund1 |
|
|
111,163 |
|
|
|
|
|
|
|
|
|
|
|
63,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A, B |
|
|
Class R |
|
|
Class IR |
|
|
Institutional |
|
|
Service |
|
|
Administration |
|
|
Separate Account |
|
|
|
and C Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
Institutional |
|
Enhanced Income Fund1 |
|
$ |
55,478 |
|
|
|
|
|
|
|
|
|
|
$ |
79,440 |
|
|
|
|
|
|
$ |
108 |
|
|
|
|
|
Ultra-Short Duration Government Fund |
|
|
135,774 |
|
|
|
|
|
|
|
14 |
|
|
|
110,280 |
|
|
|
1,305 |
|
|
|
|
|
|
|
|
|
Short Duration Government Fund |
|
|
829,184 |
|
|
|
|
|
|
|
21 |
|
|
|
299,541 |
|
|
|
34,340 |
|
|
|
|
|
|
|
|
|
Short Duration Tax-Free Fund |
|
|
291,865 |
|
|
|
|
|
|
|
|
|
|
|
87,569 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
Government Income Fund |
|
|
771,878 |
|
|
|
20 |
|
|
|
15 |
|
|
|
111,978 |
|
|
|
29,669 |
|
|
|
|
|
|
|
|
|
Municipal Income Fund |
|
|
513,995 |
|
|
|
|
|
|
|
|
|
|
|
93,054 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund |
|
|
972,955 |
|
|
|
11 |
|
|
|
11 |
|
|
|
457,507 |
|
|
|
6,629 |
|
|
|
|
|
|
|
|
|
Global Income Fund |
|
|
342,943 |
|
|
|
|
|
|
|
|
|
|
|
359,031 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
High Yield Municipal Fund |
|
|
2,618,865 |
|
|
|
|
|
|
|
|
|
|
|
686,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield Fund |
|
|
2,305,634 |
|
|
|
88 |
|
|
|
11 |
|
|
|
674,083 |
|
|
|
4,913 |
|
|
|
|
|
|
|
|
|
High Yield Floating Rate Fund2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Income Fund3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund1 |
|
|
86,088 |
|
|
|
|
|
|
|
|
|
|
|
51,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgages Fund4 |
|
|
9,245 |
|
|
|
|
|
|
|
|
|
|
|
95,636 |
|
|
|
|
|
|
|
|
|
|
|
197,204 |
|
Investment Grade Credit Fund4 |
|
|
21,632 |
|
|
|
|
|
|
|
|
|
|
|
4,714 |
|
|
|
|
|
|
|
|
|
|
|
83,884 |
|
Core Plus Fixed Income Fund |
|
|
91,524 |
|
|
|
12 |
|
|
|
12 |
|
|
|
19,242 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Inflation Protected Securities Fund |
|
|
57,078 |
|
|
|
14 |
|
|
|
14 |
|
|
|
12,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Emerging Markets Debt Fund1 |
|
|
27,658 |
|
|
|
|
|
|
|
|
|
|
|
41,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Class IR Shares of the Enhanced Income Fund, Emerging Markets Debt Fund and Local Emerging
Markets Debt Fund commenced operations on July 30, 2010. |
|
(2) |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
(3) |
|
Strategic Income Fund commenced operations on June 30, 2010. |
|
(4) |
|
Class IR Shares of the U.S. Mortgages Fund and Investment Grade Credit Fund commenced
operations on July 29, 2011. |
The foregoing distribution and transfer agency agreements each provide that Goldman Sachs
may render similar services to others so long as the services each provides thereunder to the Funds
are not impaired thereby. Each such agreement also provides that the Trust will indemnify Goldman
Sachs against certain liabilities.
B-90
Expenses
The Trust, on behalf of each Fund, is responsible for the payment of each Funds respective
expenses. The expenses include, without limitation, the fees payable to the Investment Advisers,
service fees, account service fees, shareholder administration fees and administration fees paid to
Authorized Institutions, the fees and expenses of the Trusts custodian and subcustodians, transfer
agent fees and expenses, brokerage fees and commissions, filing fees for the registration or
qualification of the Trusts shares under federal or state securities laws, expenses of the
organization of the Trust, fees and expenses incurred by the Trust in connection with membership in
investment company organizations, including, but not limited to, the Investment Company Institute,
taxes, interest, costs of liability insurance, fidelity bonds or indemnification, any costs,
expenses or losses arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal, tax and auditing fees and expenses (including
the cost of legal and certain accounting services rendered by employees of Goldman Sachs or its
affiliates, with respect to the Trust), expenses of preparing and setting in type Prospectuses,
SAIs, proxy material, reports and notices and the printing and distributing of the same to the
Trusts shareholders and regulatory authorities, shareholder expenses, any expenses assumed by a
Fund pursuant to its distribution and service plans, the compensation and expenses of its
non-interested Trustees, the fees and expenses of pricing services and extraordinary expenses, if
any, incurred by the Trust. Except for fees and expenses under any service plan, account service
plan, administration plan, shareholder administration plan or distribution and service plan
applicable to a particular class and transfer agency fees and expenses, all Fund expenses are borne
on a non-class specific basis.
Fees and expenses of legal counsel, registering shares of each 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 costs
incurred by the Investment Advisers in performing certain accounting services not being provided by
the Trusts custodian.
The imposition of the Investment Advisers fees, as well as other operating expenses, will
have the effect of reducing the total return to investors. From time to time, the Investment
Advisers may waive receipt of fees and/or voluntarily assume certain expenses of a Fund, which
would have the effect of lowering that Funds overall expense ratio and increasing total return to
investors at the time such amounts are waived or assumed, as the case may be.
As of July 29, 2011, the Investment Advisers have agreed to reduce or limit certain Other
Expenses of the Funds (excluding acquired fund fees and expenses, transfer agency fees and
expenses, service fees and shareholder administration fees (as applicable), Administration Share
fees, taxes, interest, brokerage fees, litigation, indemnification, shareholder meeting and other
extraordinary expenses) to the following annual percentage rate of each Funds average daily net
assets through at least July 29, 2012:
|
|
|
|
|
Fund |
|
Other Expenses |
|
Enhanced Income Fund |
|
|
0.064 |
% |
Ultra-Short Duration Government Fund |
|
|
0.054 |
% |
Short Duration Government Fund |
|
|
0.004 |
% |
Short Duration Tax-Free Fund |
|
|
0.004 |
% |
Government Income Fund |
|
|
0.004 |
% |
Municipal Income Fund |
|
|
0.004 |
% |
Core Fixed Income Fund |
|
|
0.104 |
% |
Global Income Fund |
|
|
0.004 |
% |
High Yield Municipal Fund |
|
|
0.004 |
% |
High Yield Fund |
|
|
0.024 |
% |
High Yield Floating Rate Fund |
|
|
0.104 |
% |
Strategic Income Fund |
|
|
0.054 |
% |
Emerging Markets Debt Fund |
|
|
0.044 |
% |
U.S. Mortgages Fund |
|
|
0.004 |
% |
Investment Grade Credit Fund |
|
|
0.004 |
% |
Core Plus Fixed Income Fund |
|
|
0.004 |
% |
Inflation Protected Securities Fund |
|
|
0.044 |
% |
Local Emerging Markets Debt Fund |
|
|
0.074 |
% |
Such reductions or limits are calculated monthly on a cumulative basis during the Funds
fiscal year. The Investment Advisers may not terminate the arrangements prior to July 29, 2012
without the approval of the Board of Trustees. For the fiscal years ended March 31, 2011, March 31,
2010 and March 31, 2009, Other Expenses of each Fund were reduced by the Investment Advisers in
the following amounts under expense limitations that were then in effect:
B-91
Reimbursements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Enhanced Income Fund |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
325,565 |
|
Ultra-Short Duration Government Fund |
|
|
192,106 |
|
|
|
217,300 |
|
|
|
233,330 |
|
Short Duration Government Fund |
|
|
1,022,327 |
|
|
|
1,068,946 |
|
|
|
657,446 |
|
Short Duration Tax-Free Fund |
|
|
457,938 |
|
|
|
357,106 |
|
|
|
288,722 |
|
Government Income Fund |
|
|
639,376 |
|
|
|
780,464 |
|
|
|
478,644 |
|
Municipal Income Fund |
|
|
313,498 |
|
|
|
316,496 |
|
|
|
280,653 |
|
Core Fixed Income Fund |
|
|
0 |
|
|
|
1,524 |
|
|
|
0 |
|
Global Income Fund |
|
|
915,804 |
|
|
|
757,600 |
|
|
|
929,445 |
|
High Yield Municipal Fund |
|
|
554,755 |
|
|
|
560,518 |
|
|
|
622,932 |
|
High Yield Fund |
|
|
275,763 |
|
|
|
286,551 |
|
|
|
291,065 |
|
High Yield Floating Rate Fund1 |
|
|
0 |
|
|
|
|
|
|
|
|
|
Strategic Income Fund2 |
|
|
291,615 |
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund |
|
|
392,432 |
|
|
|
208,007 |
|
|
|
431,049 |
|
U.S. Mortgages Fund |
|
|
509,773 |
|
|
|
483,124 |
|
|
|
552,559 |
|
Investment Grade Credit Fund |
|
|
345,892 |
|
|
|
650,841 |
|
|
|
323,148 |
|
Core Plus Fixed Income Fund |
|
|
543,701 |
|
|
|
620,743 |
|
|
|
658,801 |
|
Inflation Protected Securities Fund |
|
|
181,644 |
|
|
|
251,053 |
|
|
|
326,892 |
|
Local Emerging Markets Debt Fund |
|
|
1,309,863 |
|
|
|
335,454 |
|
|
|
394,330 |
|
|
|
|
(1) |
|
High Yield Floating Rate Fund commenced operations March 31, 2011. |
|
(2) |
|
Strategic Income Fund commenced operations on June 30, 2010. |
Such reductions or limits, if any, are calculated monthly on a cumulative basis during
the Funds fiscal year. The Investment Advisers may modify or discontinue such limitation in the
future at its discretion. A Funds Other Expenses may be further reduced by any custody and
transfer agency fee credits received by the Funds.
The foregoing distribution and transfer agency agreements each provide that Goldman Sachs may
render similar services to others so long as the services each provides thereunder to the Fund are
not impaired thereby. Each such agreement also provides that the Trust will indemnify Goldman Sachs
against certain liabilities.
Custodian and Sub-Custodians
State Street Bank and Trust Company (State Street), 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of all the Funds except the Short Duration Tax-Free,
Municipal Income Fund and High Yield Municipal Fund, for which JPMorganChase Bank, N.A.
(JPMorganChase), 270 Park Avenue, New York, New York 10017 serves as the custodian of such Funds
portfolio securities and cash. State Street and JPMorganChase also maintain the Trusts accounting
records. State Street and JPMorganChase may appoint domestic and foreign sub-custodians and use
depositories from time to time to hold certain securities and other instruments purchased by the
Trust in foreign countries and to hold cash and currencies for the Trust.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110, has been appointed
the Funds independent registered public accounting firm. In addition to audit services,
PricewaterhouseCoopers LLP prepares the Funds federal and state tax returns and provides
assistance on certain non-audit matters.
POTENTIAL CONFLICTS OF INTEREST
General Categories of Conflicts Associated with the Funds
Goldman Sachs (which, for purposes of this POTENTIAL CONFLICTS OF INTEREST section, shall
mean, collectively, The Goldman Sachs Group, Inc., the Investment Adviser and their affiliates,
directors, partners, trustees, managers, members, officers and employees) is a worldwide,
full-service investment banking, broker-dealer, asset management and financial services
organization and a major participant in global financial markets. As such, Goldman Sachs provides
a wide range of financial services to a substantial and diversified client base. In those and
other capacities, Goldman Sachs advises clients in all markets and transactions and purchases,
sells, holds and recommends a broad array of investments for its own accounts and for the accounts
of clients and of its
B-92
personnel, through client accounts and the relationships and products it sponsors, manages and
advises (such Goldman Sachs or other client accounts (including the Funds), relationships and
products collectively, the Accounts). Goldman Sachs has direct and indirect interests in the
global fixed income, currency, commodity, equities, bank loan and other markets, and the securities
and issuers, in which the Funds may directly and indirectly invest. As a result, Goldman Sachs
activities and dealings, including on behalf of the Funds, may affect the Funds in ways that may
disadvantage or restrict the Funds and/or benefit Goldman Sachs or other Accounts. For purposes of
this POTENTIAL CONFLICTS OF INTEREST section, Funds shall mean, collectively, the Funds and any
of the other Goldman Sachs Funds.
The following are descriptions of certain conflicts and potential conflicts that may be
associated with the financial or other interests that the Investment Adviser and Goldman Sachs may
have in transactions effected by, with, and on behalf of the Funds. They are not, and are not
intended to be, a complete enumeration or explanation of all of the potential conflicts of interest
that may arise. Additional information about potential conflicts of interest regarding the
Investment Adviser and Goldman Sachs is set forth in the Investment Advisers Form ADV, which
prospective shareholders should review prior to purchasing Fund shares. A copy of Part 1 and Part
2 of the Investment Advisers Form ADV is available on the SECs website (www.adviserinfo.sec.gov).
A copy of Part 2 of the Investment Advisers Form ADV will be provided to shareholders or
prospective shareholders upon request.
Other Activities of Goldman Sachs, the Sale of Fund Shares and the Allocation of Investment
Opportunities
Sales
Incentives and Related Conflicts Arising from Goldman Sachs Financial and Other Relationships with Intermediaries
Goldman Sachs and its personnel, including employees of the Investment Adviser, may have
relationships (both involving and not involving the Funds, and including without limitation
placement, brokerage, advisory and board relationships) with distributors, consultants and others
who recommend, or engage in transactions with or for, the Funds. Such distributors, consultants
and other parties may receive compensation from Goldman Sachs or the Funds in connection with such
relationships. As a result of these relationships, distributors, consultants and other parties may
have conflicts that create incentives for them to promote the Funds.
To the extent permitted by applicable law, Goldman Sachs and the Funds may make payments to
authorized dealers and other financial intermediaries and to salespersons (collectively,
Intermediaries) from time to time to promote the Funds. These payments may be made out of
Goldman Sachs assets, or amounts payable to Goldman Sachs. These payments may create an incentive
for a particular Intermediary to highlight, feature or recommend the Funds.
Allocation of Investment Opportunities Among the Funds and Other Accounts
The Investment Adviser may manage or advise multiple Accounts (including Accounts in which
Goldman Sachs and its personnel have an interest) that have investment objectives that are similar
to the Funds and may seek to make investments or sell investments in the same securities or other
instruments, sectors or strategies as the Funds. This may create potential conflicts, particularly
in circumstances where the availability of such investment opportunities is limited (e.g., in local
and emerging markets, high yield securities, fixed income securities, regulated industries, small
capitalization and initial public offerings/new issues) or where the liquidity of such investment
opportunities is limited.
The Investment Adviser does not receive performance-based compensation in respect of its
investment management activities on behalf of the Funds, but may simultaneously manage Accounts for
which the Investment Adviser receives greater fees or other compensation (including
performance-based fees or allocations) than it receives in respect of the Funds. The simultaneous
management of Accounts that pay greater fees or other compensation and the Funds may create a
conflict of interest as the Investment Adviser may have an incentive to favor Accounts with the
potential to receive greater fees. For instance, the Investment Adviser may be faced with a
conflict of interest when allocating scarce investment opportunities given the possibly greater
fees from Accounts that pay performance-based fees. To address these types of conflicts, the
Investment Adviser has adopted policies and procedures under which it will allocate investment
opportunities in a manner that it believes is consistent with its obligations as an investment
adviser. However, the amount, timing, structuring or terms of an investment by the Funds may
differ from, and performance may be lower than, the investments and performance of other Accounts.
To address these potential conflicts, the Investment Adviser has developed allocation policies
and procedures that provide that personnel of the Investment Adviser making portfolio decisions for
Accounts will make purchase and sale decisions and allocate investment opportunities among Accounts
consistent with its fiduciary obligations. These policies and procedures may result in the pro
rata allocation of limited opportunities across eligible Accounts managed by a particular portfolio
management team, but in many
B-93
other cases the allocations reflect numerous other factors as described below. Accounts
managed by different portfolio management teams are generally viewed separately for allocation
purposes. There will be cases where certain Accounts receive an allocation of an investment
opportunity when the Funds do not.
Personnel of the Investment Adviser involved in decision-making for Accounts may make
allocation related decisions for the Funds and other Accounts by reference to one or more factors,
including without limitation: the Accounts portfolio and its investment horizons, objectives,
guidelines and restrictions (including legal and regulatory restrictions); strategic fit and other
portfolio management considerations, including different desired levels of investment for different
strategies; the expected future capacity of the applicable Accounts; limits on the Investment
Advisers brokerage discretion; cash and liquidity considerations; and the availability of other
appropriate investment opportunities. Suitability considerations, reputational matters and other
considerations may also be considered. The application of these considerations may cause
differences in the performance of different Accounts that have similar strategies. In addition, in
some cases the Investment Adviser may make investment recommendations to Accounts where the
Accounts make the investment independently of the Investment Adviser, which may result in a
reduction in the availability of the investment opportunity for other Accounts (including the
Funds) irrespective of the Investment Advisers policies regarding allocation of investments.
Additional information about the Investment Advisers allocation policies is set forth in Item 6
(PERFORMANCE-BASED FEES AND SIDE-BY-SIDE MANAGEMENTSide-by-Side Management) of the Investment
Advisers Form ADV.
The Investment Adviser may, from time to time, develop and implement new trading strategies or
seek to participate in new investment opportunities and trading strategies. These opportunities
and strategies may not be employed in all Accounts or pro rata among Accounts where they are
employed, even if the opportunity or strategy is consistent with the objectives of such Accounts.
During periods of unusual market conditions, the Investment Adviser may deviate from its
normal trade allocation practices. For example, this may occur with respect to the management of
unlevered and/or long-only Accounts that are typically managed on a side-by-side basis with levered
and/or long-short Accounts.
Notwithstanding anything in the foregoing, the Funds may or may not receive, but in any event
will have no rights with respect to, opportunities sourced by Goldman Sachs businesses and
affiliates. Such opportunities or any portion thereof may be offered to other Accounts, Goldman
Sachs, all or certain investors in the Funds, or such other persons or entities as determined by
Goldman Sachs in its sole discretion. The Funds will have no rights and will not receive any
compensation related to such opportunities.
Goldman
Sachs Financial and Other Interests May Incentivize Goldman Sachs to Promote the Sale of Fund Shares
Goldman Sachs and its personnel have interests in promoting sales of Fund shares, and the
compensation from such sales may be greater than the compensation relating to sales of interests in
other Accounts. Therefore, Goldman Sachs and its personnel may have a financial interest in
promoting Fund shares over interests in other Accounts.
Management of the Funds by the Investment Adviser
Potential Restrictions and Issues Relating to Information Held by Goldman Sachs
Goldman Sachs has established certain information barriers and other policies to address the
sharing of information between different businesses within Goldman Sachs. As a result of
information barriers, the Investment Adviser generally will not have access, or will have limited
access, to information and personnel in other areas of Goldman Sachs, and generally will not be
able to manage the Funds with the benefit of information held by such other areas. Such other
areas, including without limitation, Goldman Sachs prime brokerage and administration businesses,
will have broad access to detailed information that is not available to the Investment Adviser,
including information in respect of markets and investments, which, if known to the Investment
Adviser, might cause the Investment Adviser to seek to dispose of, retain or increase interests in
investments held by the Funds or acquire certain positions on behalf of the Funds, or take other
actions. Goldman Sachs will be under no obligation or fiduciary or other duty to make any such
information available to the Investment Adviser or personnel of the Investment Adviser involved in
decision-making for the Funds. In addition, Goldman Sachs will not have any obligation to make
available any information regarding its trading activities, strategies or views, or the activities,
strategies or views used for other Accounts, for the benefit of the Funds.
B-94
Valuation of the Funds Investments
The Investment Adviser, while not the primary valuation agent of the Funds, performs certain
valuation services related to securities and assets in the Funds. The Investment Adviser values
securities and assets in the Funds according to its valuation policies and may value an identical
asset differently than another division or unit within Goldman Sachs or another Account values the
asset, including because such other division or unit or Account has information regarding valuation
techniques and models or other information that it does not share with the Investment Adviser.
This is particularly the case in respect of difficult-to-value assets. The Investment Adviser may
face a conflict with respect to such valuations as they affect the Investment Advisers
compensation.
Goldman Sachs and the Investment Advisers Activities on Behalf of Other Accounts
The Investment Advisers decisions and actions on behalf of the Funds may differ from those on
behalf of other Accounts. Advice given to, or investment or voting decisions made for, one or more
Accounts may compete with, affect, differ from, conflict with, or involve timing different from,
advice given to or investment decisions made for the Funds.
The extent of Goldman Sachs activities in the global financial markets may have potential
adverse effects on the Funds. Goldman Sachs, the clients it advises, and its personnel have
interests in and advise Accounts which have investment objectives or portfolios similar to or
opposed to those of the Funds, and/or which engage in and compete for transactions in the same
types of securities and other instruments as the Funds. Transactions by such Accounts may involve
the same or related securities or other instruments as those in which the Funds invest, and may
negatively affect the Funds or the prices or terms at which the Funds transactions may be
effected. For example, Accounts may engage in a strategy while the Funds are undertaking the same
or a differing strategy, any of which could directly or indirectly disadvantage the Funds. The
Funds and Goldman Sachs may also vote differently on or take or refrain from taking different
actions with respect to the same security, which may be disadvantageous to the Funds. Accounts may
also invest in or extend credit to different classes of securities or different parts of the
capital structure of the same issuer and classes of securities that are subordinate or senior to,
securities in which the Funds invest. As a result, Goldman Sachs and the Accounts may pursue or
enforce rights or activities, or refrain from pursuing or enforcing rights or activities, with
respect to a particular issuer in which the Funds have invested. The Funds could sustain losses
during periods in which Goldman Sachs and other Accounts achieve profits. The negative effects
described above may be more pronounced in connection with transactions in, or the Funds use of,
small capitalization, emerging market, distressed or less liquid strategies.
Goldman Sachs and its personnel may make investment decisions or recommendations, provide
differing investment views or have views with respect to research or valuations that are
inconsistent with, or adverse to, the interests and activities of the Funds. Research, analyses or
viewpoints may be available to clients or potential clients at different times. Goldman Sachs will
not have any obligation to make available to the Funds any research or analysis prior to its public
dissemination. The Investment Adviser is responsible for making investment decisions on behalf of
the Funds and such investment decisions can differ from investment decisions or recommendations by
Goldman Sachs on behalf of other Accounts. Goldman Sachs may, on behalf of other Accounts and in
accordance with its management of such Accounts, implement an investment decision or strategy ahead
of, or contemporaneously with, or behind similar investment decisions or strategies made for the
Funds. The relative timing for the implementation of investment decisions or strategies among
Accounts and the Funds may disadvantage the Funds. Certain factors, for example, market impact,
liquidity constraints, or other circumstances, could result in the Funds receiving less favorable
trading results or incurring increased costs associated with implementing such investment decisions
or strategies, or being otherwise disadvantaged.
Subject to applicable law, the Investment Adviser may cause the Funds to invest in securities,
bank loans or other obligations of companies affiliated with Goldman Sachs or in which Goldman
Sachs or Accounts have an equity, debt or other interest, or to engage in investment transactions
that may result in other Accounts being relieved of obligations or otherwise divesting of
investments, which may enhance the profitability of Goldman Sachs or other Accounts investments
in and activities with respect to such companies.
When the Investment Adviser wishes to place an order for different types of Accounts
(including the Funds) for which aggregation is not practicable, the Investment Adviser may use a
trade sequencing and rotation policy to determine which type of Account is to be traded first.
Under this policy, each portfolio management team may determine the length of its trade rotation
period and the sequencing schedule for different categories of clients within this period provided
that the trading periods and these sequencing schedules are designed to be fair and equitable over
time. The portfolio management teams currently base their trading periods and rotation schedules
on the relative amounts of assets managed for different client categories (e.g., unconstrained
client accounts, wrap program accounts, etc.) and, as a result, the Funds may trade behind other
Accounts. Within a given trading period, the sequencing schedule establishes when and how
frequently a given client category will trade first in the order of rotation. The Investment
Adviser may deviate from the predetermined sequencing schedule under certain circumstances, and the
Investment Advisers trade sequencing and rotation policy may be amended, modified or supplemented
at any time without prior notice to clients.
B-95
Investments in Goldman Sachs Funds
To the extent permitted by applicable law, the Funds may invest in money market and other
funds sponsored, managed or advised by Goldman Sachs. In connection with any such investments, a
Fund, to the extent permitted by the Act, will pay all advisory, administrative or Rule 12b-1 fees
applicable to the investment, and fees to the Investment Adviser in its capacity as manager of the
Funds will not be reduced thereby (i.e., there could be double fees involved in making any such
investment because Goldman Sachs could receive fees with respect to both the management of the
Funds and such money market fund). In such circumstances, as well as in all other circumstances in
which Goldman Sachs receives any fees or other compensation in any form relating to the provision
of services, no accounting or repayment to the Funds will be required.
Goldman Sachs May In-Source or Outsource
Subject to applicable law, Goldman Sachs, including the Investment Adviser, may from time to
time and without notice to investors in-source or outsource certain processes or functions in
connection with a variety of services that it provides to the Funds in its administrative or other
capacities. Such in-sourcing or outsourcing may give rise to additional conflicts of interest.
Distributions of Assets Other Than Cash
With respect to redemptions from the Funds, the Funds may, in certain circumstances, have
discretion to decide whether to permit or limit redemptions and whether to make distributions in
connection with redemptions in the form of securities or other assets, and in such case, the
composition of such distributions. In making such decisions, the Investment Adviser may have a
potentially conflicting division of loyalties and responsibilities with respect to redeeming
investors and remaining investors.
Goldman Sachs May Act in a Capacity Other Than Investment Adviser to the Funds
Principal and Cross Transactions
When permitted by applicable law and the Investment Advisers policies, the Investment
Adviser, acting on behalf of the Funds, may enter into transactions in securities and other
instruments with or through Goldman Sachs, and may cause the Funds to engage in transactions in
which the Investment Adviser acts as principal on its own behalf (principal transactions), advises
both sides of a transaction (cross transactions) and acts as broker for, and receives a commission
from, the Funds on one side of a transaction and a brokerage account on the other side of the
transaction (agency cross transactions). There may be potential conflicts of interest or
regulatory issues relating to these transactions which could limit the Investment Advisers
decision to engage in these transactions for the Funds. Goldman Sachs may have a potentially
conflicting division of loyalties and responsibilities to the parties in such transactions, and has
developed policies and procedures in relation to such transactions and conflicts. Any principal,
cross or agency cross transactions will be effected in accordance with fiduciary requirements and
applicable law (which may include disclosure and consent).
Goldman Sachs May Act in Multiple Commercial Capacities
To the extent permitted by applicable law, Goldman Sachs may act as broker, dealer, agent,
lender or advisor or in other commercial capacities for the Funds or issuers of securities held by
the Funds. Goldman Sachs may be entitled to compensation in connection with the provision of such
services, and the Funds will not be entitled to any such compensation. Goldman Sachs will have an
interest in obtaining fees and other compensation in connection with such services that are
favorable to Goldman Sachs, and may take commercial steps in its own interests in connection with
providing such services that negatively affect the Funds. For example, Goldman Sachs may require
repayment of all or part of a loan at any time and from time to time or cause the Funds to default,
liquidate its assets or redeem positions more rapidly (and at significantly lower prices) than
might otherwise be desirable. In addition, due to its access to and knowledge of funds, markets
and securities based on its other businesses, Goldman Sachs may make decisions based on information
or take (or refrain from taking) actions with respect to interests in investments of the kind held
directly or indirectly by the Funds in a manner that may be adverse to the Funds. Goldman Sachs
may also derive benefits from providing services to the Funds, which may enhance Goldman Sachs
relationships with various parties, facilitate additional business development and enable Goldman
Sachs to obtain additional business and generate additional revenue.
To the extent permitted by applicable law, Goldman Sachs may create, write, sell, issue,
invest in or act as placement agent or distributor of derivative instruments related to the Funds,
or with respect to underlying securities or assets of the Funds, or which may
B-96
be otherwise based on or seek to replicate or hedge the performance of the Funds. Such
derivative transactions, and any associated hedging activity, may differ from and be adverse to the
interests of the Funds.
Goldman Sachs may make loans or enter into asset-based or other credit facilities or similar
transactions that are secured by a clients assets or interests, including Fund shares, interests
in an Account or assets in which the Funds or an Account has an interest. In connection with its
rights as lender, Goldman Sachs may take actions that adversely affect the Account and which may in
turn adversely affect the Funds (e.g., a Fund holding the same type of security that is providing
the credit support to the borrower Account may be disadvantaged when the borrower Account
liquidates assets in response to an action taken by Goldman Sachs).
Code of Ethics and Personal Trading
Each of the Funds and Goldman Sachs, as each Funds Investment Adviser and distributor, has
adopted a Code of Ethics (the Code of Ethics) in compliance with Section 17(j) of the Act
designed to provide that personnel of the Investment Adviser, and certain additional Goldman Sachs
personnel who support the Investment Adviser, comply with applicable federal securities laws and
place the interests of clients first in conducting personal securities transactions. The Code of
Ethics imposes certain restrictions on securities transactions in the personal accounts of covered
persons to help avoid conflicts of interest. Subject to the limitations of the Code of Ethics,
covered persons may buy and sell securities or other investments for their personal accounts,
including investments in the Funds, and may also take positions that are the same as, different
from, or made at different times than, positions taken by the Funds. The Codes of Ethics can be
reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The
Codes of Ethics are also available on the EDGAR Database on the SECs Internet site at
http://www.sec.gov. Copies may also be obtained after paying a duplicating fee by writing the SECs
Public Reference Section, Washington, DC 20549-0102, or by electronic request to
publicinfo@sec.gov. Additionally, Goldman Sachs personnel, including personnel of the Investment
Adviser, are subject to firm-wide policies and procedures regarding confidential and proprietary
information, information barriers, private investments, outside business activities and personal
trading.
Proxy Voting by the Investment Adviser
The Investment Adviser has adopted policies and procedures designed to prevent conflicts of
interest from influencing proxy voting decisions that it makes on behalf of advisory clients,
including the Funds, and to help ensure that such decisions are made in accordance with its
fiduciary obligations to its clients. Notwithstanding such proxy voting policies and procedures,
proxy voting decisions made by the Investment Adviser with respect to securities held by the Funds
may benefit the interests of Goldman Sachs and Accounts other than the Funds. For a more detailed
discussion of these policies and procedures, see the section of this SAI entitled PROXY VOTING.
Potential Limitations and Restrictions on Investment Opportunities and Activities of the
Investment Adviser and the Funds
The Investment Adviser may restrict its investment decisions and activities on behalf of the
Funds in various circumstances, including as a result of applicable regulatory requirements,
information held by Goldman Sachs, Goldman Sachs internal policies and/or potential reputational
risk or disadvantage to Accounts, including the Funds, and Goldman Sachs. As a result, the
Investment Adviser might not engage in transactions for the Funds in consideration of Goldman
Sachs activities outside the Funds (e.g., the Investment Adviser may refrain from making
investments for the Funds that would cause Goldman Sachs to exceed position limits or cause Goldman
Sachs to have additional disclosure obligations and may limit purchases or sales of securities in
respect of which Goldman Sachs is engaged in an underwriting or other distribution). In addition,
the Investment Adviser is not permitted to obtain or use material non-public information in
effecting purchases and sales in public securities transactions for the Funds. The Investment
Adviser may also limit the activities and transactions engaged in by the Funds, and may limit its
exercise of rights on behalf of or in respect of the Funds, for reputational or other reasons,
including where Goldman Sachs is providing (or may provide) advice or services to an entity
involved in such activity or transaction, where Goldman Sachs or an Account is or may be engaged in
the same or a related transaction to that being considered on behalf of the Funds, where Goldman
Sachs or an Account has an interest in an entity involved in such activity or transaction, or where
such activity or transaction or the exercise of such rights on behalf of or in respect of the Funds
could affect Goldman Sachs, the Investment Adviser or their activities.
B-97
Brokerage Transactions
The Investment Adviser may select broker-dealers (including affiliates of the Investment
Adviser) that furnish the Investment Adviser, the Funds, their affiliates and other Goldman Sachs
personnel with proprietary or third party brokerage and research services (collectively, brokerage
and research services) that provide, in the Investment Advisers view, appropriate assistance to
the Investment Adviser in the investment decision-making process. As a result, the Investment
Adviser may pay for such brokerage and research services with soft or commission dollars.
Brokerage and research services may be used to service the Funds and any or all other
Accounts, including in connection with Accounts other than those that pay commissions to the
broker-dealer relating to the brokerage and research service arrangements. As a result, the
brokerage and research services (including soft dollar benefits) may disproportionately benefit
other Accounts relative to the Funds based on the amount of commissions paid by the Funds in
comparison to such other Accounts. The Investment Adviser does not attempt to allocate soft dollar
benefits proportionately among clients or to track the benefits of brokerage and research services
to the commissions associated with a particular Account or group of Accounts.
Aggregation of Trades by the Investment Adviser
The Investment Adviser follows policies and procedures pursuant to which it may combine or
aggregate purchase or sale orders for the same security for multiple clients (sometimes called
bunching) (including Accounts that are proprietary to Goldman Sachs), so that the orders can be
executed at the same time. The Investment Adviser aggregates orders when the Investment Adviser
considers doing so appropriate and in the interests of its clients generally. In addition, under
certain circumstances trades for the Funds may be aggregated with Accounts that contain Goldman
Sachs assets.
When a bunched order is completely filled, the Investment Adviser generally will allocate the
securities purchased or proceeds of sale pro rata among the participating Accounts, based on the
purchase or sale order. If an order is filled at several different prices, through multiple trades
(whether at a particular broker-dealer or among multiple broker-dealers), generally all
participating Accounts will receive the average price and pay the average commission, however, this
may not always be the case (due to, e.g., odd lots, rounding, market practice or constraints
applicable to particular Accounts).
The Investment Adviser does not bunch or aggregate orders for different Funds, or net buy and sell
orders for the same Fund, if portfolio management decisions relating to the orders are made
separately, or if bunching, aggregating or netting is not appropriate or practicable from the
Investment Advisers operational or other perspective. The Investment Adviser may be able to
negotiate a better price and lower commission rate on aggregated trades than on trades for Funds
that are not aggregated, and incur lower transaction costs on netted trades than trades that are
not netted. Where transactions for a Fund are not aggregated with other orders, or not netted
against orders for the Fund, the Fund may not benefit from a better price and lower commission rate
or lower transaction cost.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The portfolio transactions for the Funds are generally effected at a net price without a
brokers commission (i.e., a dealer is dealing with a Fund as principal and receives compensation
equal to the spread between the dealers cost for a given security and the resale price of such
security). In certain foreign countries, debt securities are traded on exchanges at fixed
commission rates. In connection with portfolio transactions, the Management Agreements provide that
the Investment Advisers shall attempt to obtain the most favorable execution and net price
available. The Management Agreements provide that, on occasions when an Investment Adviser deems
the purchase or sale of a security to be in the best interests of a Fund as well as its other
customers (including any other fund or other investment company or advisory account for which an
Investment Adviser or an affiliate acts as Investment Adviser), a Fund, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or purchased for the Fund
with those to be sold or purchased for such other customers in order to obtain the best net price
and most favorable execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the applicable Investment Adviser
in the manner it considers to be most equitable and consistent with its fiduciary obligations to
the applicable Fund and such other customers. In some instances, this procedure may adversely
affect the size and price of the position obtainable for a Fund. The Management Agreements permit
each Investment Adviser, in its discretion, to purchase and sell portfolio securities to and from
dealers who provide the Trust with brokerage or research services in which dealers may execute
brokerage transactions at a higher cost to the Fund. Brokerage and research services furnished by
firms through which the Funds effect their securities transactions may be used by the Investment
Adviser in servicing other accounts and not all of these services may be used by the Investment
Advisers in connection with the specific Fund generating the brokerage credits. Such research or
other services may include research reports on companies, industries and securities; economic and
financial data; financial publications; computer data bases; quotation equipment and services; and
research-oriented computer hardware, software and other services. The fees received
B-98
under the Management Agreements are not reduced by reason of an Investment Adviser receiving
such brokerage and research services.
Such services are used by an Investment Adviser in connection with all of its investment
activities, and some of such services obtained in connection with the execution of transactions of
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 may be larger than those of a Fund, and the services furnished by such brokers may be used
by an Investment Adviser in providing management services for the Trust. An Investment Adviser may
also participate in so-called commission sharing arrangements and client commission
arrangements under which an Investment Adviser may execute transactions through a broker-dealer
and request that the broker-dealer allocate a portion of the commissions or commission credits to
another firm that provides research to an Investment Adviser. An Investment Adviser excludes from
use under these arrangements those products and services that are not fully eligible under
applicable law and regulatory interpretations even as to the portion that would be eligible if
accounted for separately.
The research services received as part of commission sharing and client commission
arrangements will comply with Section 28(e) and may be subject to different legal requirements in
the jurisdictions in which an Investment Adviser does business. Participating in commission
sharing and client commission arrangements may enable an Investment Adviser to consolidate payments
for research through one or more channels using accumulated client commissions or credits from
transactions executed through a particular broker-dealer to obtain research provided by other
firms. Such arrangements also help to ensure the continued receipt of research services while
facilitating best execution in the trading process. Each Investment Adviser believes such research
services are useful in its investment decision-making process by, among other things, ensuring
access to a variety of high quality research, access to individual analysts and availability of
resources that the Investment Adviser might not be provided access to absent such arrangements.
The Funds are prohibited, in accordance with Rule 12b-1 under the 1940 Act, from compensating
a broker or dealer for any promotion or sale of Fund shares by directing to such broker or dealer
the Trusts portfolio transactions or by making any payment to such broker or dealer received or to
be received (which payment may include commissions, mark-ups or mark-downs or other fees) from the
Trusts portfolio transactions effected through another broker or dealer. However, the Funds may
direct portfolio transactions to a broker or dealer that promotes or sells shares of the Trust if
the Trusts Board of Trustees approve policies and procedures designed to ensure that the selection
of such brokers is not influenced by considerations about the sale of Trust shares. Accordingly,
the Trustees (including a majority of the Trustees who are not interested Trustees) have approved
policies permitting the Trust to direct portfolio securities transactions to a broker or dealer
that promotes or sells shares of the Trust subject to the prohibitions that: i) all persons
responsible for selecting such brokers or dealers (including but not limited to trading desk
personnel and portfolio managers) may not take into account in connection with their selections the
promotion or sale of shares issued by the Trust or any other registered investment company, and ii)
the Trust, the Investment Advisers and Goldman, Sachs & Co. as the Trusts distributor may not
enter into any agreement or understanding where the Trust or the Investment Advisers direct, or are
expected to direct, portfolio transactions or any payment to a broker or dealer in consideration
for the promotion or sale of shares of the Trust or any other registered investment company.
On January 1, 2005, certain Funds began to participate in a Fund commission recapture program.
Under the program, participating broker-dealers rebate a percentage of commissions earned on the
Fund portfolio transactions to the particular Fund from which they were generated. The rebated
commissions are expected to be treated as realized capital gains of the Funds.
Subject to the above considerations, the Investment Advisers may use Goldman Sachs or an
affiliate as a broker for a Fund. In order for Goldman Sachs or an affiliate, acting as agent, to
effect securities or futures transactions for a Fund, the commissions, fees or other remuneration
received by Goldman Sachs or an affiliate must be reasonable and fair compared to the commissions,
fees or other remuneration received by other brokers in connection with comparable transactions
involving similar securities or futures contracts. Furthermore, the Trustees, including a majority
of the Trustees who are not interested Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to Goldman Sachs are
consistent with the foregoing standard. Brokerage transactions with Goldman Sachs are also subject
to such fiduciary standards as may be imposed upon Goldman Sachs by applicable law. The amount of
brokerage commissions paid by a Fund may vary substantially from year to year because of
differences in shareholder purchase and redemption activity, portfolio turnover rates and other
factors.
B-99
For the fiscal year ended March 31, 2011, the Funds paid approximate brokerage commissions as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
Brokerage |
|
|
|
|
|
|
|
Total Brokerage |
|
|
Total Amount of |
|
|
Transactions |
|
|
Commissions Paid to |
|
|
|
Total Brokerage |
|
|
Commissions Paid to |
|
|
Transactions on |
|
|
Effected Through |
|
|
Brokers |
|
Fiscal Year Ended |
|
Commissions |
|
|
Goldman |
|
|
which Commissions |
|
|
Brokers Providing |
|
|
Providing |
|
March 31, 2011 |
|
Paid1 |
|
|
Sachs2 |
|
|
Paid3 |
|
|
Research4 |
|
|
Research4 |
|
Enhanced Income Fund |
|
$ |
51,765 |
|
|
$ |
51,765 (100 |
%) |
|
$ |
(3,505,018 |
) |
|
$ |
0 |
|
|
$ |
0 |
|
Ultra-Short Duration Government Fund |
|
|
41,049 |
|
|
|
41,049 (100 |
%) |
|
$ |
(154,659 |
) |
|
|
0 |
|
|
|
0 |
|
Short Duration Government Fund |
|
|
254,258 |
|
|
|
254,258 (100 |
%) |
|
|
3,663,447 |
|
|
|
0 |
|
|
|
0 |
|
Short Duration Tax-Free Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Government Income Fund |
|
|
60,113 |
|
|
|
60,113 (100 |
%) |
|
|
(593,712 |
) |
|
|
0 |
|
|
|
0 |
|
Municipal Income Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Core Fixed Income Fund |
|
|
102,697 |
|
|
|
102,697 (100 |
%) |
|
|
(537,865 |
) |
|
|
0 |
|
|
|
0 |
|
Global Income Fund |
|
|
103,699 |
|
|
|
0 (0 |
%) |
|
|
(44,879 |
) |
|
|
0 |
|
|
|
0 |
|
High Yield Municipal Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Floating Rate Fund* |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Strategic Income Fund** |
|
|
130,759 |
|
|
|
130,759 (100 |
%) |
|
|
(1,528,890 |
) |
|
|
0 |
|
|
|
0 |
|
Emerging Markets Debt Fund |
|
|
19,855 |
|
|
|
19,855 (100 |
%) |
|
|
(382,392 |
) |
|
|
0 |
|
|
|
0 |
|
US Mortgages Fund |
|
|
24,447 |
|
|
|
24,447 (100 |
%) |
|
|
(233,553 |
) |
|
|
0 |
|
|
|
0 |
|
Investment Grade Credit Fund |
|
|
49,856 |
|
|
|
49,856 (100 |
%) |
|
|
(197,581 |
) |
|
|
0 |
|
|
|
0 |
|
Core Plus Fixed Income Fund |
|
|
44,197 |
|
|
|
44,197 (100 |
%) |
|
|
(7,978 |
) |
|
|
0 |
|
|
|
0 |
|
Inflation Protected Securities Fund |
|
|
7,741 |
|
|
|
7,741 (100 |
%) |
|
|
(127,161 |
) |
|
|
0 |
|
|
|
0 |
|
Local Emerging Markets Debt Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
* |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
** |
|
Strategic Income Fund commenced operations on June 30, 2010. |
|
1 |
|
The figures in the table report brokerage commissions from futures transactions. |
|
2 |
|
Percentage of total commissions paid to Goldman Sachs from futures transactions. |
|
3 |
|
Refers to market value of futures contracts. |
|
4 |
|
The information above
reflects the full commission amounts paid to brokers that provide research to the Investment Adviser. Only a portion of such commissions pays for research and the remainder of such commissions is to compensate the broker for execution services, commitment
of capital and other services related to the execution of brokerage transactions. |
For the fiscal year ended March 31, 2010, the Funds paid approximate brokerage
commissions as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
Brokerage |
|
|
|
|
|
|
|
Total Brokerage |
|
|
Total Amount of |
|
|
Transactions |
|
|
Commissions Paid to |
|
|
|
Total Brokerage |
|
|
Commissions Paid to |
|
|
Transactions on |
|
|
Effected Through |
|
|
Brokers |
|
Fiscal Year Ended |
|
Commissions |
|
|
Goldman |
|
|
which Commissions |
|
|
Brokers Providing |
|
|
Providing3 |
|
March 31, 2010 |
|
Paid1 |
|
|
Sachs2 |
|
|
Paid |
|
|
Research3 |
|
|
Research3 |
|
Enhanced Income Fund |
|
$ |
39,538 |
|
|
$ |
39,538 (100 |
%) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Ultra-Short Duration Government Fund |
|
|
40,395 |
|
|
|
40,395 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Short Duration Government Fund |
|
|
245,266 |
|
|
|
245,266 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Short Duration Tax-Free Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Government Income Fund |
|
|
73,786 |
|
|
|
73,786 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Municipal Income Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Core Fixed Income Fund |
|
|
134,318 |
|
|
|
134,318 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Global Income Fund |
|
|
112,164 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Municipal Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Floating Rate Fund* |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Strategic Income Fund** |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Emerging Markets Debt Fund |
|
|
338 |
|
|
|
338 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
US Mortgages Fund |
|
|
42,594 |
|
|
|
42,600 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Investment Grade Credit Fund |
|
|
27,439 |
|
|
|
27,439 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Core Plus Fixed Income Fund |
|
|
20,856 |
|
|
|
20,856 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Inflation Protected Securities Fund |
|
|
2,893 |
|
|
|
2,893 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Local Emerging Markets Debt Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
* |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
** |
|
Strategic Income Fund commenced operations on June 30, 2010. |
|
1 |
|
The figures in the table report brokerage commissions from futures transactions. |
|
2 |
|
Percentage of total commissions paid to Goldman Sachs from futures transactions. |
|
3 |
|
The information above
reflects the full commission amounts paid to brokers that provide research to the Investment Adviser. Only a portion of such commissions pays for research and the remainder of such commissions is to compensate the broker for execution services, commitment
of capital and other services related to the execution of brokerage transactions. |
B-100
For the fiscal year ended March 31, 2009, the Funds paid approximate brokerage
commissions as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
|
|
|
|
|
|
|
|
Total Brokerage |
|
|
Total Amount of |
|
|
Transactions |
|
|
Brokerage |
|
|
|
Total Brokerage |
|
|
Commissions Paid to |
|
|
Transactions on |
|
|
Effected Through |
|
|
Commissions Paid to |
|
Fiscal Year Ended |
|
Commissions |
|
|
Goldman |
|
|
which Commissions |
|
|
Brokers Providing |
|
|
Brokers Providing |
|
March 31, 2009 |
|
Paid1 |
|
|
Sachs2 |
|
|
Paid |
|
|
Research3 |
|
|
Research3 |
|
Enhanced Income Fund |
|
$ |
18,450 |
|
|
$ |
18,450 (100 |
%) |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Ultra-Short Duration Government Fund |
|
|
36,687 |
|
|
|
36,687 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Short Duration Government Fund |
|
|
171,672 |
|
|
|
171,672 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Short Duration Tax-Free Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Government Income Fund |
|
|
86,351 |
|
|
|
86,351 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Municipal Income Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Core Fixed Income Fund |
|
|
229,007 |
|
|
|
229,007 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Global Income Fund |
|
|
4,618 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Municipal Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
High Yield Floating Rate Fund* |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Strategic Income Fund** |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Emerging Markets Debt Fund |
|
|
1,656 |
|
|
|
1,656 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
US Mortgages Fund |
|
|
48,679 |
|
|
|
48,679 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Investment Grade Credit Fund |
|
|
23,908 |
|
|
|
23,908 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Core Plus Fixed Income Fund |
|
|
17,377 |
|
|
|
17,377 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Inflation Protected Securities Fund |
|
|
1,127 |
|
|
|
1,127 (100 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Local Emerging Markets Debt Fund |
|
|
0 |
|
|
|
0 (0 |
%) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
* |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
** |
|
Strategic Income Fund commenced operations on June 30, 2010. |
|
1 |
|
The figures in the table report brokerage commissions from futures transactions. |
|
2 |
|
Percentage of total commissions paid to Goldman Sachs from futures transactions. |
|
3 |
|
The information above
reflects the full commission amounts paid to brokers that provide
research to the Investment Adviser. Only a portion of such
commissions pays for research and the remainder of such commissions is to compensate the brokers for execution services, commitment
of capital and other services related to the execution of brokerage transactions. |
During the fiscal year ended March 31, 2011, the Funds regular broker-dealers, as
defined in Rule 10b-1 under the Act, were: State Street Corp., Bank of America Securities LLC,
Morgan Stanley & Co., Inc., Liquidnet Inc., UBS Painewebber Warburg Dillion Reed, Credit Suisse
First Boston Corp., JPMorgan Chase & Co., Citigroup Inc., Deutsche Bank Securities Inc., Goldman,
Sachs & Co. and Barclays Capital, Inc.
As of March 31, 2011, the Core Plus Fixed Income, Local Emerging Markets Debt, Inflation
Protected Securities, Municipal Income, High Yield Municipal, Short Duration Tax Free, Emerging
Markets Debt and High Yield Floating Rate Funds held no securities of their regular broker-dealers.
As of the same date, the following Funds held the following amounts of securities of their
regular broker-dealers, as defined in Rule 10b-1 under the Act, or their parents ($ in thousands):
|
|
|
|
|
|
|
Fund |
|
Broker/Dealer |
|
Amount (000s) |
|
Enhanced Income Fund |
|
Bank of America Securities LLC |
|
$ |
6,854 |
|
|
|
JPMorgan Chase & Co. |
|
|
8,421 |
|
|
|
Citigroup Inc. |
|
|
1,746 |
|
|
|
Morgan Stanley & Co., Inc. |
|
|
2,767 |
|
|
|
Credit Suisse First Boston Corp. |
|
|
3,782 |
|
|
|
Barclays Capital, Inc. |
|
|
3,414 |
|
|
|
|
|
|
|
|
Ultra-Short Duration Government Fund |
|
Bank of America Securities LLC |
|
|
13,492 |
|
|
|
Credit Suisse First Boston Corp. |
|
|
664 |
|
|
|
Morgan Stanley & Co., Inc. |
|
|
12,346 |
|
|
|
Citigroup Inc. |
|
|
18,830 |
|
|
|
|
|
|
|
|
Short Duration Government Fund |
|
Citigroup Inc. |
|
|
33,121 |
|
|
|
Morgan Stanley & Co., Inc. |
|
|
25,099 |
|
|
|
|
|
|
|
|
Government Income Fund |
|
Citigroup inc. |
|
|
29,692 |
|
|
|
JPMorgan Chase & Co. |
|
|
2,369 |
|
|
|
Credit Suisse First Boston Corp. |
|
|
116 |
|
|
|
Bank of America Securities LLC |
|
|
29 |
|
B-101
|
|
|
|
|
|
|
Fund |
|
Broker/Dealer |
|
Amount (000s) |
|
Core Fixed Income Fund |
|
Bank of America Securities LLC |
|
|
22,678 |
|
|
|
JPMorgan Chase & Co. |
|
|
5,496 |
|
|
|
Morgan Stanley & Co., Inc. |
|
|
8,487 |
|
|
|
Citigroup, Inc. |
|
|
67,942 |
|
|
|
Credit Suisse First Boston Corp. |
|
|
44 |
|
|
|
|
|
|
|
|
Global Income Fund |
|
JPMorgan Chase & Co. |
|
|
14,652 |
|
|
|
Morgan Stanley & Co., Inc. |
|
|
2,704 |
|
|
|
UBS Painewebber Warburg Dillion Reed |
|
|
3,877 |
|
|
|
Citigroup, Inc. |
|
|
4,078 |
|
|
|
Credit Suisse First Boston Corp. |
|
|
2,485 |
|
|
|
Bank of America Securities LLC |
|
|
6,557 |
|
|
|
Goldman, Sachs & Co. |
|
|
850 |
|
|
|
|
|
|
|
|
U.S. Mortgages Fund |
|
Credit Suisse First Boston |
|
|
878 |
|
|
|
Banc of America Securities LLC |
|
|
13,033 |
|
|
|
JPMorgan Chase & Co |
|
|
17, 949 |
|
|
|
Morgan Stanley & Co., Inc. |
|
|
4,142 |
|
|
|
UBS Painewebber Warburg Dillion Reed |
|
|
6,551 |
|
|
|
Citigroup, Inc. |
|
|
1,878 |
|
|
|
|
|
|
|
|
Investment Grade Credit Fund |
|
Morgan Stanley & Co., Inc. |
|
|
15,349 |
|
|
|
Citigroup Inc. |
|
|
16,409 |
|
|
|
JPMorgan Chase & Co |
|
|
6,159 |
|
|
|
Bank of America Securities LLC |
|
|
21,477 |
|
|
|
|
|
|
|
|
High Yield Fund |
|
Citigroup, Inc. |
|
|
24,570 |
|
|
|
|
|
|
|
|
Strategic Income Fund |
|
Morgan Stanley & Co., Inc. |
|
|
14,527 |
|
|
|
Citigroup Inc. |
|
|
1,131 |
|
|
|
Credit Suisse First Boston |
|
|
932 |
|
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, a Delaware statutory trust established by an
Agreement and Declaration of Trust dated January 28, 1997. The Goldman Sachs Ultra-Short Duration Government Fund, Goldman Sachs Short Duration Government Fund, Goldman Sachs Short Duration Tax-Free
Fund, Goldman Sachs Government Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs Core
Fixed Income Fund and Goldman Sachs Global Income Fund were previously series of Goldman Sachs
Trust, a Massachusetts business trust, and were reorganized into the Trust as of April 30, 1997.
Each Funds fiscal year end is March 31.
The Trustees have authority under the Trusts Declaration of Trust to create and classify
shares of beneficial interest in separate series, without further action by shareholders. The
Trustees also have authority to classify and reclassify any series of shares into one or more
classes of shares. As of July 29, 2011, the Trustees have authorized: (i) the issuance of seven
classes of shares of Government Income Fund, Core Fixed Income Fund, Core Plus Fixed Income Fund
and High Yield Fund: Class A, Class B, Class C, Service, Institutional, Class R and Class IR
Shares; (ii) the issuance of six classes of shares of Short Duration Government Fund, Short
Duration Tax-Free Fund, Municipal Income Fund, High Yield Municipal Fund and Global Income Fund:
Class A, Class B, Class C, Service, Institutional, and Class IR Shares; (iii) the issuance of five
classes of shares of Inflation Protected Securities Fund, High Yield Floating Rate Fund and
Strategic Income Fund: Class A, Class C, Institutional, Class R and Class IR Shares; (iv) the
issuance of five classes of shares of Enhanced Income Fund: Class A, Class B, Administration,
Institutional and Class IR Shares; (v) the issuance of four classes of shares of Ultra-Short Duration Government Fund: Class A, Service, Institutional and Class IR Shares; (vi) the issuance of four
classes of shares of U.S. Mortgages Fund and Investment Grade Credit Fund: Class A, Institutional,
Class IR and Separate Account Institutional; and (vii) the issuance of four classes of shares of
Emerging Markets Debt Fund and Local Emerging Markets Debt Fund: Class A, Class C, Institutional
and Class IR Shares. Additional series and classes may be added in the future. The Goldman Sachs
Short Duration Government Fund and Goldman Sachs Short Duration Tax Free Fund no longer offer Class
B Shares, except that current Class B shareholders may continue to reinvest dividends and capital
gains into their accounts.
Each Institutional Share, Service Share, Administration Share, Separate Account Institutional
Share, Class A Share, Class B Share, Class C Share, Class R Share and Class IR Share of a Fund
represents a proportionate interest in the assets belonging to the applicable class of the Fund.
All expenses of a Fund are borne at the same rate by each class of shares, except that fees under
the Service and Shareholder Administration Plans are borne exclusively by Service Shares, fees
under the Administration Plan are borne exclusively by Administration Shares, fees under
Distribution and Service Plans are borne exclusively by Class A, Class B, Class C or Class R
Shares, and transfer agency fees are borne at different rates by Class A, Class B, Class C, Class R
or Class IR Shares than Institutional, Administration, Separate Account Institutional and Service
Shares. The Trustees may determine in the future that it is appropriate to allocate other expenses
differently among classes of shares and may do so to the extent consistent with the rules of the
B-102
SEC and positions of the IRS. Each class of shares may have different minimum investment
requirements and be entitled to different shareholder services. With limited exceptions, shares of
a class may only be exchanged for shares of the same or an equivalent class of another series. See
Shareholder Guide in the Prospectus and OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS below. In addition, the fees and expenses set forth below for each class
may be subject to voluntary fee waivers or reimbursements, as discussed in the Funds Prospectuses.
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 institutions customers.
Administration Shares may be purchased at net asset value without a sales charge for accounts
held in the name of an institution that provides certain account administration to its customers,
including maintenance of account records and processing orders to purchase, redeem and exchange
Administration Shares. Administration Shares bear the cost of account administration fees at the
annual rate of up to 0.25% of the average daily net assets of such Administration Shares.
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 shareholder
administration services and shareholder liaison services to its customers, including maintenance of
account records and processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of service fees and shareholder administration fees at the annual rate of up
to 0.25% and 0.25%, respectively, of the average daily net assets of the Fund attributed to Service
Shares.
Class R and Class IR Shares are sold at net asset value without a sales charge. As noted in
the Prospectuses, Class R and Class IR Shares are not sold directly to the public. Instead, Class R
and Class IR Shares generally are available only to 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit-sharing and money-purchase pension plans, defined benefit plans and
non-qualified deferred compensation plans (the Retirement Plans). Class R and Class IR Shares are
also generally available only to Retirement Plans where plan level or omnibus accounts are held on
the books of the Funds. Class R Shares are not available to traditional and Roth Individual
Retirement Accounts (IRAs), SEPs, SARSEPs, SIMPLE IRAs and individual 403(b) plans. Participants in
a Retirement Plan should contact their Retirement Plan service provider for information regarding
purchases, sales and exchanges of Class R and Class IR Shares. Class IR Shares may also be sold to
accounts established under a fee-based program that is sponsored and maintained by a registered
broker-dealer or other financial intermediary that is approved by Goldman Sachs (Eligible
Fee-Based Program). Class R Shares bear the cost of distribution (Rule 12b-1) fees at the
aggregate rate of up to 0.50% of the Funds average daily net assets attributed to Class R Shares.
Separate Account 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 institutions customers.
Class A Shares are sold, with an initial sales charge, through brokers and dealers who are
members of the FINRA and certain other financial service firms that have sales agreements with
Goldman Sachs. Class A Shares of the Funds bear the cost of distribution (Rule 12b-1) fees at the
aggregate rate of up to 0.25% of the average daily net assets of such Class A Shares. With respect
to Class A Shares, the Distributor at its discretion may use compensation for distribution services
paid under the Distribution and Services Plan for personal and account maintenance services and
expenses so long as such total compensation under the Plan does not exceed the maximum cap on
service fees imposed by the FINRA.
Class B (prior to November 2, 2009) and Class C Shares of the Funds are sold subject to a
contingent deferred sales charge (CDSC) through brokers and dealers who are members of the FINRA
and certain other financial services firms that have sales arrangements with Goldman Sachs. Class B
and Class C Shares each bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up
to 0.75% of the average daily net assets attributed to Class B and Class C Shares. Class B and
Class C Shares each also bear the cost of service fees at an annual rate of up to 0.25% of the
average daily net assets attributed to such Shares.
It is possible that an institution or its affiliate may offer different classes of shares
(i.e., Institutional, Administration, Service, Separate Account Institutional, Class A, Class B,
Class C, Class R and Class IR 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 in the same amount, except for differences caused by the fact that the respective
transfer agency and Plan fees relating to a particular class will be borne exclusively by that
class. Similarly, the net asset value per share may differ depending upon the class of shares
purchased.
Certain aspects of the shares may be altered, after advance notice to shareholders, if it is
deemed necessary in order to satisfy certain tax regulatory requirements.
B-103
When issued for the consideration described in the Funds Prospectuses, shares are fully paid
and non-assessable. The Trustees may, however, cause shareholders, or shareholders of a particular
series or class, to pay certain custodian, transfer, servicing or similar agent charges by setting
of the same against declared but unpaid dividends or by reducing share ownership (or by both
means). In the event of liquidation of a Fund, shareholders of that Fund are entitled to share pro
rata in the net assets of the applicable class of the relevant Fund available for distribution to
such shareholders. All shares are freely transferable and have no preemptive, subscription or
conversion rights. The Trustees may require Shareholders to redeem Shares for any reason under
terms set by the Trustees.
In the interest of economy and convenience, the Trust does not issue certificates representing
the Funds shares. Instead, the Transfer Agent maintains a record of each shareholders 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.
The Act requires that where more than one series of shares exists, each series must be
preferred over all other series in respect of assets specifically allocated to such series. Rule
18f-2 under the Act provides that any matter required to be submitted by the provisions of the Act
or applicable state law, or otherwise, to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each series affected by such
matter. Rule 18f-2 further provides that a series shall be deemed to be affected by a matter unless
the interests of each series in the matter are substantially identical or the matter does not
affect any interest of such series. However, Rule 18f-2 exempts the selection of independent public
accountants, the approval of principal distribution contracts and the election of trustees from the
separate voting requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and does not intend to hold
such meetings. In the event that a meeting of shareholders is held, each share of the Trust will be
entitled, as determined by the Trustees without the vote or consent of the shareholders, either to
one vote for each share or to one vote for each dollar of net asset value represented by such share
on all matters presented to shareholders including the election of Trustees (this method of voting
being referred to as dollar based voting). However, to the extent required by the Act or
otherwise determined by the Trustees, series and classes of the Trust will vote separately from
each other. Shareholders of the Trust do not have cumulative voting rights in the election of
Trustees. Meetings of shareholders of the Trust, or any series or class thereof, may be called by
the Trustees, certain officers or upon the written request of holders of 10% or more of the shares
entitled to vote at such meetings. The Trustees will call a special meeting of shareholders for the
purpose of electing Trustees, if, at any time, less than a majority of Trustees holding office at
the time were elected by shareholders. The shareholders of the Trust will have voting rights only
with respect to the limited number of matters specified in the Declaration of Trust and such other
matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees, officers, employees and
agents of the Trust unless the recipient is adjudicated (i) to be liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such persons office; or (ii) not to have acted in good faith in the reasonable belief
that such persons actions were in the best interest of the Trust. The Declaration of Trust
provides that, if any shareholder or former shareholder of any series is held personally liable
solely by reason of being or having been a shareholder and not because of the shareholders acts or
omissions or for some other reason, the shareholder or former shareholder (or the shareholders
heirs, executors, administrators, legal representatives or general successors) shall be held
harmless from and indemnified against all loss and expense arising from such liability. The Trust,
acting on behalf of any affected series, must, upon request by such shareholder, assume the defense
of any claim made against such shareholder for any act or obligation of the series and satisfy any
judgment thereon from the assets of the series.
The Declaration of Trust permits the termination of the Trust or of any series or class of the
Trust (i) by a majority of the affected shareholders at a meeting of shareholders of the Trust,
series or class; or (ii) by a majority of the Trustees without shareholder approval if the Trustees
determine, in their sole discretion, that such action is in the best interest of the Trust, such
series, such class or their shareholders. The Trustees may consider such factors as they, in their
sole discretion, deem appropriate in making such determination, including (i) the inability of the
Trust or any series or class to maintain its assets at an appropriate size; (ii) changes in laws or
regulations governing the Trust or series affecting assets of the type in which it invests; or
(iii) economic developments or trends having a significant adverse impact on their business or
operations of the Trust or series.
The Declaration of Trust authorizes the Trustees, without shareholder approval, to cause the
Trust, or any series thereof, to merge or consolidate with any corporation, association, trust or
other organization or sell or exchange all or substantially all of the property belonging to the
Trust or any series thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series of the Trust in the
securities of another open-end investment company with substantially the same investment objective,
restrictions and policies.
The Declaration of Trust permits the Trustees to amend the Declaration of Trust without a
shareholder vote. However, shareholders of the Trust have the right to vote on any amendment (i)
that would adversely affect the voting rights of shareholders; (ii)
B-104
that is required by law to be approved by shareholders; (iii) that would amend the provisions
of the Declaration of Trust regarding amendments; or (iv) that the Trustees determine to submit to
shareholders.
The Trustees may appoint separate Trustees with respect to one or more series or classes of
the Trusts shares (the Series Trustees). Series Trustees may, but are not required to, serve as
Trustees of the Trust or any other series or class of the Trust. To the extent provided by the
Trustees in the appointment of Series Trustees, the Series Trustees may have, to the exclusion of
any other Trustees of the Trust, all the powers and authorities of Trustees under the Declaration
of Trust with respect to such series or class, but may have no power or authority with respect to
any other series or class.
Shareholder and Trustee Liability
Under Delaware law, the shareholders of the Funds are not generally subject to liability for
the debts or obligations of the Trust. Similarly, Delaware law provides that a series of the Trust
will not be liable for the debts or obligations of any other series of the Trust. However, no
similar statutory or other authority limiting statutory trust shareholder liability exists in other
states. As a result, to the extent that a Delaware statutory trust or a shareholder is subject to
the jurisdiction of courts of such other states, the courts may not apply Delaware law and may
thereby subject the Delaware statutory trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability for acts or
obligations of a series. Notice of such disclaimer will normally be given in each agreement,
obligation or instrument entered into or executed by a series of the Trust. The Declaration of
Trust provides for indemnification by the relevant series for all loss suffered by a shareholder as
a result of an obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any shareholder for any act or
obligation of the series and satisfy any judgment thereon. In view of the above, the risk of
personal liability of shareholders of a Delaware statutory trust is remote.
In addition to the requirements under Delaware law, the Declaration of Trust provides that
shareholders of a series may bring a derivative action on behalf of the series only if the
following conditions are met: (a) shareholders eligible to bring such derivative action under
Delaware law who hold at least 10% of the outstanding shares of the series, or 10% of the
outstanding shares of the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a reasonable amount of time
to consider such shareholder request and to investigate the basis of such claim. The Trustees will
be entitled to retain counsel or other advisers in considering the merits of the request and may
require an undertaking by the shareholders making such request to reimburse the Fund for the
expense of any such advisers in the event that the Trustees determine not to bring such action.
The Declaration of Trust further provides that the Trustees will not be liable for errors of
judgment or mistakes of fact or law, but nothing in the Declaration of Trust protects a Trustee
against liability to which he or she would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Principal Holders of Securities
As of July 25, 2011, the following shareholders were shown in the Trusts records as owning
more than 5% of any class of a Funds shares. Except as listed below, the Trust does not know of
any other person who owns of record or beneficially 5% or more of any class of a Funds shares:
Global Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
10.29 |
% |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
6.37 |
% |
Class A
|
|
Pershing LLC, P.O. Box 2052, Jersey City, NJ 07303-2052.
|
|
|
22.72 |
% |
Class A
|
|
TD Ameritrade Clearing Inc., FBO its Clients, PO Box 2226, Omaha, NE 68103-2226.
|
|
|
11.24 |
% |
Class A
|
|
Genworth Financial Trust Company, FBO Genworth Financial Wealth Management,
Mutual Clients and Other Customers, 3200 N Central Ave. Fl 7, Phoenix, AZ
85012-2468.
|
|
|
14.04 |
% |
Class A
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
6.29 |
% |
Class B
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
21.55 |
% |
B-105
Global Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
10.36 |
% |
Class B
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
7.30 |
% |
Class B
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
14.12 |
% |
Class C
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
7.89 |
% |
Class C
|
|
Pershing LLC, P.O. Box 2052, Jersey City, NJ 07303-2052.
|
|
|
6.28 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
11.27 |
% |
Class C
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
7.90 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
9.15 |
% |
Class C
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
17.28 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
98.39 |
% |
Service
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
63.85 |
% |
Service
|
|
National Financial Services LLC, FBO James V Dougherty, 617 Howard Rd.,
Westchester, PA 19380-3977.
|
|
|
5.31 |
% |
Service
|
|
National Financial Services LLC, FBO Amy E Bacon, 1839 Irving St. NW,
Washington, DC 20010-2614.
|
|
|
5.77 |
% |
Service
|
|
National Financial Services LLC, FBO Merritt D Nolden, 11616 College View Dr.,
Wheaton, MD 20902-2463.
|
|
|
8.55 |
% |
Service
|
|
National Financial Services LLC, FBO Jeanne Castle, 7317 23rd Ave. NE, Seattle,
WA 98115-5805.
|
|
|
8.51 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Balanced Strategy Omnibus
Account, c/o State Street Corporation, 2 Avenue de Lafayette Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
22.98 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Growth and Income
Strategy Omnibus Account, c/o State Street Corporation, 2 Avenue de Lafayette
Fl. 6 South, Boston, MA 02111-1750.
|
|
|
49.64 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Growth Strategy Omnibus
Account, c/o State Street Corporation, 2 Avenue de Lafayette Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
18.30 |
% |
Ultra-Short Duration Government Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201
Progress Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
10.45 |
% |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
39.21 |
% |
Class A
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
5.31 |
% |
Class A
|
|
Charles Schwab and Company, Special Custody Acct FBO Customers, Attn: Mutual
Funds, 101 Montgomery St., San Francisco, CA 94104-4151.
|
|
|
18.23 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
38.81 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburg, FL 33716-1102.
|
|
|
11.77 |
% |
Class IR
|
|
Frontier Trust Co. FBO Trust Acct., PO Box 10758, Fargo, ND 58106-0758.
|
|
|
23.50 |
% |
B-106
Ultra-Short Duration Government Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class IR
|
|
Frontier Trust Co. FBO Peterson Foodtown Inc. 401K, PO Box 10758, Fargo, ND
58106-0758.
|
|
|
6.83 |
% |
Class IR
|
|
Edward Jones Counsel Trsu FBO D3M LLC 401K, 1251 Waterfront Pl. Ste. 525,
Pittsburgh, PA 15222-4228.
|
|
|
15.51 |
% |
Service
|
|
National Financial Services LLC, FBO Joseph Michael Russo, 10 Penacook Ln.,
Natick, MA 01760-3663.
|
|
|
6.90 |
% |
Service
|
|
National Financial Services LLC, FBO Bank of New York Mellon, AT&T Savings
Plan, FBO Richard Bowers, 615 Mountain Ave., Westfield, NJ 07090-3043.
|
|
|
12.90 |
% |
Service
|
|
National Financial Services LLC, FBO Carol J Allen, 38 Lincoln Shore EST,
Lincoln City, OR 97367-5092.
|
|
|
8.51 |
% |
Service
|
|
National Financial Services LLC, FBO Marital Trust of Andrew Zach., 8320
Hendrie Blvd., Huntington Woods, MI 48070-1614.
|
|
|
12.13 |
% |
Service
|
|
National Financial Services LLC, FBO Patrick J Condron, 10721 S Lamon, Oak
Lawn, IL 60453-5418.
|
|
|
5.97 |
% |
Service
|
|
National Financial Services LLC, FBO Larry D Rickertsen, 1972 Larkspur Ranch
Ct., Henderson, NV 89012-3439.
|
|
|
5.86 |
% |
Service
|
|
Trustmark Securities Inc., Thomas Conrad Crouch, 4210 Hawthorne Ct.,
Jackson, MS 39206-5836.
|
|
|
20.28 |
% |
Institutional
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
54.33 |
% |
Institutional
|
|
National Financial Services LLC, FBO MB Financial Bank, 6111 N. River Rd.,
Rosemont, IL 60018-5158.
|
|
|
6.40 |
% |
Goldman Sachs Municipal Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201
Progress Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
25.82 |
% |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
40.35 |
% |
Class A
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
9.15 |
% |
Class B
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201
Progress Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
55.39 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
12.05 |
% |
Class B
|
|
First Clearing, LLC, Special Custody Account FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
7.75 |
% |
Class C
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201
Progress Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
11.91 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Team Goldman
Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL 32246-6484.
|
|
|
18.83 |
% |
Class C
|
|
Citigroup Global Markets Inc, 333 W. 34th Street, 3rd
Floor, New York, NY 10001-2402.
|
|
|
7.54 |
% |
Class C
|
|
First Clearing, LLC, Special Custody Account FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
22.22 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
11.35 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
6.18 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
35.87 |
% |
Class IR
|
|
Raymond James & Associates, 92500015 Omnibus for Mutual Funds, Attn: Courtney
Waller, 880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
62.81 |
% |
B-107
Goldman Sachs Municipal Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Service
|
|
TCA TrustCorp America, 5301 Wisconsin Ave, NW, Fourth Floor, Washington, DC
20015-2015.
|
|
|
76.70 |
% |
Service
|
|
RBC Capital Markets LLC, Mutual Fund Omnibus Processing, Attn: Mutual Fund
Ops Manager, 510 Marquette Ave, Minneapolis, MN 55402-1110.
|
|
|
19.83 |
% |
Institutional
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
50.38 |
% |
Institutional
|
|
Charles Schwab & Co., Inc., Special Custody Acct. FBO Customers, Attn: Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4151.
|
|
|
9.45 |
% |
Institutional
|
|
DBTCO, PO Box 747, Dubuque, IA 52004-0747.
|
|
|
8.90 |
% |
Goldman Sachs U.S. Mortgages Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund
OPS, 295 Chipeta Way, Salt Lake City, UT 84108-1287.
|
|
|
29.04 |
% |
Class A
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
59.27 |
% |
Institutional
|
|
State Street Bank and Trust Co., FBO Goldman Sachs
Income Strategies Portfolio, c/o State Street
Corporation, 2 Avenue de Lafayette, Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
6.09 |
% |
Institutional
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund
Ops, 295 Chipeta Way, Salt Lake City, UT 84108-1287.
|
|
|
63.02 |
% |
Institutional
|
|
Maril & Co. FBO JD, c/o M&I Trust Co NA, Attn: MF,
11270 West Park Place Ste. 400, Milwaukee, WI
53224-3638.
|
|
|
12.20 |
% |
Institutional
|
|
National Financial Services LLC, FBO Commerce
National Bank, 2626 Howell St, Suite 880 LB 34,
Dallas, TX 75204-0832.
|
|
|
14.07 |
% |
Separate Acct.
|
|
Goldman Sachs & Co., FBO Customer, c/o Mutual Fund
Ops, 85 Broad St., New York, NY 10004-2434.
|
|
|
7.60 |
% |
Separate Acct.
|
|
Goldman Sachs & Co., FBO Customer, c/o Mutual Fund
Ops, 85 Broad St., New York, NY 10004-2434.
|
|
|
6.41 |
% |
Goldman Sachs Core Fixed Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201
Progress Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
30.74 |
% |
Class A
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
8.60 |
% |
Class B
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder Accounting, 201
Progress Pkwy, Maryland Heights, MO 63043-3009.
|
|
|
48.73 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East., 3rd Fl, Jacksonville, FL
32246-6484.
|
|
|
7.00 |
% |
Class B
|
|
First Clearing, LLC, Special Custody Account FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
5.76 |
% |
Class B
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
10.55 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East., 3rd Fl, Jacksonville, FL
32246-6484.
|
|
|
7.12 |
% |
Class C
|
|
Citigroup Global Markets Inc, 333 W. 34th Street, 3rd
Floor, New York, NY 10001-2402.
|
|
|
5.54 |
% |
Class C
|
|
First Clearing, LLC, Special Custody Account FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
6.03 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
83.16 |
% |
B-108
Goldman Sachs Core Fixed Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class IR
|
|
Raymond James Financial Services, Inc., Counsel Trust FBO Hawkins Chevrolet,
Inc. 401K, 1251 Waterfront Pl. Ste. 525, Pittsburgh, PA 15222-4228.
|
|
|
9.67 |
% |
Class R
|
|
Goldman Sachs Group LP, Seed Acct., Attn: IMD Controllers, 200 West St., Fl.
40, New York, NY 10282-2102.
|
|
|
63.59 |
% |
Class R
|
|
MSCS Financial Services LLC, FBO Rockford Public Schools 403B Plan, 700
17th St., Ste. 300, Denver, CO 80202-3531.
|
|
|
24.77 |
% |
Class R
|
|
MSCS Financial Services LLC, FBO Rockford Public Schools 403B Plan, 700
17th St., Ste. 300, Denver, CO 80202-3531.
|
|
|
11.38 |
% |
Service
|
|
Fulton Bank, NA FBO Consolidated School of Business, PO Box 3215, Lancaster,
PA 17604-3215.
|
|
|
7.16 |
% |
Service
|
|
Fulton Bank, NA FBO Smith Land and Improvement Corp., PO Box 3215,
Lancaster, PA 17604-3215.
|
|
|
28.35 |
% |
Service
|
|
Fulton Bank, NA FBO Plasterer Equipment Co., Inc., PO Box 3215, Lancaster,
PA 17604-3215.
|
|
|
6.56 |
% |
Service
|
|
TCA TrustCorp America, 5301 Wisconsin Ave, NW, Fourth Floor, Washington, DC
20015-2015.
|
|
|
31.11 |
% |
Institutional
|
|
State Street Bank and Trust Co., Goldman Sachs Trust Growth & Income
Strategy, c/o State Street Corporation, 2 Avenue de Lafayette, Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
12.03 |
% |
Institutional
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund OPS, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
49.43 |
% |
Institutional
|
|
National Financial Services LLC, FBO FMTC as Trustee for Delta Diversified
Bond Retirement Fund, Attn: Unitized, 2 Destiny Way #WE3A, Westlake, TX
76262-8100.
|
|
|
12.00 |
% |
Goldman Sachs Core Plus Fixed Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder
Accounting, 201 Progress Pkwy, Maryland Heights, MO
63043-3009.
|
|
|
19.20 |
% |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund
Ops, 295 Chipeta Way, Salt Lake City, UT 84108-1287.
|
|
|
55.68 |
% |
Class B
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder
Accounting, 201 Progress Pkwy, Maryland Heights, MO
63043-3009.
|
|
|
17.59 |
% |
Class B
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
7.82 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its
Customers, Attn: Service Team Goldman Sachs Funds,
4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
6.09 |
% |
Class C
|
|
Edward Jones & Co., Attention Mutual Fund Shareholder
Accounting, 201 Progress Pkwy, Maryland Heights, MO
63043-3009.
|
|
|
5.76 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its
Customers, Attn: Service Team Goldman Sachs Funds,
4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
14.62 |
% |
Class C
|
|
Charles Schwab & Co., Inc., Special Custody Acct. FBO
Customers, Attn: Mutual Funds, 101 Montgomery
Street, San Francisco, CA 94104-4151.
|
|
|
5.44 |
% |
Class C
|
|
First Clearing, LLC, Special Custody Account FBO
Customer, 2801 Market St., Saint Louis, MO
63103-2523.
|
|
|
12.11 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds,
Attn: Courtney Waller, 880 Carillon Parkway, St.
Petersburgh, FL 33716-1102.
|
|
|
6.12 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds,
Attn: Courtney Waller, 880 Carillon Parkway, St.
Petersburgh, FL 33716-1102.
|
|
|
98.03 |
% |
Class R
|
|
Goldman Sachs Group LP, Seed Acct., Attn: IMD
Controllers, 200 West St., Fl 40, New York, NY
10282-2102.
|
|
|
31.12 |
% |
B-109
Goldman Sachs Core Plus Fixed Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class R
|
|
Frontier Trust Co. FBO L&S Insurance & Financial
Service 132181 PO Box 10758, Fargo, ND 58106-0758.
|
|
|
49.13 |
% |
Class R
|
|
Frontier Trust Company FBO A&A Trucking Individual
(K) 130600 PO Box 10758, Fargo, ND 58106-0758.
|
|
|
15.40 |
% |
Service
|
|
Goldman Sachs Seed Account, Attn: IMD-INDIA-SAOS,
Crystal Downs Fl. 3, Embassy Golf Links Business
Park, Bangalore 560071, India.
|
|
|
99.72 |
% |
Institutional
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund
OPS, 295 Chipeta Way, Salt Lake City, UT 84108-1287.
|
|
|
17.31 |
% |
Institutional
|
|
Charles Schwab & Co., Inc., Special Custody Acct. FBO
Customers, Attn: Mutual Funds, 101 Montgomery Street,
San Francisco, CA 94104-4151.
|
|
|
12.66 |
% |
Institutional
|
|
Memorial Hermann Hospital System Operating Funds,
9401 Southwest Fwy Ste. 1129A, Houston, TX
77074-1407.
|
|
|
58.88 |
% |
Goldman Sachs Investment Grade Credit Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o
Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
91.28 |
% |
Institutional
|
|
Goldman Sachs & Co., FBO Omnibus, c/o
Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
96.48 |
% |
Separate Acct.
|
|
Goldman Sachs & Co., FBO Customer, c/o
Mutual Fund Ops, 85 Broad Street, New York,
NY 10004-2434.
|
|
|
5.99 |
% |
Separate Acct.
|
|
Goldman Sachs & Co., FBO Customer, c/o
Mutual Fund Ops, 200 West Street, New York,
NY 10282-2102.
|
|
|
8.55 |
% |
Separate Acct.
|
|
Goldman Sachs & Co., FBO Customer, c/o
Mutual Fund Ops, 85 Broad Street, New York,
NY 10004-2434.
|
|
|
5.18 |
% |
Goldman Sachs Enhanced Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops,
295 Chipeta Way, Salt Lake City, UT 84108-1287.
|
|
|
39.88 |
% |
Class A
|
|
Charles Schwab & Co Inc., Special Custody Acct. FBO
Customers, Attn: Mutal Funds, 101 Montgomery St., San
Francisco, CA 94104-4151.
|
|
|
5.04 |
% |
Class B
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
6.88 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its
Customers, Attn: Service Team Goldman Sachs Funds,
4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
8.11 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds,
Attn: Courtney Waller, 880 Carillon Parkway, St.
Petersburgh, FL 33716-1102.
|
|
|
99.58 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops,
295 Chipeta Way, Salt Lake City, UT 84108-1287.
|
|
|
43.56 |
% |
Institutional
|
|
Hofstra University, 100 B Phillips Hall, Attn: Sean
P Cover, 128 Hofstra University, Hempstead, NY
11549-1280.
|
|
|
6.34 |
% |
Institutional
|
|
Synchronoss Technologies Inc., 750 US Highway 202
Ste. 600, Bridgewater, NJ 08807-2597.
|
|
|
5.03 |
% |
Institutional
|
|
Mastercard Incorporated, Attn: General Ledger Group,
2000 Purchase St, Purchase, NY 10577-2405.
|
|
|
17.85 |
% |
Institutional
|
|
National Financial Setvices, LLC, FBO The Northern
Trust Company, PO Box 92956, Chicago, IL 60675-0001.
|
|
|
8.02 |
% |
Administrative
|
|
RBC Capital Markets LLC, Attn: Mutual Fund Ops
Manager, 510 Marquette Ave., Minneapolis, MN
55402-1110.
|
|
|
43.24 |
% |
B-110
Goldman Sachs Government Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
6.46 |
% |
Class A
|
|
Nationwide Trust Co., c/o IPO Portfolio Accounting, PO Box 182029, Columbus,
OH 43218-2029
|
|
|
7.64 |
% |
Class A
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
10.88 |
% |
Class A
|
|
Charles Schwab & Co. Inc, Special Custody Acct FBO Customers, Attn: Mutual
Funds, 101 Montgomery Street, San Francisco, CA 94104-4151.
|
|
|
5.08 |
% |
Class A
|
|
Hartford Life Insurance Co., Seperate Account, 1 Griffin Rd. N, Windsor, CT
06095-1512.
|
|
|
13.11 |
% |
Class B
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Hts, MO 63043-3009.
|
|
|
15.39 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
13.26 |
% |
Class B
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
9.18 |
% |
Class B
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
6.08 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
25.02 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
7.50 |
% |
Class C
|
|
Princor Financial Services Corp., FBO Principal Financial Group Qualified
FIA Omnibus, Attn: NPIO Trade Desk, 711 High St., Des Moines, IA 50392-0001.
|
|
|
5.40 |
% |
Class C
|
|
Princor Financial Services Corp., FBO Principal Financial Group Qualified
Principal Advtg. Omnibus, Attn: NPIO Trade Desk, 711 High St., Des Moines,
IA 50392-0001.
|
|
|
7.86 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
10.27 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
32.98 |
% |
B-111
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class IR
|
|
Scott Nicholson, FBO Enterprise Recovery Systems 401k, 2000 York Rd. Ste.
114, Oak Brook, IL 60523-8863.
|
|
|
9.39 |
% |
Class IR
|
|
Saxon & Co., P O Box 7780-1888, Philadelphia, PA 19182-000.
|
|
|
52.49 |
% |
Class R
|
|
Hartford Life Insurance Co., Seperate Account, Attn: David Broeck, 1 Griffin
Rd. N, Windsor, CT 06095-1512.
|
|
|
80.85 |
% |
Service
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
25.28 |
% |
Service
|
|
Hartford Life Insurance Co., Separate Account, 200 Hopmeadow St., Weatogue,
CT 06089-9793.
|
|
|
36.60 |
% |
Service
|
|
UMB Bank NA, FBO Fiduciary for Tax Deferred Accts, 1 SW Security Benefit
Pl., Topeka, KS 66636-1000.
|
|
|
10.76 |
% |
Service
|
|
UMB Bank NA, FBO Fiduciary for Tax Deferred Accts, 1 SW Security Benefit
Pl., Topeka, KS 66636-1000.
|
|
|
12.70 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
33.64 |
% |
Institutional
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
19.24 |
% |
Institutional
|
|
Stifel Nicolaus & Co, FBO Customers, 501 N Broadway, Saint Louis, MO
63102-2131.
|
|
|
5.64 |
% |
Institutional
|
|
SEI Private Trust Company, One Freedom Valley Drive, Oaks, PA 19456-9989.
|
|
|
5.18 |
% |
Goldman Sachs Inflation Protected Securities Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Hts, MO 63043-3009.
|
|
|
16.46 |
% |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
38.86 |
% |
Class A
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
13.31 |
% |
Class A
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
7.47 |
% |
Class A
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
5.93 |
% |
Class A
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
7.68 |
% |
Class C
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Hts, MO 63043-3009.
|
|
|
8.39 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
42.30 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
14.49 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
6.69 |
% |
Class IR
|
|
Goldman Sachs Group LP, Seed Account, Attn: IMD Controllers, 200 West St.
Fl. 40, New York, NY 10282-2102.
|
|
|
5.37 |
% |
Class IR
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
13.14 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
61.32 |
% |
Class IR
|
|
Lee Kim Song-Benedikt, FBO Precise Components & Tool 401k, 10 Clifton Blvd.
Unit A4, Clifton, NJ 07011-3802.
|
|
|
12.80 |
% |
Class R
|
|
Frontier Trust Co. FBO Crose & Lemke Construction Inc., PO Box 10758, Fargo,
ND 58106-0758.
|
|
|
9.15 |
% |
Class R
|
|
GWFS Equities Inc., Orchard Trust Co. LLC, 8515 E Orchard Rd. 2T2, Greenwood
Village, CO 80111.
|
|
|
31.56 |
% |
B-112
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class R
|
|
John Telban FBO Frontier Food Brokerage Inc. 401k, 1577 W Ridge Rd. Ste.
220, Rochester, NY 14615-2580.
|
|
|
28.61 |
% |
Class R
|
|
Counsel Trust FBO CCBG Architects Inc. 401k, 1251 Waterfront Pl. Ste. 525,
Pittsburgh, PA 15222-4228.
|
|
|
6.36 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
47.52 |
% |
Institutional
|
|
Northern Trust Co., FBO Weinberg Foundation, Attn: Mutual Funds, PO Box
92956, Chicago, IL 60675-0001.
|
|
|
16.02 |
% |
Institutional
|
|
Trico & Co., PO Box 631, Columbus, MS 39703-0631.
|
|
|
9.73 |
% |
Institutional
|
|
The Goldman Sachs Foundation, Attn: Matthew Locurto, 200 West St. Fl. 29,
New York, NY 10282-2102.
|
|
|
18.81 |
% |
Goldman Sachs Short Duration Government Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co., FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
16.92 |
% |
Class A
|
|
Nationwide Trust Co., c/o IPO Portfolio Accounting, PO Box 182029, Columbus,
OH 43218-2029.
|
|
|
6.32 |
% |
Class A
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
6.09 |
% |
Class B
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
13.88 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
13.97 |
% |
Class B
|
|
Citigroup Global Markets Inc., 333 West 34th St. 3rd Floor, New York, NY
10001-2402.
|
|
|
9.61 |
% |
Class B
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
26.24 |
% |
Class B
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
5.47 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
29.43 |
% |
Class C
|
|
Citigroup Global Markets Inc., 333 West 34th St. 3rd Floor, New York, NY
10001-2402.
|
|
|
6.75 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
16.54 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
11.61 |
% |
Class IR
|
|
DWS Trust Co., ADP Enterprise Product, PO Box 1757, Salem, NH 03079-1143.
|
|
|
13.32 |
% |
Class IR
|
|
Guardian Insurance & Annuity Co. Inc., Attn: Paul Iannelli, Retirement
Solutions Finance, 3900 Burgess Place 3 South, Bethlehem, PA 18017-9097.
|
|
|
5.77 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
13.34 |
% |
Class IR
|
|
ING National Trust, FBO Core Market Retirement Plans, 1 Heritage Dr., North
Quincy, MA 02171-2105.
|
|
|
58.17 |
% |
Service
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
11.61 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Balanced Strategy
Portfolio, c/o State Street Corporation, 2 Avenue de Lafayette Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
10.25 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
25.23 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Profit Sharing Trust,
Cash Sweep Support Group, Josiah Quincy Building 5N, 200 Newport Ave. Ext.,
North Quincy, MA 02171-2102.
|
|
|
6.12 |
% |
Institutional
|
|
The Goldman Sachs Foundation, Attn: Matthew Locurto, 200 West St. Fl. 29,
New York, NY 10282-2102.
|
|
|
7.51 |
% |
B-113
Goldman Sachs Short Duration Tax-Free Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
70.31 |
% |
Class B
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Hts, MO 63043-3009.
|
|
|
18.39 |
% |
Class B
|
|
Citigroup Global Markets Inc., 333 West 34th St. 3rd Floor, New York, NY
10001-2402.
|
|
|
15.99 |
% |
Class B
|
|
National Financial Services LLC, FBO Eugene Edwards, Joan P Edwards and Tod
Benes, 3283 Yarmouth Dr., Fayetteville, NC 28306-9633.
|
|
|
7.79 |
% |
Class B
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
17.52 |
% |
Class B
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
35.58 |
% |
Class C
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress
Pkwy, Maryland Hts, MO 63043-3009.
|
|
|
5.16 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
29.49 |
% |
Class C
|
|
Citigroup Global Markets Inc., 333 West 34th St. 3rd Floor, New York, NY
10001-2402.
|
|
|
12.16 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St.,
Saint Louis, MO 63103-2523.
|
|
|
24.51 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
5.11 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
85.12 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
14.39 |
% |
Service
|
|
Mssb Fbo, Varner Ventures Llc, 1515 N Linden Ct, Wichita KS 67206-3312
|
|
|
96.72 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
49.92 |
% |
Institutional
|
|
SEI Private Trust Company, c/o Suntrust, One Freedom Valley Drive, Oaks, PA
19456-9989.
|
|
|
10.36 |
% |
High Yield Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress Pkwy,
Maryland Hts, MO 63043-3009.
|
|
|
13.61 |
% |
Class A
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
8.50 |
% |
Class A
|
|
National Financial Services LLC, FBO State Street Bank Cust., SAI Income
Opportunities Fund, Attn: Brett Lear LLC, Fl. 6 SS39, 2 Avenue de Lafayette
|
|
|
5.46 |
% |
Class B
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress Pkwy,
Maryland Hts, MO 63043-3009.
|
|
|
29.49 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
8.30 |
% |
Class B
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
13.43 |
% |
Class B
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
6.69 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
18.59 |
% |
B-114
High Yield Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class C
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
8.27 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
17.41 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
7.66 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
86.95 |
% |
Class IR
|
|
GWFS Equities Inc., Orchard Trust Co. LLC, 8515 E Orchard Rd. 2T2, Greenwood
Village, CO 80111.
|
|
|
8.21 |
% |
Class R
|
|
Hartford Life Insurance Co., Separate Account, Attn: David Broeck, 1 Griffen Rd.
N, Windsor, CT 06095-1512.
|
|
|
94.28 |
% |
Service
|
|
Hartford Securities Distribution Company Inc., Attn: UIT Operations, PO Box
2999, Hartford, CT 06104-2999.
|
|
|
20.31 |
% |
Service
|
|
Hartford Life Insurance Co., Separate Account, 200 Hopmeadow St., Weatogue, CT
06089-9793.
|
|
|
51.83 |
% |
Service
|
|
Mid Atlantic Capital Company Counsel Trust, FBO Plumbers and Pipefitters #112
Plan, 1251 Waterfront Pl. Ste. 525, Pittsburgh, PA 15222-4228.
|
|
|
5.29 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
56.28 |
% |
High Yield Floating Rate Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
UBS Financial Services Inc. FBO Allen W Hickman Jr. Trust, 1215 E Creek Dr.,
Dripping Springs, TX 78620-4214.
|
|
|
15.40 |
% |
Class A
|
|
UBS Financial Services Inc. FBO Joseph P & Catherine I Botos Living Trust,
117 Travis Dr., Georgetown, TX 78633-5121.
|
|
|
18.52 |
% |
Class A
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
51.05 |
% |
Class A
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
12.50 |
% |
Class C
|
|
Goldman Sachs Group LP, Seed Acct., Attn: IMD Controllers, 200 West St., Fl.
40, New York, NY 10282-2102.
|
|
|
6.31 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller,
880 Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
85.46 |
% |
Class C
|
|
Legent Clearing LLC, 9300 Underwood Ave. Ste. 400, Omaha, NE 68114-2685.
|
|
|
8.13 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
95.10 |
% |
Class R
|
|
Goldman Sachs Group LP, Seed Acct., Attn: IMD Controllers, 200 West St., Fl.
40, New York, NY 10282-2102.
|
|
|
100.00 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Satellite Strategies
Portfolio, c/o State Street Corporation, 2 Avenue de Lafayette Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
19.06 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt
Lake City, UT 84108-1287.
|
|
|
80.00 |
% |
High Yield Municipal Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress Pkwy,
Maryland Hts, MO 63043-3009.
|
|
|
28.77 |
% |
Class A
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
7.74 |
% |
B-115
High Yield Municipal Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
13.92 |
% |
Class A
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
8.10 |
% |
Class B
|
|
Edward Jones & Co, Attn: Mutual Fund Shareholder Accounting, 201 Progress Pkwy,
Maryland Hts, MO 63043-3009.
|
|
|
45.00 |
% |
Class B
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
8.68 |
% |
Class B
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
19.92 |
% |
Class B
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
9.50 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
22.15 |
% |
Class C
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
8.53 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
23.19 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
13.70 |
% |
Class IR
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
11.75 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
46.41 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
41.75 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
88.49 |
% |
Emerging Markets Debt Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
9.86 |
% |
Class A
|
|
Pershing LLC, PO Box 2052, Jersey City, NJ 07303-2052.
|
|
|
9.72 |
% |
Class A
|
|
Charles Schwab & Co Inc., Special Custody Acct. FBO Customers, Attn: Mutal
Funds, 101 Montgomery St., San Francisco, CA 94104-4151.
|
|
|
5.55 |
% |
Class A
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
6.51 |
% |
Class A
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
7.85 |
% |
Class A
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
12.92 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
34.84 |
% |
Class C
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
16.58 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
9.72 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
11.91 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
85.88 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
13.57 |
% |
B-116
Emerging Markets Debt Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Satellite Strategies
Portfolio, c/o State Street Corporation, 2 Avenue de Lafayette Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
34.57 |
% |
Institutional
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
15.50 |
% |
Local Emerging Markets Debt Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
77.06 |
% |
Class C
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
21.93 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
10.63 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
14.15 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
6.57 |
% |
Class C
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
11.05 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
86.96 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
12.62 |
% |
Institutional
|
|
State Street Bank and Trust Company, FBO Goldman Sachs Satellite Strategies
Portfolio, c/o State Street Corporation, 2 Avenue de Lafayette Fl. 6 South,
Boston, MA 02111-1750.
|
|
|
12.75 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
58.71 |
% |
Strategic Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class A
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
43.12 |
% |
Class A
|
|
Charles Schwab & Co Inc., Special Custody Acct. FBO Customers, Attn: Mutal
Funds, 101 Montgomery St., San Francisco, CA 94104-4151.
|
|
|
7.24 |
% |
Class A
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
12.50 |
% |
Class A
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
7.57 |
% |
Class C
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
15.19 |
% |
Class C
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
20.08 |
% |
Class C
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
10.93 |
% |
Class C
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
7.41 |
% |
Class C
|
|
Morgan Stanley & Co., Harborside Financial Center, Plaza II 3rd
Floor, Jersey City, NJ 07311.
|
|
|
16.11 |
% |
Class C
|
|
Ameriprise Financial Services Inc., PO Box 9446, Minneapolis, MN 55440-9446.
|
|
|
5.06 |
% |
Class IR
|
|
LPL Financial Corporation, 9785 Towne Centre Drive, San Diego, CA 92121-1968.
|
|
|
83.61 |
% |
Class IR
|
|
Raymond James & Associates, Omnibus for Mutual Funds, Attn: Courtney Waller, 880
Carillon Parkway, St. Petersburgh, FL 33716-1102.
|
|
|
15.37 |
% |
Class R
|
|
Goldman Sachs Group LP, Seed Acct., Attn: IMD Controllers, 200 West St., Fl. 40,
New York, NY 10282-2102.
|
|
|
35.85 |
% |
B-117
Strategic Income Fund
|
|
|
|
|
|
|
|
|
|
|
Percentage |
Class |
|
Name/Address |
|
of Class |
Class R
|
|
SEI Private Trust Company, Attn: Mutual Fund Administrator, One Freedom Valley
Drive, Oaks, PA 19456-9989.
|
|
|
64.15 |
% |
Institutional
|
|
Goldman Sachs & Co, FBO Omnibus, c/o Mutual Fund Ops, 295 Chipeta Way, Salt Lake
City, UT 84108-1287.
|
|
|
53.44 |
% |
Institutional
|
|
Merrill Lynch Pierce Fenner & Smith, FBO its Customers, Attn: Service Team
Goldman Sachs Funds, 4800 Deer Lake Dr. East, 3rd Fl., Jacksonville, FL
32246-6484.
|
|
|
6.12 |
% |
Institutional
|
|
Charles Schwab & Co Inc., Special Custody Acct. FBO Customers, Attn: Mutal
Funds, 101 Montgomery St., San Francisco, CA 94104-4151.
|
|
|
10.02 |
% |
Institutional
|
|
Citigroup Global Markets, Inc., 333 West 34th St., 3rd Floor, New York, NY 10001.
|
|
|
6.39 |
% |
Institutional
|
|
First Clearing LLC, Special Custody Acct FBO Customer, 2801 Market St., Saint
Louis, MO 63103-2523.
|
|
|
7.02 |
% |
As of July 25, 2011, the Goldman Sachs Growth and Income Strategy Portfolio (GIS Fund) owned
37.38% of the outstanding shares of the Global Income Fund. For so long as this investment
represents a greater than 25% interest in the Fund, GIS Fund will be considered a control person
of the Fund for purposes of the 1940 Act. For so long as GIS Fund is a control person, in the event
of a proxy affecting the Fund, the GIS Fund will either mirror vote its shares or seek the advice
of an independent proxy voting agent. Redemptions by GIS Fund of its holdings in the Global Income
Fund may impact the Funds liquidity and NAV, and may also force the Fund to sell securities, which
may negatively impact the Funds brokerage and tax costs.
As of July 25, 2011, the Memorial Hermann Hospital System Operating Funds, 9401 Southwest Fwy,
Ste. 1129A, Houston, TX 77074-1407 (Memorial), owned 38.41% of the outstanding shares of the Core
Plus Fixed Income Fund. For so long as this investment represents a greater than 25% interest in
the Fund, Memorial will be considered a control person of the Fund for purposes of the 1940 Act.
Memorials ownership interest in the Core Plus Fixed Income Fund represents a significant
percentage of the voting rights in the Fund. Redemptions by Memorial of its holdings in the Core
Plus Fixed Income Fund may impact the Funds liquidity and NAV, and may also force the Fund to sell
securities, which may negatively impact the Funds brokerage and tax costs.
Except as listed above, the Trust does not know of any other person who owns of record or
beneficially 5% or more of any class of a Funds shares.
NET ASSET VALUE
In accordance with procedures adopted by the Trustees of the Trust, the net asset value per
share of each class of each Fund is calculated by determining the value of the net assets
attributed to each class of that Fund and dividing by the number of outstanding shares of that
class. All securities are valued on each Business Day as of the close of regular trading on the New
York Stock Exchange (normally, but not always, 4:00 p.m. New York time) or such other time as the
New York Stock Exchange or NASDAQ market may officially close. 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 Years Day
(observed), Martin Luther King, Jr. Day, Washingtons Birthday (observed), Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.
The time at which transactions and shares are priced and the time by which orders must be
received may be changed in case of an emergency or if regular trading on the New York Stock
Exchange is stopped at a time other than 4:00 p.m. New York Time. The Trust reserves the right to
reprocess purchase, redemption and exchange transactions that were initially processed at a net
asset value other than the Funds official closing net asset value (as the same may be subsequently
adjusted), and to recover amounts from (or distribute amounts to) shareholders based on the
official closing net asset value. The Trust reserves the right to advance the time by which
purchase and redemption orders must be received for same business day credit as otherwise permitted
by the SEC. 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.
For the purpose of calculating the net asset value of the Funds, investments are valued under
valuation procedures established by the Trustees. Portfolio securities, for which market quotations
are readily available, other than money market instruments, are valued via electronic feeds to the
custodian bank containing dealer-supplied bid quotations or bid quotations from a recognized
pricing service. Securities for which a pricing service either does not supply a quotation or
supplies a quotation that is believed by the
B-118
Investment Adviser to be inaccurate, will be valued
based on bid-side broker quotations. Securities for which the custodian bank is unable to obtain an
external price as provided above or with respect to which the Investment Adviser believes an
external price does not reflect accurate market values, will be valued by the Investment Adviser in
good faith based on yield equivalents, a pricing matrix or other sources, under valuation
procedures established by the Trustees. The pricing services may use valuation models or matrix
pricing, which considers yield or price with respect to comparable bonds, quotations from bond
dealers or by reference to other securities that are considered comparable in such characteristics
as rating, interest rate and maturity date, to determine current value. Other securities are valued
as follows: (i) overnight repurchase agreements will be valued at cost; (ii) term repurchase
agreements (i.e., those whose maturity exceeds seven days) and swaps, caps, collars and floors will
be valued at the average of the bid quotations
obtained daily from at least one dealer; (iii) debt securities with a remaining maturity of 60
days or less are valued at amortized cost, which the Trustees have determined to approximate fair
value; (iv) spot and forward foreign currency exchange contracts will be valued using a pricing
service such as Reuters (if quotations are unavailable from a pricing service or, if the quotations
by the Investment Adviser are believed to be inaccurate, the contracts will be valued by
calculating the mean between the last bid and asked quotations supplied by at least one independent
dealers in such contracts); (v) exchange-traded options and futures contracts will be valued by the
custodian bank at the last sale price on the exchange where such contracts and options are
principally traded if accurate quotations are readily available; and (vi) over-the-counter options
will be valued by a broker identified by the portfolio manager/trader.
Other securities, including those for which a pricing service supplies no exchange quotation
or a quotation that is believed by the portfolio manager/trader to be inaccurate, will be valued at
fair value as stated in the valuation procedures which were approved by the Board of Trustees.
The value of all assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at current exchange rates of such currencies against U.S. dollars last quoted by
any major bank. If such quotations are not available, the rate of exchange will be determined in
good faith by or under procedures established by the Board of Trustees.
Generally, trading in securities on European, Asian and Far Eastern securities exchanges and
on over-the-counter markets in these regions 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, Asian 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. The Funds investments are valued based on market
quotations which may be furnished by a pricing service or provided by securities dealers. If
accurate market quotations are not readily available, or if the Investment Adviser believes that
such quotations or prices do not accurately reflect fair value, the fair value of the Funds
investments may be determined based on yield equivalents, a pricing matrix or other sources, under
valuation procedures established by the Trustees.
The Investment Adviser, consistent with its procedures and applicable regulatory guidance, may
(but need not) determine to make an adjustment to the previous closing prices of either domestic or
foreign securities in light of significant events, to reflect what it believes to be the fair value
of the securities at the time of determining a Funds NAV. Significant events that could affect a
large number of securities in a particular market may include, but are not limited to: situations
relating to one or more single issuers in a market sector; significant fluctuations in U.S. or
foreign markets; market dislocations; market disruptions or market closings; equipment failures;
natural or man-made disasters or act of God; armed conflicts; governmental actions or other
developments; as well as the same or similar events which may affect specific issuers or the
securities markets even though not tied directly to the securities markets. Other significant
events that could relate to a single issuer may include, but are not limited to: corporate actions
such as reorganizations, mergers and buy-outs; corporate announcements, including those relating to
earnings, products and regulatory news; significant litigation; low trading volume; trading limits;
or suspensions.
The proceeds received by each Fund and each other series of the Trust from the issue or sale
of its shares, and all net investment income, realized and unrealized gain and proceeds thereof,
subject only to the rights of creditors, will be specifically allocated to such Fund or particular
series 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 Trust. Expenses of the
Trust with respect to the Funds and the other series of the Trust are generally allocated in
proportion to the net asset values of the respective Funds or series except where allocations of
direct expenses can otherwise be fairly made.
B-119
Errors and Corrective Actions
The Investment Adviser will report to the Board of Trustees any material breaches of
investment objective, policies or restrictions and any material errors in the calculation of the
NAV of a Fund or the processing of purchases and redemptions. Depending on the nature and size of
an error, corrective action may or may not be required. Corrective action may involve a prospective
correction of the NAV only, correction of any erroneous NAV and compensation to a Fund, or
correction of any erroneous NAV, compensation to a Fund and reprocessing of individual shareholder
transactions. The Trusts policies on errors and corrective action limit or restrict when
corrective action will be taken or when compensation to a Fund or its shareholders will be paid,
and not all mistakes will result in compensable errors. As a result, neither a Fund nor its
shareholders who purchase or redeem shares during periods in which errors accrue or occur may be
compensated in connection with the resolution of an error. Shareholders will generally not be
notified of the occurrence of a compensable error or the resolution thereof absent unusual
circumstances. As discussed in more detail under Net
Asset Value, a Funds portfolio securities may be priced based on quotations for those
securities provided by pricing services. There can be no guarantee that a quotation provided by a
pricing service will be accurate.
TAXATION
The following is a summary of the principal U.S. federal income, and certain state and local,
tax considerations affecting the Funds and their shareholders that are not described in the
Prospectuses. This summary does not address special tax rules applicable to certain classes of
investors, such as tax exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his or her own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in each Fund. The summary is based
on the laws in effect on July 29, 2011, which are subject to change.
General
Each Fund is a separate taxable entity. Each Fund has elected to be treated and intends to
qualify for each taxable year as a regulated investment company under Subchapter M of Subtitle A,
Chapter 1, 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.
There are certain tax requirements that each Fund must follow in order to avoid federal
taxation. In their efforts to adhere to these requirements, the Funds may have to limit their
investment activities in some types of instruments. Qualification as a regulated investment company
under the Code requires, among other things, that (i) a Fund derive at least 90% of its gross
income (including tax exempt interest) for its taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of stocks or securities,
or foreign currencies, income from certain publicly traded partnerships or other income (including
but not limited to gains from options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the 90% gross income test); and
(ii) a Fund diversify its holdings so that, at the close of each quarter of its taxable year, (a)
at least 50% of the market value of its total (gross) assets is comprised of cash, cash items, U.S.
Government Securities, securities of other regulated investment companies and other securities
limited in respect of any one issuer to an amount not greater in value than 5% of the value of the
Funds total assets and to not more than 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total (gross) assets is invested in the securities of
any one issuer (other than U.S. Government Securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the same, similar or
related trades or businesses, or in the securities of certain publicly traded partnerships.
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 the
principal business of the Funds in investing in stock or securities or options and futures with
respect to stock or securities. Using foreign currency positions or entering into foreign currency
options, futures and forward contracts for purposes other than hedging currency risk with respect
to securities held by a Fund or anticipated to be acquired may not qualify as directly related
under these tests.
As a regulated investment company, a Fund will not be subject to U.S. federal income tax on
the portion of its income and capital gains that it distributes to its shareholders in any taxable
year for which it distributes, in compliance with the Codes timing and other requirements, an
amount at least equal to the sum of 90% of its investment company taxable income (which includes
dividends, taxable interest, taxable original issue discount income, market discount income, income
from securities lending, net short-term capital gain in excess of net long-term capital loss,
certain net realized foreign exchange gains, and any other taxable income other than net capital
gain as defined below and is reduced by deductible expenses) plus 90% of the excess of its gross
tax exempt interest income, if any, over certain disallowed deductions (net tax exempt interest).
A Fund may retain for investment its net capital gain (which consists of the excess of its net
long-term capital gain over its net short-term capital loss). However, if a Fund retains any
investment company taxable income or net capital gain, it will be subject to tax at regular
corporate rates on the amount retained.
Each
Fund generally intends to distribute for each taxable year to its shareholders all or substantially
all of its investment company
taxable income (if any), net capital gain and any net tax exempt interest. Exchange control or
other foreign laws, regulations or
B-120
practices may restrict
repatriation of investment income, capital or the proceeds of securities sales by foreign investors
such as the Funds, and may therefore make it more difficult for these Funds to satisfy the
distribution requirements described above, as well as the excise tax distribution requirements
described below. However, these Funds generally expect 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 does not qualify as a regulated investment company, it will be taxed on all of
its investment company taxable income and net capital gain at corporate rates, its net tax exempt
interest (if any) may be subject to the alternative minimum tax, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current and accumulated
earnings and profits.
If a Fund retains any net capital gain, the Fund may designate the retained amount as
undistributed capital gains in a notice to its shareholders who (1) if subject to U.S. federal
income tax on long-term capital gains, will be required to include in income for federal income tax
purposes, as long-term capital gain, their shares of that undistributed amount, and (2) 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 those
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned by a shareholder
of the Fund will be increased by the amount of any such undistributed net capital gain included in
the shareholders gross income and decreased by the federal income tax paid by the Fund on that
amount of net capital gain.
For federal income tax purposes, each Fund is permitted to carry forward a net capital loss in
any year to offset its own capital gains, if any, during the eight years following the year of the
loss. On March 31, 2011 the Funds had the following amounts of capital loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of |
|
Fund |
|
Amount ($) |
|
|
Expiration |
|
Enhanced Income Fund |
|
$ |
7,658,641 |
|
|
|
2012 |
|
|
|
|
352,397 |
|
|
|
2013 |
|
|
|
|
320,682 |
|
|
|
2014 |
|
|
|
|
987,433 |
|
|
|
2015 |
|
|
|
|
2,472,185 |
|
|
|
2016 |
|
|
|
|
1,658,767 |
|
|
|
2018 |
|
|
|
|
9,056,394 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
Ultra-Short Duration Government Fund |
|
|
24,528,394 |
|
|
|
2012 |
|
|
|
|
7,818,636 |
|
|
|
2013 |
|
|
|
|
2,842,873 |
|
|
|
2014 |
|
|
|
|
4,261,952 |
|
|
|
2015 |
|
|
|
|
21,924,176 |
|
|
|
2018 |
|
|
|
|
2,415,726 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
Short Duration Government Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Duration Tax-Free Fund |
|
|
1,176,077 |
|
|
|
2013 |
|
|
|
|
4,730,013 |
|
|
|
2014 |
|
|
|
|
2,044,683 |
|
|
|
2015 |
|
|
|
|
12,792 |
|
|
|
2017 |
|
|
|
|
451,870 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Government Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Income Fund |
|
|
873,613 |
|
|
|
2012 |
|
|
|
|
3,036,076 |
|
|
|
2015 |
|
|
|
|
5,753,929 |
|
|
|
2016 |
|
|
|
|
13,220,467 |
|
|
|
2017 |
|
|
|
|
11,494,807 |
|
|
|
2018 |
|
|
|
|
704,599 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund |
|
|
122,614,098 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Global Income Fund |
|
|
3,262,640 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
B-121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of |
|
Fund |
|
Amount ($) |
|
|
Expiration |
|
High Yield Fund |
|
|
56,060,643 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
High Yield Floating Rate Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High Yield Municipal Fund |
|
|
2,478,411 |
|
|
|
2015 |
|
|
|
|
220,731,177 |
|
|
|
2016 |
|
|
|
|
553,071,659 |
|
|
|
2017 |
|
|
|
|
431,124,617 |
|
|
|
2018 |
|
|
|
|
11,174,752 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Mortgages Fund |
|
|
15,533,099 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
Investment Grade Credit Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Plus Fixed Income Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation Protected Securities Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local Emerging Markets Debt Fund |
|
|
|
|
|
|
|
|
These amounts are available to be carried forward to offset future capital gains to the extent
permitted by the Code and applicable tax regulations.
In order to avoid a 4% federal excise tax, each Fund must distribute or be deemed to have
distributed by December 31 of each calendar year at least 98% of its taxable ordinary income for
such year, at least 98% of the excess of its capital gains over its capital losses (generally
computed on the basis of the one-year period ending on October 31 of such year) and 100% of any
taxable ordinary income and the excess of capital gains over capital losses for the prior year that
were not distributed during such year and on which the Fund did not pay federal income tax. The
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.
The Tax Exempt Funds may purchase Municipal Securities together with the right to resell the
securities to the seller at an agreed-upon price or yield within a specified period prior to the
maturity date of the securities. Such a right to resell is commonly known as a put and is also
referred to as a standby commitment. The Tax Exempt Funds may pay for a standby commitment either
separately, in cash, or in the form of a higher price for the securities that are acquired subject
to the standby commitment, thus increasing the cost of securities and reducing the yield otherwise
available. Additionally, the Tax Exempt Funds may purchase beneficial interests in Municipal
Securities held by trusts, custodial arrangements or partnerships and/or combined with third-party
puts and other types of features such as interest rate swaps; those investments may require the
Fund to pay tender fees or other fees for the various features provided.
The IRS has issued a revenue ruling to the effect that, under specified circumstances, a
registered investment company will be the owner of tax exempt municipal obligations acquired
subject to a put option. The IRS has also issued private letter rulings to certain taxpayers (which
do not serve as precedent for other taxpayers) to the effect that tax exempt interest received by a
regulated investment company with respect to such obligations will be tax exempt in the hands of
the company and may be distributed to its shareholders as exempt-interest dividends. The IRS has
subsequently announced that it will not ordinarily issue advance ruling letters as to the identity
of the true owner of property in cases involving the sale of securities or participation interests
therein if the purchaser has the right to cause the security, or the participation interest
therein, to be purchased by either the seller or a third party. Each of the Tax Exempt Funds
intends to take the position that it is the owner of any municipal obligations acquired subject to
a standby commitment or other third party put and that tax exempt interest earned with respect to
such municipal obligations will be tax exempt in its hands. There is no assurance that the IRS will
agree with such position in any particular case. Additionally, the federal income tax treatment of
certain other aspects of these investments, including the treatment of tender fees paid by these
Funds, in relation to various regulated investment company tax provisions is unclear.
B-122
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 Funds 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, that Fund may be required to defer the recognition of
losses on futures or forward contracts and options or underlying securities or foreign currencies to the
extent of any unrecognized gains on related positions held by the Fund and the characterization of
gains or losses as long-term or short-term may be changed. The tax provisions described above
applicable to options, futures and forward contracts may affect the amount, timing, and character
of a Funds distributions to shareholders. Certain tax elections may be available to the Funds 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 by the Funds
with respect to foreign currencies and certain futures and options thereon, foreign
currency-denominated debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as ordinary income or loss,
although in some cases elections may be available that would alter this treatment. If a net foreign
exchange loss treated as ordinary loss under Section 988 of the Code were to exceed a Funds
investment company taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future years. Net loss,
if any, from certain foreign currency transactions or instruments could exceed net investment
income otherwise calculated for accounting purposes with the result being either no dividends being
paid or a portion of a Funds dividends being treated as a return of capital for tax purposes,
nontaxable to the extent of a shareholders tax basis in his or her shares and, once such basis is
exhausted, generally giving rise to capital gains.
Certain Funds may be subject to foreign taxes on income (possibly including, in some cases,
capital gains) from foreign securities. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases. If more than 50% of a Funds total assets
at the close of any taxable year consist of stock or securities of foreign corporations and it
meets the distribution requirements described above, such Fund will generally qualify to file an
election with the IRS pursuant to which shareholders of the Fund would be required to (i) include
in ordinary gross income (in addition to taxable dividends actually received) their pro rata shares
of foreign income taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction taxes, and similar
taxes) even though not actually received by such shareholders; and (ii) treat such respective pro
rata portions as foreign income taxes paid by them. Eligible Funds may or may not make this
election for any particular taxable year. Ineligible Funds, and Funds that do not make the
election, will, however, be entitled to deduct such taxes in computing the amounts they are
required to distribute.
If a Fund makes this election, its shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively, use them as foreign
tax credits, subject to applicable limitations, against their U.S. federal income taxes.
Shareholders who do not itemize deductions for federal income tax purposes will not, however, be
able to deduct their pro rata portion of qualified foreign taxes paid by the Fund, although such
shareholders will be required to include their shares of such taxes in gross income if a Fund makes
the election referred to above.
If a shareholder chooses to take a credit for the foreign taxes deemed paid by such
shareholder as a result of any such election by a 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 shareholders taxable income from foreign sources (but not in excess of the
shareholders entire taxable income) bears to his or her 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, and certain other limitations, which have different
effects depending upon each shareholders particular tax situation, certain shareholders may not be
able to claim a credit for the full amount of their proportionate shares of the foreign taxes paid
by a Fund.
Shareholders who are not liable for U.S. federal income taxes, including tax exempt
shareholders, will ordinarily not benefit from this election. Each year, if any, that a Fund files
the election described above, its shareholders will be notified of the amount of (i) each
shareholders pro rata share of qualified foreign income taxes paid by the Fund; and (ii) the
portion of Fund dividends which represents income from each foreign country.
If a Fund acquires stock (including, under proposed regulations, an option to acquire stock
such as is inherent in a convertible bond) in certain foreign corporations (passive foreign
investment companies) that receive at least 75% of their annual
gross income from
B-123
passive sources
(such as interest, dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income, the Fund could be subject to federal income
tax and additional interest charges on excess distributions received from such companies or gain
from the sale of such stock in such companies, even if all income or gain actually received by the
Fund is timely distributed to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. The Funds may limit and/or
manage their holdings in passive foreign investment companies to minimize their tax liability or
maximize their return from these investments.
A Funds investment in zero coupon securities, deferred interest securities, capital
appreciation bonds 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 certain options, futures or forward contracts, as described above, will generally cause it to
realize income or gain prior to the receipt of cash payments with respect to these securities or
contracts. In order to obtain cash to enable it to distribute this income or gain, maintain its
qualification as a regulated investment company and avoid federal income or excise taxes, a Fund
may be required to liquidate portfolio securities earlier than it might otherwise have done.
Investment 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 payment 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, if it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
The application of certain requirements for qualification as a regulated investment company
and the application of certain other tax rules may be unclear in some respects in connection with
certain investment practices such as dollar rolls, or investments in certain derivatives, including
interest rate swaps, floors, cap and collars, currency swaps, total return swaps, mortgage swaps,
index swaps, forward contracts and structured notes. As a result, a Fund may therefore be required
to limit its investments in such transactions and it is also possible that the IRS may not agree
with a Funds tax treatment of such transactions. In addition, the tax treatment of derivatives,
and certain other investments, may be affected by future legislation, Treasury Regulations and
guidance issued by the IRS that could affect the timing, character and amount of a Funds income
and gains and distributions to shareholders.
Taxable U.S. Shareholders Distributions
Tax Exempt Funds. Each Tax Exempt Fund expects to qualify to pay exempt-interest dividends,
as defined in the Code. To qualify to pay exempt-interest dividends, the applicable Fund must, at
the close of each quarter of its taxable year, have at least 50% of the value of its total assets
invested in Municipal Securities whose interest is excluded from gross income under Section 103(a)
of the Code. In purchasing Municipal Securities, each Tax Exempt Fund intends to rely on opinions
of bond counsel or counsel to the issuers for each issue as to the excludability of interest on
such obligations from gross income for federal income tax purposes. A Tax Exempt Fund will not
undertake independent investigations concerning the tax exempt status of such obligations, nor does
it guarantee or represent that bond counsels opinions are correct. Bond counsels opinions will
generally be based in part upon covenants by the issuers and related parties regarding continuing
compliance with federal tax requirements. Tax laws not only limit the purposes for which tax exempt
bonds may be issued and the supply of such bonds, but also contain numerous and complex
requirements that must be satisfied on a continuing basis in order for bonds to be and remain tax
exempt. If the issuer of a bond or a user of a bond-financed facility fails to comply with such
requirements at any time, interest on the bond could become taxable, retroactive to the date the
obligation was issued. In that event, a portion of a Tax Exempt Funds distributions attributable
to interest the Fund received on such bond for the current year and for prior years could be
characterized or recharacterized as taxable income. The availability of tax exempt obligations and
the value of a Tax Exempt Funds portfolio may be affected by restrictive federal income tax
legislation enacted in recent years or by similar, future legislation. If a Tax Exempt Fund
satisfies the applicable requirements, dividends paid by the Fund which are attributable to tax
exempt interest on Municipal Securities and designated by the Fund as exempt-interest dividends in
a written notice mailed to its shareholders within 60 days after the close of its taxable year may
be treated by shareholders as items of interest excludable from their gross income under Section
103(a) of the Code. Exempt-interest dividends a Tax Exempt Fund receives from other regulated
investment companies, including exempt-interest dividends on auction rate preferred securities of
such companies held by a Fund, are treated as interest on Municipal Securities and may be
distributed by a Tax Exempt Fund as exempt-interest dividends. The recipient of tax exempt income
is required to report such income on his or her federal income tax return. The Code provides that
interest on indebtedness incurred or continued to purchase or carry shares of a Tax Exempt Fund is
not deductible to the extent attributable to exempt-interest dividends.
Although all or a substantial portion of the dividends paid by a Tax Exempt Fund may be
excluded by shareholders of such Fund from their gross income for federal income tax purposes, each
Tax Exempt Fund may purchase private activity bonds, the
interest
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from which (including a Funds
distributions attributable to such interest) may be a preference item for purposes of the federal
alternative minimum tax (both individual and corporate). All exempt-interest dividends from a Tax
Exempt Fund, whether or not attributable to private activity bond interest, may increase a
corporate shareholders liability, if any, for corporate alternative minimum tax, and will be taken
into account in determining the extent to which a shareholders Social Security or certain railroad
retirement benefits are taxable.
The Tax Exempt Funds are not intended to constitute a balanced investment program and are not
designed for investors seeking capital appreciation or maximum tax exempt income irrespective of
fluctuations in principal. Shares of the Tax Exempt Funds would not be suitable for tax exempt
institutions, retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts since such institutions, plans and accounts are generally tax exempt and,
therefore, would not gain any additional benefit from the Funds dividends being tax exempt. The
same is generally true for non-U.S. persons, because they are generally exempt from U.S. tax on
interest income. In addition, the Tax Exempt Funds may not be an appropriate investment for persons
or entities that are substantial users of facilities financed by private activity bonds or
related persons thereof. Substantial user is defined under U.S. Treasury Regulations to include
a non-exempt person which regularly uses a part of such facilities in its trade or business and
whose gross revenues derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, which occupies more
than 5% of the usable area of such facilities or for which such facilities or a part thereof were
specifically constructed, reconstructed or acquired. Related persons include certain related
natural persons, affiliated corporations, partnerships and its partners and an S corporation and
its shareholders. A shareholder is advised to consult his or her tax adviser with respect to
whether exempt-interest dividends retain the exclusion under Section 103(a) if such shareholder
would be treated as a substantial user under Section 147(a)(1) with respect to some or all of the
tax exempt obligations held by a Tax Exempt Fund.
All Funds. Distributions from investment company taxable income, whether reinvested in
additional shares or paid in cash, as defined above, are generally taxable to shareholders who are
subject to tax as ordinary income whether paid in cash or reinvested in additional shares. However,
under current law, which is scheduled to expire after 2010, distributions to noncorporate
shareholders attributable to dividends received by the Funds from U.S. and certain foreign
corporations will generally be taxed at the long-term capital gain rate (described below), as long
as certain other requirements are met. For these lower rates to apply, the noncorporate
shareholders must have owned their Fund shares for at least 61 days during the 121-day period
beginning 60 days before the Funds ex-dividend date. Distributions from the Funds generally will
not qualify for taxation at the lower rate because the Funds generally will be earning interest
rather than dividend income. Taxable distributions include distributions from any Fund, including
the Tax Exempt Funds, that are attributable to (i) taxable income, including but not limited to
dividends, taxable bond interest, recognized market discount income, original issue discount income
accrued with respect to taxable bonds, income from repurchase agreements, income from securities
lending, income from dollar rolls, income from interest rate, currency, total return swaps, options
on swaps, caps, floors and collars, and a portion of the discount from certain stripped tax exempt
obligations or their coupons; or (ii) capital gains from the sale of securities or other
investments (including from the disposition of rights to when-issued securities prior to issuance)
or from options, futures or certain forward contracts. Any portion of such taxable distributions
that is attributable to a Funds net capital gain, as defined above, may be designated by the Fund
as a capital gain dividend, taxable to shareholders as long-term capital gain whether received in
cash or additional shares and regardless of the length of time their shares of a Fund have been
held.
It is expected that distributions made by the Funds will ordinarily not qualify for the
dividends-received deduction for corporations because qualifying distributions may be made only
from a Funds dividend income that it receives from stock in U.S. domestic corporations. The Funds
do not intend to purchase stock of domestic corporations other than in limited instances,
distributions from which may in rare cases qualify as dividends for this purpose. The
dividends-received deduction, if available, is reduced to the extent the shares with respect to
which the dividends are received are treated as debt-financed under the federal income tax law and
is eliminated if the shares are deemed to have been held for less than a minimum period, generally
46 days. Receipt of certain distributions qualifying for the deduction may result in reduction of
the tax basis of the corporate shareholders shares and may give rise to or increase its liability
for federal corporate alternative minimum tax.
Distributions in excess of a Funds current and accumulated earnings and profits, as computed
for federal income tax purposes, will first reduce a shareholders basis in his or her shares and,
after the shareholders basis is reduced to zero, will generally constitute capital gains to a
shareholder who holds his or her shares as capital assets.
Shareholders receiving a distribution in the form of newly issued shares will be treated for
U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of
cash that they would have received had they elected to receive cash and will have a cost basis in
the shares received equal to such amount.
After the close of each calendar year, each Fund will inform shareholders of the federal
income tax status of its dividends and distributions for such year, including the portion of such
dividends, if any, that qualifies as tax exempt or as capital gain, the portion, if any, that
should be treated as a tax preference item for purposes of the federal alternative minimum tax and
the foreign tax credits, if
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any, associated with such dividends. Shareholders who have not held
shares of a Tax Exempt Fund for such Funds full taxable year may have designated as tax exempt or
as a tax preference item a percentage of distributions which is not equal to the actual amount of
tax exempt income or tax preference item income earned by the Fund during the period of their
investment in the Fund.
All distributions, whether received in shares or in cash, as well as redemptions and
exchanges, must be reported by each shareholder who is required to file a U.S. federal income tax
return.
Different tax treatment, including penalties on certain excess contributions and deferrals,
certain pre-retirement and post-retirement distributions, and certain prohibited transactions is
accorded to accounts maintained as qualified retirement plans. Shareholders should consult their
tax advisers for more information.
Information Reporting and Backup Withholding
Each Fund will be required to report to the IRS all taxable distributions, as well as gross
proceeds from the redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to which are exempt from
the information reporting provisions of the Code. Under the backup withholding provisions of Code
Section 3406 and applicable Treasury regulations, all such reportable distributions and proceeds
may be subject to backup withholding of federal income tax at the current specified rate of 28%
(currently scheduled to increase to 31% after 2010) in the case of exempt recipients that fail to
certify to the Funds that they are not subject to withholding, non-exempt shareholders who fail to
furnish the Funds with their correct taxpayer identification number (TIN) and with certain
required certifications or if the IRS or a broker notifies the Funds that the number furnished by
the shareholder is incorrect or that the shareholder is subject to backup withholding as a result
of failure to report interest or dividend income. However, any taxable distributions from a Tax
Exempt Fund will not be subject to backup withholding if the applicable Fund reasonably estimates
that at least 95% of its distributions will be exempt-interest dividends. A Fund may refuse to
accept an application that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or reinvested in shares,
will be reduced by the amounts required to be withheld. Any amounts withheld may be credited
against a shareholders U.S. federal income tax liability. If a shareholder does not have a TIN, it
should apply for one immediately by contacting the local office of the Social Security
Administration or the IRS. Backup withholding could apply to payments relating to a shareholders
account while it is waiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under a Uniform Gifts or Transfers to Minors Act, the TIN of
the minor should be furnished. Investors should consult their tax advisers about the applicability
of the backup withholding provisions.
Non-U.S. Shareholders
The discussion above relates solely to U.S. federal income tax law as it applies to U.S.
persons subject to tax under such law.
Distributions to shareholders who, as to the United States, are not U.S. persons, (i.e., are
nonresident aliens, foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S. federal withholding tax
at the rate of 30% on distributions treated as ordinary income unless the tax is reduced or
eliminated pursuant to a tax treaty or the distributions are effectively connected with a U.S.
trade or business of the shareholder; but distributions of net capital gain (the excess of any net
long-term capital gains over any net short-term capital losses) including amounts retained by a
Fund which are reported as undistributed capital gains, to such a non-U.S. shareholder will not be
subject to U.S. federal income or withholding tax unless the distributions are effectively
connected with the shareholders 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. federal withholding tax on deemed income resulting from
any election by the Global Income Fund, Local Emerging Markets Debt Fund or Emerging Markets Debt
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 capital 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 shareholders trade or business in the U.S., or in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for 183 days or more
during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with the proper IRS Form W-8 (i.e., W-8BEN,
W-8ECI, W-8IMY or W-8EXP), or an acceptable substitute, may be subject to backup withholding at a
28% (currently scheduled to increase to 31% after 2010) rate on dividends (including capital gain
dividends) and on the proceeds of redemptions and exchanges. Also, non-U.S. shareholders of a Fund
may be subject to U.S. estate tax with respect to their Fund shares.
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Effective January 1, 2014, the Funds will be required to withhold U.S. tax (at a 30% rate) on
payments of dividends and redemption proceeds made to certain non-U.S. entities that fail to comply
with extensive new reporting and withholding requirements designed to inform the U.S. Department of
the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide
additional information to the Funds to enable the Funds to determine whether withholding is
required.
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 Taxes
A Fund may be subject to state or local taxes in certain jurisdictions in which the Fund may
be deemed to be doing business. A state income (and possibly local income and/or intangible
property) tax exemption is generally available to the extent (if any) a Funds distributions are
derived from interest on (or, in the case of intangible property taxes, the value of its assets is
attributable to) certain U.S. government obligations and/or tax exempt municipal obligations issued
by or on behalf of the particular state or a political subdivision thereof, provided in some states
that certain thresholds for holdings of such obligations and/or reporting requirements are
satisfied. In addition, in those states or localities which have income tax laws, the treatment of
a Fund and its shareholders under such laws may differ from their treatment under federal income
tax laws, and investment in a Fund may have tax consequences for shareholders different from those
of a direct investment in such Funds portfolio securities. Shareholders should consult their own
tax advisers concerning these matters.
PROXY VOTING
The Trust, on behalf of the Funds, has delegated the voting of portfolio securities to
the Investment Advisers. For client accounts for which the Investment Advisers have voting
discretion, the Investment Advisers have adopted policies and procedures (the Proxy Voting
Policy) for the voting of proxies. Under the Proxy Voting Policy, the Investment Advisers guiding
principles in performing proxy voting are to make decisions that favor proposals that tend to
maximize a companys shareholder value and are not influenced by conflicts of interest. To
implement these guiding principles for investments in publicly-traded equities, the Investment
Advisers have developed customized proxy voting guidelines (the Guidelines) that they generally
apply when voting on behalf of client accounts. Attached as Appendix B is a summary of the
Guidelines. These Guidelines address a wide variety of individual topics, including, among other
matters, shareholder voting rights, anti-takeover defenses, board structures, the election of
directors, executive and director compensation, reorganizations, mergers, issues of corporate
social responsibility and various shareholder proposals.
The Proxy Voting Policy, including the Guidelines, is reviewed periodically to ensure that it
continues to be consistent with the Investment Advisers guiding principles. The Guidelines embody
the positions and factors the Investment Advisers generally consider important in casting proxy
votes.
The Investment Advisers have retained a third-party proxy voting service (Proxy Service),
currently Institutional Shareholder Services, to assist in the implementation and administration of
certain proxy voting-related functions including, without limitation, operational, recordkeeping
and reporting services. The Proxy Service also prepares a written analysis and recommendation (a
Recommendation) of each proxy vote that reflects the Proxy Services application of the
Guidelines to particular proxy issues. While it is the Investment Advisers policy generally to
follow the Guidelines and Recommendations from the Proxy Service, the Investment Advisers
portfolio management teams (Portfolio Management Teams) may on certain proxy votes seek approval
to diverge from the Guidelines or a Recommendation by following an override process. Such
decisions are subject to a review and approval process, including a determination that the decision
is not influenced by any conflict of interest. A Portfolio Management Team that receives approval
through the override process to cast a proxy vote that diverges from the Guidelines and/or a
Recommendation may vote differently than other Portfolio Management Teams that did not seek to
override that vote. In forming their views on particular matters, the Portfolio Management Teams
are also permitted to consider applicable regional rules and practices, including codes of conduct
and other guides, regarding proxy voting, in addition to the Guidelines and Recommendations. The
Investment Advisers may hire other service providers to replace or supplement the Proxy Service
with respect to any of the services the Investment Advisers currently receive from the Proxy
Service.
From time to time, the Investment Advisers may face regulatory, compliance, legal or
logistical limits with respect to voting securities that it may purchase or hold for client
accounts, which can affect the Investment Advisers ability to vote such proxies, as well as the
desirability of voting such proxies. Among other limits, federal, state and foreign regulatory
restrictions or company specific ownership limits, as well as legal matters related to consolidated
groups, may restrict the total percentage of an issuers voting securities that the Investment
Advisers can hold for clients and the nature of the Investment Advisers voting in such securities.
The Investment Advisers ability to vote proxies may also be affected by, among other things: (i)
late receipt of meeting notices; (ii) requirements to vote proxies in person: (iii) restrictions on
a foreigners ability to exercise votes; (iv) potential difficulties in translating the proxy; (v)
requirements to provide local agents with unrestricted powers of attorney to facilitate voting
instructions; and (vi) requirements that investors who exercise their voting rights surrender the
right to dispose of their holdings for some specified period in proximity to the shareholder
meeting.
GSAM conducts periodic due diligence meetings with the Proxy Service which include, but are
not limited to, a review of the Proxy Services general organizational structure, new developments
with respect to research and technology, work flow improvements and internal due diligence with
respect to conflicts of interest.
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The Investment Advisers have adopted policies and procedures designed to prevent conflicts of
interest from influencing its proxy voting decisions that the Investment Advisers make on behalf of
a client account and to help ensure that such decisions are made in accordance with the Investment
Advisers fiduciary obligations to its clients. These policies and procedures include the
Investment Advisers use of the Guidelines and Recommendations from the Proxy Service, the override
approval process previously discussed, and the establishment of information barriers between the
Investment Advisers and other businesses within The Goldman Sachs Group, Inc. Notwithstanding such
proxy voting policies and procedures, actual proxy voting decisions of the Investment Advisers may
have the effect of benefitting the interests of other clients or businesses of other divisions or
units of Goldman Sachs and/or its affiliates, provided that the Investment Advisers believe such
voting decisions to be in accordance with their fiduciary obligations.
Voting decisions with respect to fixed income securities and the securities of privately held
issuers generally will be made by a Funds managers based on their assessment of the particular
transactions or other matters at issue.
Information regarding how the Funds voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30 is available on or through the Funds website at
www.goldmansachsfunds.com and on the SECs website at www.sec.gov.
PAYMENTS TO INTERMEDIARIES
The Investment Adviser, Distributor and/or their affiliates may make payments to
Intermediaries from time to time to promote the sale, distribution and/or servicing of shares of
the Funds. These payments (Additional Payments) are made out of the Investment Advisers,
Distributors and/or their affiliates own assets (which may come directly or indirectly from fees
paid by the Funds), are not an additional charge to the Funds or their shareholders, and do not
change the price paid by investors for the purchase of a Funds shares or the amount a Fund
receives as proceeds from such purchases. Although paid by the Investment Advisor, Distributor,
and/or their affiliates, the Additional Payments are in addition to the distribution and service
fees paid by the Funds to the Intermediaries as described in the Funds Prospectuses and this SAI,
and are also in addition to the sales commissions payable to Intermediaries as set forth in the
Prospectuses. For purposes of this Payments to Intermediaries section, Funds shall mean,
collectively, the Funds and any of the other Goldman Sachs Funds.
The Additional Payments are intended to compensate Intermediaries for, among other things:
marketing shares of the Funds, which may consist of payments relating to Funds included on
preferred or recommended fund lists or in certain sales programs from time to time sponsored by the
Intermediaries; access to the Intermediaries registered representatives or salespersons, including
at conferences and other meetings; assistance in training and education of personnel; finders or
referral fees for directing investors to the Funds; marketing support fees for providing
assistance in promoting the sale of Fund shares (which may include promotions in communications
with the Intermediaries customers, registered representatives and salespersons); and/or other
specified services intended to assist in the distribution and marketing of the Funds. In addition,
the Investment Adviser, Distributor and/or their affiliates may make Additional Payments (including
through sub-transfer agency and networking agreements) for subaccounting, administrative and/or
shareholder processing services that are in addition to the transfer agent, shareholder
administration, servicing and processing fees paid by the Funds. These Additional Payments may
exceed amounts earned on these assets by the Investment Adviser, Distributor and/or their
affiliates for the performance of these or similar services. The Additional Payments may be a fixed
dollar amount; may be based on the number of customer accounts maintained by an Intermediary; may
be based on a percentage of the value of shares sold to, or held by, customers of the Intermediary
involved; or may be calculated on another basis. The Additional Payments are negotiated with each
Intermediary based on a range of factors, including but not limited to the Intermediarys ability
to attract and retain assets (including particular classes of Fund shares), target markets,
customer relationships, quality of service and industry reputation. Although the individual
components may be higher or lower and the total amount of Additional Payments made to any
Intermediary in any given year will vary, the amount of these Additional Payments (excluding
payments made through sub-transfer agency and networking agreements), on average, is normally not
expected to exceed 0.50% (annualized) of the amount sold or invested through an Intermediary.
These Additional Payments may be significant to certain Intermediaries, and may be an
important factor in an Intermediarys willingness to support the sale of the Funds through its
distribution system.
The Investment Adviser, Distributor and/or their affiliates may be motivated to make Additional
Payments since they promote the sale of Fund shares to clients of Intermediaries and the retention
of those investments by those clients. To the extent Intermediaries sell more shares of the Funds
or retain shares of the Funds in their clients accounts, the Investment Adviser and Distributor
benefit from the incremental management and other fees paid by the Funds with respect to those
assets.
In addition, certain Intermediaries may have access to certain research and investment
services from the Investment Adviser, Distributor and/or their affiliates. Such research and
investment services (Additional Services) may include research reports, economic analysis,
portfolio analysis tools, business planning services, certain marketing and investor education
materials and
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strategic asset allocation modeling. The Intermediary may not pay for these products
or services. The cost of the Additional Services and the particular services provided may vary
from Intermediary to Intermediary.
The Additional Payments made by the Investment Adviser, Distributor and/or their affiliates or
the Additional Services received by an Intermediary may vary with respect to the type of fund
(e.g., equity, fund, fixed income fund, specialty fund, asset allocation portfolio or money market
fund) sold by the Intermediary. In addition, the Additional Payment arrangements may include
breakpoints in compensation which provide that the percentage rate of compensation varies as the
dollar value of the amount sold or invested through an Intermediary increases.
The presence of these Additional Payments or Additional Services, the varying fee structure
and the basis on which an Intermediary compensates its registered representatives or salespersons
may create an incentive for a particular Intermediary, registered representative or salesperson to
highlight, feature or recommend funds, including the Funds, or other investments based, at least in
part, on the level of compensation paid. Additionally, if one mutual fund sponsor makes greater
distribution payments than another, an Intermediary may have an incentive to recommend one fund
complex over another. Similarly, if an Intermediary receives more distribution assistance for one
share class versus another, that Intermediary may have an incentive to recommend that share class.
Because Intermediaries may be paid varying amounts per class for sub-transfer agency and related
recordkeeping services, the service requirements of which also may vary by class, this may create
an additional incentive for financial firms and their financial advisors to favor one fund complex
over another, or one fund class over another. You should consider whether such incentives exist
when evaluating any recommendations from an Intermediary to purchase or sell Shares of the Funds
and when considering which share class is most appropriate for you.
For the year ended December 31, 2011, the Investment Adviser, Distributor and their affiliates
made Additional Payments out of their own assets to approximately 157 Intermediaries, totaling
approximately $97.4 million (excluding payments made through sub-transfer agency and networking
agreements and certain other types of payments described below), with respect to all of the funds
of the Trust (including the Funds included in this Statement of Additional Information), all of the
funds in an affiliated investment company, Goldman Sachs Variable Insurance Trust, and the Goldman
Sachs Credit Strategies Fund, an affiliated closed-end investment company. During the year ended
December 31, 2011, the Investment Adviser, Distributor and/or their affiliates had contractual
arrangements to make Additional Payments to the Intermediaries listed below (or their affiliates or
successors), among others. This list will change over time, and any additions, modifications or
deletions thereto that have occurred since December 31, 2011 are not reflected. Additional
Intermediaries may receive payments in 2012 and in future years. Certain arrangements are still
being negotiated, and there is a possibility that payments will be made retroactively to
Intermediaries not listed below.
ADP Broker Dealer, Inc
American Enterprise Investment Services Inc
Allstate Life Insurance Co
Amalga Trust Company
Amalgamated Bank of Chicago
American National Trust and Investment Management Company (dba Old National Trust Company)
American United Life Insurance Co
Ameriprise Financial Services, Inc.
Ascensus, Inc
Associated Trust NA & Associated Investment Services Inc.
AXA Equitable Life Insurance Company
Banc of America Securities, LLC
BancorpSouth
Bank Hapoalim B.M.
Bank of New York
Bank of Oklahoma
Bankers Trust
Barclays Capital Inc.
BB&T Capital Markets
BMO Nesbitt Burns (Harris)
BOSC, Inc.
Branch Banking & Trust Company
Brown Brothers Harriman & Co
C.M. Life Insurance Company
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Financial Network Investment Corporation
Multi Financial Securities Corporation
PrimeVest Financial Services
Charles Schwab & Co., Inc.
Chicago Mercantile Exchange, Inc. and CME Shareholder Servicing, LLC.
Citibank N.A.
Citibank N.A. Agency and Trust Department
Citigroup Global Markets, Inc.
Citigroup Private Bank at Citibank N.A.
Citizens Bank Wealth Management N.A.
Comerica Bank
Comerica Securities
Commerce Bank N.A.
Companion Life Insurance Company
Compass Bank
Computershare Trust Company, N.A.
Connecticut General Life Insurance Company
Daily Access Corporation
Dain Rauscher Inc.
Deutsche Bank Trust Company Americas
DeWaay Financial Network LLC
Diversified Investment Advisors
Dubuque Bank & Trust
Edward D. Jones & Co., L.P.
Farmers New World Life Insurance Co.
Federal Deposit Insurance Corporation
Fidelity Brokerage Services LLC and National Financial Services LLC
Fidelity Investments Institutional Operations Company, Inc
Fifth Third Bank
First National Bank of Omaha
First Trust Corporation
Fulton Bank N.A.
Fulton Financial Advisors, National Association
GE Life and Annuity Assurance Company
Genworth Financial Trust Company
Great West Life & Annuity Insurance Company
Greatbanc Trustco
Guardian Insurance and Annuity Company, Inc
GWFS Equities, Inc.
Harris Trust & Savings Bank
Hartford Life Insurance Co.
Hartford Securities Distribution Company Inc.
Hewitt Associates LLC
Horace Mann Life Insurance Company
HSBC Bank USA
Hunt Dupree & Rhine
ING Institutional Plan Services, LLC / ING Investment Advisors, LLC
ING Life Insurance & Annuity Company / ING Financial Advisers, LLC / ING Institutional Plan
Services, LLC
Invesmart, Inc.
J.P. Morgan Securities Inc.
Jefferson Pilot Financial Insurance Company
JP Morgan Retirement Plan Services, LLC
JPMorgan Securities, Inc.
Kemper Investors Life Insurance Company
Key Bank Capital Markets
LaSalle Bank N.A.
B-130
Law Debenture Trust Company of New York
Lincoln Benefit Life Company
Lincoln Financial Advisors
Lincoln National Life Insurance Company and Lincoln Life & Annuity Company of New York
Lincoln Retirement Services Company, LLC
M&I Brokerage Services, Inc.
M&T Securities, Inc.
Marshall & Ilsley Trust Company N.A.
Massachusetts Mutual Life Insurance Company
Mellon Bank N.A.
Mellon HR Solutions
Mercer HR Services, LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mid-Atlantic Capital Corporation
Midland National Life Insurance Company
Minnesota Life Insurance Company
Morgan Keegan and Company, Inc.
Morgan Stanley Smith Barney LLC
MSCS Financial Services
National Security Life and Annuity Company
Nationwide Financial Services, Inc.
Newport Retirement Services, Inc
Northern Trust Securities Inc.
NYLife Distributors, Inc.
Ohio National Life Insurance Company
Pershing, LLC
PNC Bank, N.A.
PNC Bank, National Organization
PNC Capital Markets
Principal Life Insurance Company
Princor Financial Services
Protective Life Insurance Company
PruCo Life Insurance Company & PruCo Life Insurance Company of New Jersey
Prudential Financial, Inc
Prudential Life Insurance Company
Raymond James & Associates, Inc. and Raymond James Financial Services
Regions Bank
Reliance Trust Company
Robert W. Baird & Co., Inc.
Scott & Stringfellow Inc.
Security Benefit Life Insurance Company
Signature Bank
Standard Insurance Company
State Street Global Markets, LLC and State Street Bank and Trust Company
Sun Life Assurance Company of Canada (US)
Sungard Institutional Brokerage, Inc
SunTrust Bank
SunTrust Robinson Humphrey, Inc.
SVB Securities
Synovus Securities
T. Rowe Price Retirement Plan Services, Inc
The Princeton Retirement Group, Inc & GPC Securities, Inc
The Prudential Insurance Company of America
The Travelers Insurance Company
Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company
Treasury Curve
B-131
Trustmark National Bank
UBATCO & Co.
UBS Financial Services, Inc.
UMB Bank
Union Bank
United of Omaha Life Insurance Company
US Bank
US Bank National Association
Valic Retirement Services
Vanguard Group
Wachovia Capital Markets, LLC.
Wachovia Securities, LLC.
Wells Fargo Advisors LLC
Wells Fargo Bank and Its Affiliates
Wells Fargo Bank National Association
Wells Fargo Bank, N.A.
Wells Fargo Corporate Trust Services
Wells Fargo Investment, LLC.
Wilmington Trust Company
Zions First National Bank
Your Authorized Institution or other Intermediary may charge you additional fees or
commissions other than those disclosed in the Prospectus. Shareholders should contact their
Authorized Institution or other Intermediary for more information about the Additional Payments or
Additional Services they receive and any potential conflicts of interest, as well as for
information regarding any fees and/or commissions it charges. For additional questions, please
contact Goldman Sachs Funds at 1-800-621-2550.
Not included on the list above are other subsidiaries of Goldman Sachs who may receive revenue
from the Investment Adviser, Distributor and/or their affiliates through intra-company compensation
arrangements and for financial, distribution, administrative and operational services.
Furthermore, the Investment Adviser, Distributor and/or their affiliates may, to the extent
permitted by applicable regulations, contribute to various non-cash and cash incentive arrangements
to promote the sale of Fund shares, as well as sponsor various educational programs, sales contests
and/or promotions. The Investment Adviser, Distributor and their affiliates may also pay for the
travel expenses, meals, lodging and entertainment of Intermediaries and their salespersons and
guests in connection with educational, sales and promotional programs subject to applicable FINRA
regulations. Other compensation may also be offered from time to time to the extent not prohibited
by applicable federal or state laws or FINRA regulations. This compensation is not included in,
and is made in addition to, the Additional Payments described above.
OTHER INFORMATION
Selective Disclosure of Portfolio Holdings
The Board of Trustees of the Trust and the Investment Advisers have adopted a policy on
selective disclosure of portfolio holdings in accordance with regulations that seek to ensure that
disclosure of information about portfolio securities is in the best interest of Fund shareholders
and to address the conflicts between the interests of shareholders and its service providers. The
policy provides that neither a Fund nor its Investment Advisers, Distributor or any agent, or any
employee thereof (Fund Representative) will disclose a Funds portfolio holdings information to
any person other than in accordance with the policy. For purposes of the policy, portfolio
holdings information means the Funds actual portfolio holdings, as well as nonpublic information
about its trading strategies or pending transactions. Under the policy, neither a Fund nor any Fund
Representative may solicit or accept any compensation or other consideration in connection with the
disclosure of portfolio holdings information. A Fund Representative may provide portfolio holdings
information to third parties if such information has been included in the Funds public filings
with the SEC or is disclosed on the Funds publicly accessible website. Information posted on the
Funds website may be separately provided to any person commencing the day after it is first
published on the Funds website.
B-132
Portfolio holdings information that is not filed with the SEC or posted on the publicly
available website may be provided to third parties only if the third party recipients are required
to keep all portfolio holdings information confidential and are prohibited from trading on the
information they receive. Disclosure to such third parties must be approved in advance by the
Investment Advisers legal or compliance department. Disclosure to providers of auditing, custody,
proxy voting and other similar services for the Funds, as well as rating and ranking organizations,
will generally be permitted; however, information may be disclosed to other third parties
(including, without limitation, individuals, institutional investors, and intermediaries that sell
shares of the Fund,) only upon approval by the Funds Chief Compliance Officer, who must first
determine that the Fund has a legitimate business purpose for doing so. In general, each recipient
of non-public portfolio holdings information must sign a confidentiality and non-trading agreement,
although this requirement will not apply when the recipient is otherwise subject to a duty of
confidentiality. In accordance with the policy, the identity of those recipients who receive
non-public portfolio holdings information on an ongoing basis is as follows: the Investment
Advisers and their affiliates, the Funds independent registered public accounting firm, the Funds
custodian, the Funds legal counselDechert LLP, the Funds financial printerRR Donnelley, and
the Funds proxy voting serviceISS. KPMG LLP, an investor in the Funds, also receives certain
non-public holdings information on an ongoing basis in order to facilitate compliance with the
auditor independence requirements to which it is subject. In addition, certain Funds included in
this SAI provide non-public portfolio holdings information to Standard & Poors Rating Services to
allow such Funds to be rated by it and certain equity funds provide non-public portfolio holdings
information to FactSet, a provider of global financial and economic information. These entities are
obligated to keep such information confidential. Third party providers of custodial or accounting
services to the Funds may release non-public portfolio holdings information of the Funds only with
the permission of Fund Representatives. From time to time portfolio holdings information may be
provided to broker-dealers solely in connection with a Fund seeking portfolio securities trading
suggestions. In addition, the Short Duration Tax-Free Fund, Municipal Income Fund and High Yield
Municipal Fund provide certain broker-dealers with non-public portfolio holdings information so
that these broker-dealers may provide these Tax Exempt Funds with more tailored trading
suggestions, thereby facilitating more effective portfolio management. Complete portfolio holdings
information is provided to these select broker-dealers at least quarterly with no lag required
between the date of the information and the date on which the information is disclosed. As of March
31, 2011, the broker-dealers receiving this information were as follows: BB&T Capital Markets,
Belle Haven Instruments, Cabrera Capital Markets, LLC, Citigroup Global Markets, Inc., Crews &
Associates, Inc., Dougherty & Company, LLC, Ferris Baker Watts, Inc., George K. Baum & Company,
Griffin, Kubik, Stephens & Thompson, Inc., Herbert J. Sims & Co., Inc., Loop Capital Corp., Merrill
Lynch Pierce Fenner & Smith, Inc., Mesirow Financial Inc., Morgan Keegan & Company, Morgan Stanley,
PNC Capital Markets LLC, Prager Sealy & Company, Raymond James Financial Services Inc., RBC Capital
Markets, Southwest Securities, Inc., Stephens Inc., Sterne Agee & Leach, Inc., Stifel Nicolaus &
Company, FMS Bonds Inc., William Blair & Company, Ziegler Capital, M.R. Beal & Company, Janney
Montgomery Scott, Inc., First Southwest Company, Jeffries & Company and Guggenheim Securities LLC.
In providing this information reasonable precautions (including, but not limited to a
non-disclosure agreement), including limitations on the scope of the portfolio holdings information
disclosed, are taken to avoid any potential misuse of the disclosed information.
The Funds described in this SAI currently intend to publish complete portfolio holdings on
their website as of the end of each fiscal quarter, subject to a thirty calendar day lag, and to
post selected holdings information monthly subject to a ten calendar day lag. A Fund may publish on
the website complete portfolio holdings information more frequently if it has a legitimate business
purpose for doing so.
Under the policy, Fund Representatives will initially supply the Board of the Trustees with a
list of third parties who receive portfolio holdings information pursuant to any ongoing
arrangement. In addition, the Board is to receive information, on a quarterly basis, regarding any
other disclosures of non-public portfolio holdings information that were permitted during the
preceding quarter. In addition, the Board of Trustees is to approve at its meetings a list of Fund
Representatives who are authorized to disclose portfolio holdings information under the policy. As
of July 29, 2011, only certain officers of the Trust as well as certain senior members of the
compliance and legal groups of the Investment Adviser have been approved by the Board of Trustees
to authorize disclosure of portfolio holdings information.
Miscellaneous
A 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, in its sole discretion, to pay redemptions by a distribution in kind of securities
(instead of cash) if (i) the redemption exceeds the lesser of $250,000 or 1% of the net asset value
of the Fund at the time of redemption; or (ii) with respect to lesser redemption amounts, the
redeeming shareholder requests in writing a distribution in kind of securities instead of cash. The
securities distributed in kind would be readily marketable and would be valued for this purpose
using the same method employed in calculating each Funds 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.
B-133
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 Trust may also suspend or postpone the
recordation of the transfer of shares upon the occurrence of any of the foregoing conditions.)
As stated in the Prospectuses, the Trust may authorize Authorized Institutions and other
institutions that provide recordkeeping, reporting and processing services to their customers to
accept on the Trusts behalf purchase, redemption and exchange orders placed by or on behalf of
their customers and, if approved by the Trust, to designate other intermediaries to accept such
orders. These institutions may receive payments from the Trust or Goldman Sachs for their services.
Certain Authorized Institutions or other institutions may enter into sub-transfer agency agreements
with the Trust or Goldman Sachs with respect to their services.
In the interest of economy and convenience, the Trust does not issue certificates representing
the Funds shares. Instead, the Transfer Agent maintains a record of each shareholders 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.
The Prospectuses and this SAI do not contain all the information included in the Registration
Statement filed with the SEC under the 1933 Act with respect to the securities offered by the
Prospectuses. Certain portions of the Registration Statement have been omitted from the
Prospectuses and this SAI pursuant to the rules and regulations of the SEC. The Registration
Statement including the exhibits filed therewith may be examined at the office of the SEC in
Washington, D.C.
Statements contained in the Prospectuses or in this SAI as to the contents of any contract or
other document referred to are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the Registration Statement of
which the Prospectuses and this SAI form a part, each such statement being qualified in all
respects by such reference.
Large Trade Notifications
The Transfer Agent may from time to time receive notice that an Authorized Institution or
other financial intermediary has received an order for a large trade in a Funds shares. The Fund
may determine to enter into portfolio transactions in anticipation of that order, even though the
order will not be processed until the following business day. This practice provides for a closer
correlation between the time shareholders place trade orders and the time a Fund enters into
portfolio transactions based on those orders, and permits the Fund to be more fully invested in
investment securities, in the case of purchase orders, and to more orderly liquidate their
investment positions, in the case of redemption orders. On the other hand, the Authorized
Institution or other financial intermediary may not ultimately process the order. In this case,
the Fund may be required to borrow assets to settle the portfolio transactions entered into in
anticipation of that order, and would therefore incur borrowing costs. The Fund may also suffer
investment losses on those portfolio transactions. Conversely, the Fund would benefit from any
earnings and investment gains resulting from such portfolio transactions.
Line of Credit
The Funds participate in a $580,000,000 committed, unsecured revolving line of credit facility
together with other funds of the Trust and registered investment companies having management or
investment advisory agreements with GSAM or its affiliates. Pursuant to the terms of this
facility, the Funds and other borrowers may increase the credit amount by an additional
$340,000,000, for a total of up to $920,000,000. Under the most restrictive arrangement, the Funds
must own securities having a market value in excess of 300% of each Funds total bank borrowings.
This facility is to be used for temporary emergency purposes or to allow for an orderly liquidation
of securities to meet redemption requests. The interest rate on borrowings is based on the federal
funds rate. The facility also requires a fee to be paid by the Funds based on the amount of the
commitment that has not been utilized. During the fiscal year ended March 31, 2011, the Funds did
not have any borrowings under the facility.
Corporate Actions
From time to time, the issuer of a security held in a Funds portfolio may initiate a
corporate action relating to that security. Corporate actions relating to equity securities may
include, among others, an offer to purchase new shares, or to tender existing shares, of that
security at a certain price. Corporate actions relating to debt securities may include, among
others, an offer for early redemption of the debt security, or an offer to convert the debt
security into stock. Certain corporate actions are voluntary, meaning that a Fund
B-134
may only participate in the corporate action if it elects to do so in a timely fashion.
Participation in certain corporate actions may enhance the value of a Funds investment portfolio.
In cases where a Fund or its Investment Adviser receives sufficient advance notice of a
voluntary corporate action, the Investment Adviser will exercise its discretion, in good faith, to
determine whether the Fund will participate in that corporate action. If a Fund or its Investment
Adviser does not receive sufficient advance notice of a voluntary corporate action, the Fund may
not be able to timely elect to participate in that corporate action. Participation or lack of
participation in a voluntary corporate action may result in a negative impact on the value of the
Funds investment portfolio.
FINANCIAL STATEMENTS
The audited financial statements and related report of PricewaterhouseCoopers LLP, independent
registered public accounting firm, contained in each Funds Annual Report are hereby incorporated
by reference. The audited financial statements in each Funds 2011 Annual Report have been
incorporated by reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. A copy of the 2011 Annual Report may be obtained upon request
and without charge by writing Goldman, Sachs & Co., P.O. Box 06050, Chicago, Illinois 60606 or by
calling Goldman, Sachs & Co., at the telephone number on the back cover of each Funds Prospectus.
No other portions of the Funds Annual Report are incorporated herein by reference.
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE,
PURCHASES, REDEMPTIONS, EXCHANGES AND DIVIDENDS
(Class A Shares, Class B Shares and Class C Shares Only)
The following information supplements the information in the Prospectus under the captions
Shareholder Guide and Dividends. Please see the Prospectus for more complete information.
Other Purchase Information/Sales Charge Waivers
The sales charge waivers on the Funds shares are due to the nature of the investors involved
and/or the reduced sales effort that is needed to obtain such investments.
If shares of a Fund are held in an account with an Authorized Institution, all recordkeeping,
transaction processing and payments of distributions relating to the beneficial owners account
will be performed by the Authorized Institution, and not by the Fund and its Transfer Agent. Since
the Funds will have no record of the beneficial owners transactions, a beneficial owner should
contact the Authorized Institution 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 an account with one Authorized Institution to an account with another Authorized
Institution 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 Institution.
Shareholders of the Funds of the AXA Enterprise Funds Trust, AXA Enterprise Multimanager Funds
Trust and The Enterprise Group of Funds, Inc. (AXA Funds) who (1) receive shares of a Fund of the
Trust in connection with the reorganization of the AXA Funds into the certain Funds of the Trust
and (2) fall into one of the following classes of individual or institutions that qualified to
purchase Class A Shares of the AXA Funds without a front-end sales charge will be eligible to
purchase Class A Shares of the Funds of the Trust without a front-end sales charge: (a) any
government entity that is prohibited from paying a sales charge or commission to purchase mutual
fund shares; (b) representatives and employees, or their immediate family members, of
broker-dealers and other intermediaries that previously had entered into selling or service
arrangements with the Enterprise Fund Distributors, Inc. with respect to the AXA Funds; (c)
financial institutions and other financial institutions trust departments with respect to funds
over which they exercise exclusive discretionary investment authority and which are held in
fiduciary, agency, advisory, custodial or similar capacity; (d) investors who were direct referrals
by the Enterprise Capital Management, Inc. or AXA Equitable Life Insurance Companys employees; (e)
clients of fee-based/fee-only financial advisor; and (f) certain employee benefit plans qualified
under Sections 401, 403 and 408 of the Code, or participants of such plans that invest $100,000 or
more ($500,000 or more, in the case of Traditional Individual Retirement Accounts (IRAs), IRA
rollovers, Coverdell Education Savings Accounts or Roth IRAs); and (g) certain investment only
retirement platforms for which Goldman Sachs Funds are available and certain AXA Enterprise
sponsored or AXA Enterprise partnered retirement platforms, or participants of plans on such
platforms.
Right of Accumulation (Class A)
A Class A shareholder qualifies for cumulative quantity discounts if the current purchase
price of the new investment plus the shareholders current holdings of existing Class A, Class B
and/or Class C Shares (acquired by purchase or exchange) of the Funds
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and Class A, Class B and/or Class C Shares of any other Goldman Sachs Fund total the requisite
amount for receiving a discount. For example, if a shareholder owns shares with a current market
value of $65,000 and purchases additional Class A Shares of the same Fund with a purchase price of
$45,000, the sales charge for the $45,000 purchase would be 3.0% (the rate applicable to a single
purchase of $100,000 or more). Class A, Class B and/or Class C Shares of the Funds and Class B
and/or Class C Shares of any other Goldman Sachs Fund purchased (i) by an individual, his spouse,
his parents and his children; and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for such right of accumulation and, if qualifying, the applicable sales
charge level. For purposes of applying the right of accumulation, shares of the Funds and any other
Goldman Sachs Fund purchased by an existing client of Goldman Sachs Wealth Management or GS Ayco
Holding LLC will be combined with Class A, Class B and/or Class C Shares and other assets held by
all other Goldman Sachs Wealth Management accounts or accounts of GS Ayco Holding LLC,
respectively. In addition, Class A, Class B and/or Class C Shares of the Funds and Class A, Class B
and/or Class C Shares of any other Goldman Sachs Fund purchased by partners, directors, officers or
employees of the same business organization or by groups of individuals represented by and
investing on the recommendation of the same accounting firm, certain affinity groups or other
similar organizations (collectively, eligible persons) may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation and, if qualifying, the
applicable sales charge level. This right of accumulation is subject to the following conditions:
(i) the business organizations, groups or firms 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. In addition, in connection with SIMPLE IRA
accounts, cumulative quantity discounts are available on a per plan basis if (i) your employee has
been assigned a cumulative discount number by Goldman Sachs; and (ii) your account, alone or in
combination with the accounts of other plan participants also invested in Class A, Class B and/or
Class C shares of the Goldman Sachs Funds totals the requisite aggregate amount as described in the
Prospectuses.
Shareholders of the Funds of the AXA Enterprise Funds Trust, AXA Enterprise Multimanager Funds
Trust and The Enterprise Group of Funds, Inc. (the AXA Funds) who receive shares of a Fund of the
Trust in connection with the reorganization of the AXA Funds into certain Funds of the Trust may
continue to aggregate holdings of fund shares of the investors spouse, immediate family or
accounts the investor controls, whether as a single investor or trustee, provided that the investor
or its intermediary notified the AXA Funds of the applicable accounts at the time of his/her
additional investment in the AXA Funds by providing the AXA Funds with appropriate documentation,
including the account numbers for all accounts that the investor is seeking to aggregate and the
accounts were aggregated as directed by the investor or its intermediary.
Statement of Intention (Class A)
If a shareholder anticipates purchasing at least $100,000 ($500,000 in the case of Enhanced
Income, Ultra-Short Duration Government, Short Duration Government and Short Duration Tax-Free
Funds), not counting reinvestments of dividends and distributions, of Class A Shares of a Fund
alone or in combination with Class A Shares of any other Goldman Sachs Fund within a 13-month
period, the shareholder may purchase shares of the Fund at a reduced sales charge by submitting a
Statement of Intention (the Statement). Shares purchased pursuant to a Statement will be eligible
for the same sales charge discount that would have been available if all of the purchases had been
made at the same time. The shareholder or his Authorized Institution must inform Goldman Sachs that
the Statement is in effect each time shares are purchased. There is no obligation to purchase the
full amount of shares indicated in the Statement. A shareholder may include the value of all Class
A Shares on which a sales charge has previously been paid as an accumulation credit toward the
completion of the Statement, but a price readjustment will be made only on Class A Shares purchased
within 90 days before submitting the Statement. The Statement authorizes the Transfer Agent to hold
in escrow a sufficient number of shares which can be redeemed to make up any difference in the
sales charge on the amount actually invested. For purposes of satisfying the amount specified on
the Statement, the gross amount of each investment, exclusive of any appreciation on shares
previously purchased, will be taken into account.
The provisions applicable to the Statement, and the terms of the related escrow agreement, are
set forth in Appendix C to this SAI.
Cross-Reinvestment of Dividends and Distributions
Shareholders may receive dividends and distributions in additional shares of the same class of
the Fund in which they have invested or they may elect to receive them in cash or shares of the
same class of other Goldman Sachs Funds, or Service Shares of the Goldman Sachs Financial Square
Prime Obligations Fund (Prime Obligations Fund), if they hold Class A Shares of a Fund.
A Fund shareholder should obtain and read the prospectus relating to the other Goldman Sachs
Fund or Prime Obligations Fund and its shares and consider its investment objective, policies and
applicable fees before electing cross-reinvestment into that Fund. The election to cross-reinvest
dividends and capital gain distributions will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then used to purchase
shares of the acquired fund. Such reinvestment of
B-136
dividends and distributions in shares of other Goldman Sachs Funds or Prime Obligations Fund
is available only in states where such reinvestment may legally be made.
Automatic Exchange Program
A Fund shareholder may elect to exchange automatically a specified dollar amount of shares of
the Fund for shares of the same class or an equivalent class of another Goldman Sachs Fund provided
the minimum initial investment requirement has been satisfied. A Fund shareholder should obtain and
read the prospectus relating to the other Goldman Sachs Fund and its shares and consider its
investment objective, policies and applicable fees and expenses before electing an automatic
exchange into that Goldman Sachs Fund.
Class C Exchanges
As stated in the Prospectuses, Goldman Sachs normally begins paying the annual 0.75%
distribution fee on Class C Shares to Authorized Institutions after the shares have been held for
one year. When an Authorized Institution enters into an appropriate agreement with Goldman Sachs
and stops receiving this payment on Class C Shares that have been beneficially owned by the
Authorized Institutions customers for at least ten years, those Class C Shares may be exchanged
for Class A Shares (which bear a lower distribution fee) of the same Fund at their relative net
asset value without a sales charge in recognition of the reduced payment to the Authorized
Institution.
Exchanges from Collective Investment Trusts to Funds
The Investment Adviser manages a number of collective investment trusts that hold assets of
401(k) plans and other retirement plans (each, a Collective Investment Trust). An investor in a
Collective Investment Trust (or an Intermediary acting on behalf of the investor) may elect to
exchange some or all of the interests it holds in a Collective Investment Trust for shares of one
or more of the Goldman Sachs Funds. Generally speaking, Rule 22c-1 of the Act requires a purchase
order for shares of a Goldman Sachs Fund to be priced based on the current NAV of the Goldman Sachs
Fund that is next calculated after receipt of the purchase order. A Goldman Sachs Fund will treat
a purchase order component of an exchange from an investor in a Collective Investment Trust as
being received in good order at the time it is communicated to an Intermediary or the Transfer
Agent, if the amount of shares to be purchased is expressed as a percentage of the value of the
investors interest in a designated Collective Investment Trust that it is contemporaneously
redeeming (e.g., if the investor communicates a desire to exchange 100% of its interest in a
Collective Investment Trust for shares of a Goldman Sachs Fund). The investors purchase price and
the number of Goldman Sachs Fund shares it will acquire will therefore be calculated as of the
pricing of the Collective Investment Trust on the day of the purchase order. Such an order will be
deemed to be irrevocable as of the time the Goldman Sachs Funds NAV is next calculated after
receipt of the purchase order. An investor should obtain and read the prospectus relating to any
Goldman Sachs Fund and its shares and consider its investment objective, policies and applicable
fees and expenses before electing an exchange into that Goldman Sachs Fund. For federal income tax
purposes, an exchange of interests in a Collective Investment Trust for shares of a Goldman Sachs
Fund may be subject to tax, and you should consult your tax adviser concerning the tax consequences
of an exchange.
Systematic Withdrawal Plan
A systematic withdrawal plan (the Systematic Withdrawal Plan) is available to shareholders
of a Fund whose shares are worth at least $5,000. The Systematic Withdrawal Plan provides for
monthly payments to the participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the Systematic Withdrawal Plan
are reinvested in additional full and fractional shares of the 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 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 shareholders original
investment will be correspondingly reduced and ultimately exhausted. The maintenance of a
withdrawal plan concurrently with purchases of additional Class A, Class B or Class C Shares would
be disadvantageous because of the sales charge imposed on purchases of Class A Shares or the
imposition of a CDSC on redemptions of Class A, Class B and Class C Shares. The CDSC applicable to
Class B and Class C Shares redeemed under a Systematic Withdrawal Plan may be waived. See
Shareholder Guide in the Prospectuses. In addition, each withdrawal constitutes a redemption of
shares, and any gain or loss realized must be reported for federal and state income tax purposes. A
shareholder should consult his or her own tax adviser with regard to the tax consequences of
participating in the Systematic Withdrawal Plan. For further information or to request a Systematic
Withdrawal Plan, please write or call the Transfer Agent.
B-137
Offering Price of Class A Shares
Class A Shares of High Yield, Emerging Markets Debt, High Yield Municipal and Local Emerging
Markets Debt Funds are sold at a maximum sales charge of 4.5%; Government Income, Municipal Income,
Core Fixed Income, Core Plus Fixed Income, Global Income, U.S. Mortgages, Strategic Income,
Investment Grade Credit and Inflation Protected Securities Funds at 3.75%; High Yield Floating Rate
Fund at 2.25%; Enhanced Income, Ultra-Short Duration Government, Short Duration Government and Short
Duration Tax-Free Funds at 1.5%. Using the net asset value as of March 31, 2011 and the maximum
sales charge in effect as of July 29, 2011, the maximum offering price of the Class A shares of
each Funds shares would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund |
|
Net
Asset Value |
|
|
Maximum
Sales Charge |
|
|
Offering
Price to Public |
|
Enhanced Income Fund |
|
$ |
9.60 |
|
|
|
1.50 |
% |
|
$ |
9.75 |
|
Ultra-Short Duration Government Fund |
|
$ |
8.81 |
|
|
|
1.50 |
% |
|
$ |
8.94 |
|
Short Duration Government Fund |
|
$ |
10.23 |
|
|
|
1.50 |
% |
|
$ |
10.39 |
|
Short Duration Tax-Free Fund |
|
$ |
10.44 |
|
|
|
1.50 |
% |
|
$ |
10.60 |
|
High Yield Floating Rate Fund |
|
$ |
10.00 |
|
|
|
2.25 |
% |
|
$ |
10.23 |
|
Strategic Income Fund |
|
$ |
9.79 |
|
|
|
3.75 |
% |
|
$ |
10.42 |
|
Government Income Fund |
|
$ |
14.95 |
|
|
|
3.75 |
% |
|
$ |
15.53 |
|
Municipal Income Fund |
|
$ |
14.25 |
|
|
|
3.75 |
% |
|
$ |
14.81 |
|
Core Fixed Income Fund |
|
$ |
9.79 |
|
|
|
3.75 |
% |
|
$ |
10.17 |
|
Global Income Fund |
|
$ |
12.63 |
|
|
|
3.75 |
% |
|
$ |
13.12 |
|
U.S. Mortgages Fund |
|
$ |
10.20 |
|
|
|
3.75 |
% |
|
$ |
10.60 |
|
Investment Grade Credit Fund |
|
$ |
9.50 |
|
|
|
3.75 |
% |
|
$ |
9.87 |
|
Core Plus Fixed Income Fund |
|
$ |
10.17 |
|
|
|
3.75 |
% |
|
$ |
10.57 |
|
Inflation Protected Securities Fund |
|
$ |
10.95 |
|
|
|
3.75 |
% |
|
$ |
11.38 |
|
High Yield Municipal Fund |
|
$ |
8.00 |
|
|
|
4.50 |
% |
|
$ |
8.38 |
|
High Yield Fund |
|
$ |
7.38 |
|
|
|
4.50 |
% |
|
$ |
7.73 |
|
Emerging Markets Debt Fund |
|
$ |
12.28 |
|
|
|
4.50 |
% |
|
$ |
12.86 |
|
Local Emerging Markets Debt Fund |
|
$ |
9.59 |
|
|
|
4.50 |
% |
|
$ |
10.04 |
|
The actual sales charge that is paid by an investor on the purchase of Class A Shares may
differ slightly from the sales charge listed above or in a Funds Prospectus due to rounding in the
calculations. For example, the sales load disclosed above and in the Funds Prospectuses is only
shown to one decimal place (e.g., 4.5%). The actual sales charge that is paid by an investor will
be rounded to two decimal places. As a result of such rounding in the calculations, the actual
sales load paid by an investor may be somewhat greater (4.53%) or somewhat lesser (4.48%) than that
listed above or in the Prospectuses. Contact your financial advisor for further information.
Class B
Contingent Deferred Sales Charge- Shares Received in Connection with the Expedition Funds Reorganization
Former Class B shareholders of the Expedition Investment Grade Bond Fund or Expedition
Tax-Free Investment Grade Bond Fund who received Class B Shares of the Goldman Sachs Core Fixed
Income or Goldman Sachs Municipal Income Fund in connection with the reorganization of the
Expedition Funds into the Trust will be charged a CDSC on those Goldman Sachs Fund Class B Shares
based on the CDSC schedule set forth below. Goldman Sachs Fund Class B Shares purchased by former
Expedition Fund shareholders after the effective time of the Expedition Fund reorganization will be
charged CDSCs according to the Goldman Sachs Fund CDSC schedule set forth in the Prospectuses.
|
|
|
|
|
|
|
CDSC as a Percentage of |
|
|
|
Dollar Amount Subject |
|
Year since Purchase |
|
to CDSC |
|
First |
|
|
4.00 |
% |
Second |
|
|
3.00 |
% |
Third |
|
|
3.00 |
% |
Fourth |
|
|
2.00 |
% |
Fifth |
|
|
1.00 |
% |
Sixth |
|
|
0.00 |
% |
Seventh |
|
|
0.00 |
% |
Eighth |
|
|
0.00 |
% |
B-138
Class B Shares of a Fund will automatically convert into Class A Shares of the same Fund
on or about the fifteenth day of the last month of the calendar quarter that is eight years after
the purchase date.
DISTRIBUTION AND SERVICE PLANS
(Class A Shares, Class B Shares, Class C Shares and Class R Shares Only)
Distribution and Service Plans. As described in the Prospectus, the Trust has adopted,
on behalf of Class A, Class B, Class C and Class R Shares of each Fund, distribution and service
plans (each a Plan). See Shareholder Guide Distribution and Service Fees in the
Prospectuses. The distribution fees payable under the Plans are subject to Rule 12b-1 under the Act
and finance distribution and other services that are provided to investors in the Funds and enable
the Funds to offer investors the choice of investing in either Class A, Class B, Class C or Class R
Shares when investing in the Funds. In addition, the distribution fees payable under the Plans may
be used to assist the Funds in reaching and maintaining asset levels that are efficient for the
Funds operations and investments.
The Plans for each applicable Funds Class A, Class B, Class C and Class R Shares were most
recently approved on June 16, 2011 by a majority vote of the Trustees of the Trust, including a
majority of the non-interested Trustees of the Trust who have no direct or indirect financial
interest in the Plans, cast in person at a meeting called for the purpose of approving the Plans.
The compensation for distribution services payable under a Plan to Goldman Sachs may not
exceed 0.25%, 0.75%, 0.75% and 0.50% per annum of a Funds average daily net assets attributable to
Class A, Class B, Class C and Class R Shares, respectively, of such Fund.
Under the Plans for Class B and Class C Shares, Goldman Sachs is also entitled to received a
separate fee for personal and account maintenance services equal to an annual basis of 0.25% of
each Funds average daily net assets attributable to Class B or Class C Shares. With respect to
Class A and Class R Shares, the Distributor at its discretion may use compensation for distribution
services paid under the Plan for personal and account maintenance services and expenses so long as
such total compensation under the Plan does not exceed the maximum cap on service fees imposed by
the FINRA.
As of July 29, 2011, Goldman Sachs has agreed not to impose a portion of the distribution and
service fees, pursuant to the Plans, equal to (i) 0.15% of the average daily net assets
attributable to Class B Shares of the Short Duration Government and Short Duration Tax-Free Funds;
and (ii) 0.35% of the average daily net assets attributable to Class C Shares of the Short Duration
Government and Short Duration Tax-Free Funds. Goldman Sachs may modify or discontinue such
limitations in the future, consistent with the terms of any agreements in place.
Each Plan is a compensation plan which provides for the payment of a specified fee without
regard to the expenses actually incurred by Goldman Sachs. If such fee exceeds Goldman Sachs
expenses, Goldman Sachs may realize a profit from these arrangements. The distribution fees
received by Goldman Sachs under the Plans and CDSCs (as applicable) on Class A, Class B, Class C
and Class R Shares may be sold by Goldman Sachs as distributor to entities which provide financing
for payments to Authorized Institutions in respect of sales of Class A, Class B, Class C and Class
R Shares. To the extent such fees are not paid to such dealers, Goldman Sachs may retain such fees
as compensation for its services and expenses of distributing the Funds Class A, Class B, Class C
and Class R Shares.
Under each Plan, Goldman Sachs, as distributor of each Funds Class A, Class B, Class C and
Class R Shares, will provide to the Trustees of the Trust for their review, and the Trustees of the
Trust will review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Plans and the purposes for which such services were performed
and expenditures were made.
The Plans will remain in effect until June 30, 2012 and from year to year thereafter, provided
that such continuance is approved annually by a majority vote of the Trustees of the Trust,
including a majority of the non-interested Trustees of the Trust who have no direct or indirect
financial interest in the Plans. The Plans may not be amended to increase materially the amount of
distribution compensation described therein without approval of a majority of the outstanding Class
A, Class B, Class C or Class R Shares of the affected Fund and affected share class but may be
amended without shareholder approval to increase materially the amount of non-distribution
compensation. All material amendments of a Plan must also be approved by the Trustees of the Trust
in the manner described above. A Plan may be terminated at any time as to any Fund without payment
of any penalty by a vote of a majority of the non-interested Trustees of the Trust or by vote of a
majority of the Class A, Class B, Class C or Class R Shares, respectively, of the affected Fund and
affected share class. If a Plan was terminated by the Trustees of the Trust and no successor plan
was adopted, the Fund would cease to make payments to Goldman Sachs under the Plan and Goldman
Sachs would be unable to recover the amount of any of its unreimbursed expenditures. So long as a
Plan is in effect, the selection and nomination of non-interested Trustees of the Trust will be
committed to the discretion of the non-interested Trustees of the Trust. The Trustees of the Trust
have determined that in
B-139
their judgment there is a reasonable likelihood that the Plans will benefit the Funds and
their Class A, Class B, Class C or Class R shareholders.
For the fiscal years ended March 31, 2011, March 31, 2010 and March 31, 2009, each Fund then
in existence paid Goldman Sachs the following distribution and service fees under the Class A Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Enhanced Income Fund |
|
$ |
780,113 |
|
|
$ |
551,943 |
|
|
$ |
99,500 |
|
Ultra-Short Duration Government Fund |
|
|
525,088 |
|
|
|
590,842 |
|
|
|
261,104 |
|
Short Duration Government Fund |
|
|
3,194,813 |
|
|
|
3,126,368 |
|
|
|
1,414,849 |
|
Short Duration Tax-Free Fund |
|
|
2,337,477 |
|
|
|
1,622,101 |
|
|
|
534,418 |
|
Government Income Fund |
|
|
1,219,707 |
|
|
|
1,367,410 |
|
|
|
1,285,028 |
|
Municipal Income Fund |
|
|
1,314,459 |
|
|
|
918,411 |
|
|
|
911,092 |
|
Core Fixed Income Fund |
|
|
1,937,384 |
|
|
|
1,799,260 |
|
|
|
1,761,173 |
|
Global Income Fund |
|
|
565,972 |
|
|
|
514,584 |
|
|
|
624,904 |
|
High Yield Municipal Fund |
|
|
1,009,783 |
|
|
|
2,251,173 |
|
|
|
4,627,726 |
|
High Yield Fund |
|
|
6,644,870 |
|
|
|
3,573,151 |
|
|
|
4,037,878 |
|
High Yield Floating Rate Fund1 |
|
|
0 |
|
|
|
|
|
|
|
|
|
Strategic Income Fund2 |
|
|
525,544 |
|
|
|
|
|
|
|
|
|
Emerging Markets Debt Fund |
|
|
398,474 |
|
|
|
166,595 |
|
|
|
161,004 |
|
U.S. Mortgages Fund |
|
|
20,859 |
|
|
|
23,881 |
|
|
|
17,779 |
|
Investment Grade Credit Fund |
|
|
456,004 |
|
|
|
348,857 |
|
|
|
41,601 |
|
Core Plus Fixed Income Fund |
|
|
250,584 |
|
|
|
152,400 |
|
|
|
120,029 |
|
Inflation Protected Securities Fund |
|
|
200,107 |
|
|
|
168,226 |
|
|
|
95,394 |
|
Local Emerging Markets Debt Fund |
|
|
2,099,584 |
|
|
|
213,241 |
|
|
|
53,008 |
|
|
|
|
1 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
2 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
During the fiscal year ended March 31, 2011, Goldman Sachs incurred the following
distribution expenses under the Class A Plan on behalf of the Funds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing and |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Allocable |
|
|
Mailing of |
|
|
|
|
|
|
|
|
|
|
and Expenses of |
|
|
Overhead, |
|
|
Prospectuses to |
|
|
Preparation and |
|
|
|
|
|
|
|
the Distributor |
|
|
Telephone and |
|
|
Other than |
|
|
Distribution of |
|
|
|
Compensation |
|
|
and Its Sales |
|
|
Travel |
|
|
Current |
|
|
Sales Literature |
|
Fund |
|
to Dealers1 |
|
|
Personnel |
|
|
Expenses |
|
|
Shareholders |
|
|
and Advertising |
|
High Yield Municipal Fund |
|
$ |
966,493 |
|
|
$ |
142,266 |
|
|
$ |
106,558 |
|
|
$ |
10,669 |
|
|
$ |
17,827 |
|
Municipal Income Fund |
|
|
510,731 |
|
|
|
109,534 |
|
|
|
97,448 |
|
|
|
9,757 |
|
|
|
16,303 |
|
Short Duration Tax-Free Fund |
|
|
684,736 |
|
|
|
241,933 |
|
|
|
241,874 |
|
|
|
24,218 |
|
|
|
40,466 |
|
Enhanced Income Fund |
|
|
412,360 |
|
|
|
54,715 |
|
|
|
48,171 |
|
|
|
4,823 |
|
|
|
8,059 |
|
Government Income Fund |
|
|
1,111,618 |
|
|
|
105,518 |
|
|
|
84,409 |
|
|
|
8,452 |
|
|
|
14,122 |
|
Inflation Protected Securities Fund |
|
|
118,768 |
|
|
|
9,996 |
|
|
|
8,208 |
|
|
|
822 |
|
|
|
1,373 |
|
Short Duration Government Fund |
|
|
2,388,100 |
|
|
|
368,155 |
|
|
|
305,218 |
|
|
|
30,560 |
|
|
|
51,063 |
|
Ultra-Short Duration Government Fund |
|
|
250,169 |
|
|
|
60,223 |
|
|
|
52,579 |
|
|
|
5,265 |
|
|
|
8,796 |
|
Emerging Markets Debt Fund |
|
|
352,416 |
|
|
|
59,402 |
|
|
|
43,225 |
|
|
|
4,328 |
|
|
|
7,232 |
|
High Yield Fund |
|
|
2,600,491 |
|
|
|
373,184 |
|
|
|
282,489 |
|
|
|
28,285 |
|
|
|
47,260 |
|
High Yield Floating Rate Fund2 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Strategic Income Fund3 |
|
|
183,446 |
|
|
|
29,187 |
|
|
|
33,198 |
|
|
|
3,324 |
|
|
|
5,554 |
|
Investment Grade Credit Fund |
|
|
32,576 |
|
|
|
35,295 |
|
|
|
38,469 |
|
|
|
3,852 |
|
|
|
6,436 |
|
Local Emerging Markets Debt Fund |
|
|
469,399 |
|
|
|
226,660 |
|
|
|
218,184 |
|
|
|
21,846 |
|
|
|
36,502 |
|
U.S. Mortgages Fund |
|
|
9,297 |
|
|
|
1,710 |
|
|
|
2,025 |
|
|
|
203 |
|
|
|
339 |
|
Core Fixed Income Fund |
|
|
664,280 |
|
|
|
148,759 |
|
|
|
144,373 |
|
|
|
14,456 |
|
|
|
24,154 |
|
Core Plus Fixed Income Fund |
|
|
112,241 |
|
|
|
151,869 |
|
|
|
95,904 |
|
|
|
9,603 |
|
|
|
16,045 |
|
Global Income Fund |
|
|
536,774 |
|
|
|
91,323 |
|
|
|
65,654 |
|
|
|
6,574 |
|
|
|
10,984 |
|
|
|
|
1 |
|
Advance commissions paid to dealers of 1% on Class A Shares are considered deferred assets
which are amortized over a period of eighteen months; amounts presented above reflect
amortization expense recorded during the period presented. |
|
2 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
3 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
B-140
For the fiscal years ended March 31, 2011, March 31, 2010 and March 31, 2009, each Fund
then in existence paid Goldman Sachs the following distribution and service fees under the Class B
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund1 |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Enhanced Income Fund |
|
$ |
11,803 |
|
|
$ |
18,153 |
|
|
$ |
28,753 |
|
Short Duration Government Fund2 |
|
|
18,957 |
|
|
|
43,100 |
|
|
|
57,135 |
|
Short Duration Tax-Free Fund2 |
|
|
2,662 |
|
|
|
3,558 |
|
|
|
4,505 |
|
Government Income Fund |
|
|
246,525 |
|
|
|
383,010 |
|
|
|
470,664 |
|
Municipal Income Fund |
|
|
83,310 |
|
|
|
106,277 |
|
|
|
108,042 |
|
Core Fixed Income Fund |
|
|
146,198 |
|
|
|
181,829 |
|
|
|
186,184 |
|
Global Income Fund |
|
|
41,382 |
|
|
|
60,937 |
|
|
|
82,648 |
|
High Yield Municipal Fund |
|
|
182,502 |
|
|
|
232,303 |
|
|
|
341,113 |
|
High Yield Fund |
|
|
533,075 |
|
|
|
633,897 |
|
|
|
732,676 |
|
Core Plus Fixed Income Fund |
|
|
81,732 |
|
|
|
102,723 |
|
|
|
117,987 |
|
|
|
|
1 |
|
Ultra-Short Duration Government Fund, Emerging Markets Debt Fund, Local Emerging Markets Debt
Fund, Inflation Protected Securities Fund, U.S. Mortgages Fund, High Yield Floating Rate Fund,
Strategic Income Fund and Investment Grade Credit Fund currently do not offer Class B Shares. |
|
2 |
|
Absent fee waiver arrangements then in effect, the distribution and service fees payable by
the Short Duration Government and Short Duration Tax-Free Funds would have been $50,706 and
$4,186, respectively, for the fiscal year ended March 31, 2010, and $67,218 and $5,302,
respectively, for the fiscal year ended March 31, 2009. |
For the fiscal year ended March 31, 2011, Goldman Sachs incurred the following expenses
in connection with distribution under the Class B Plan on behalf of each of the following Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preparation |
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
Printing and |
|
|
and |
|
|
|
|
|
|
|
and Expenses |
|
|
Allocable |
|
|
Mailing of |
|
|
Distribution |
|
|
|
|
|
|
|
of the |
|
|
Overhead, |
|
|
Prospectuses |
|
|
of Sales |
|
|
|
|
|
|
|
Distributor and |
|
|
Telephone |
|
|
to Other than |
|
|
Literature |
|
|
|
Compensation |
|
|
Its Sales |
|
|
And Travel |
|
|
Current |
|
|
and |
|
Fund |
|
To Dealers1 |
|
|
Personnel |
|
|
Expenses |
|
|
Shareholders |
|
|
Advertising |
|
High Yield Municipal Fund |
|
$ |
0 |
|
|
$ |
16,186 |
|
|
$ |
12,170 |
|
|
$ |
1,218 |
|
|
$ |
2,036 |
|
Municipal Income Fund |
|
|
179 |
|
|
|
7,234 |
|
|
|
5,417 |
|
|
|
542 |
|
|
|
906 |
|
Short Duration Tax-Free Fund |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Enhanced Income Fund |
|
|
0 |
|
|
|
232 |
|
|
|
164 |
|
|
|
16 |
|
|
|
28 |
|
Government Income Fund |
|
|
6,664 |
|
|
|
19,628 |
|
|
|
14,310 |
|
|
|
1,433 |
|
|
|
2,394 |
|
Short Duration Government Fund |
|
|
0 |
|
|
|
2,265 |
|
|
|
1,634 |
|
|
|
164 |
|
|
|
273 |
|
High Yield Fund |
|
|
0 |
|
|
|
49,918 |
|
|
|
37,723 |
|
|
|
3,777 |
|
|
|
6,311 |
|
Core Fixed Income Fund |
|
|
286 |
|
|
|
11,485 |
|
|
|
8,324 |
|
|
|
833 |
|
|
|
1,393 |
|
Core Plus Fixed Income Fund |
|
|
0 |
|
|
|
3,073 |
|
|
|
2,125 |
|
|
|
213 |
|
|
|
356 |
|
Global Income Fund |
|
|
0 |
|
|
|
3,783 |
|
|
|
2,730 |
|
|
|
273 |
|
|
|
457 |
|
|
|
|
1 |
|
Advance commissions paid to dealers of 4% on Class B Shares are considered deferred assets
which are amortized over a period of six years; amounts presented above reflect amortization
expense recorded during the period presented. |
For the fiscal years ended March 31, 2011, March 31, 2010 and March 31, 2009, each Fund
then in existence paid Goldman Sachs the following distribution and service fees under the Class C
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund1 |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Short Duration Government Fund |
|
$ |
1,172,895 |
|
|
$ |
1,573,803 |
|
|
$ |
651,730 |
|
Short Duration Tax-Free Fund |
|
|
375,443 |
|
|
|
293,062 |
|
|
|
102,155 |
|
Government Income Fund |
|
|
388,652 |
|
|
|
395,569 |
|
|
|
326,753 |
|
Municipal Income Fund |
|
|
267,763 |
|
|
|
233,296 |
|
|
|
201,384 |
|
Core Fixed Income Fund |
|
|
325,580 |
|
|
|
302,724 |
|
|
|
253,393 |
|
Global Income Fund |
|
|
81,417 |
|
|
|
60,455 |
|
|
|
55,764 |
|
High Yield Municipal Fund |
|
|
1,139,686 |
|
|
|
1,080,223 |
|
|
|
1,301,807 |
|
High Yield Fund |
|
|
1,105,997 |
|
|
|
1,013,698 |
|
|
|
851,463 |
|
High Yield Floating Rate Fund2 |
|
|
0 |
|
|
|
|
|
|
|
|
|
Strategic Income Fund3 |
|
|
138,466 |
|
|
|
|
|
|
|
|
|
B-141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund1 |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Emerging Markets Debt Fund |
|
|
222,723 |
|
|
|
46,918 |
|
|
|
18,200 |
|
Core Plus Fixed Income Fund |
|
|
125,620 |
|
|
|
121,079 |
|
|
|
105,933 |
|
Inflation Protected Securities Fund |
|
|
218,633 |
|
|
|
134,552 |
|
|
|
57,492 |
|
Local Emerging Markets Debt Fund |
|
|
68,392 |
|
|
|
2133 |
|
|
|
721 |
|
|
|
|
1 |
|
Enhanced Income Fund, Ultra-Short Duration Government Fund, U.S. Mortgages Fund and Investment Grade Credit Fund currently do not offer Class C Shares. |
|
2 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
3 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
During the fiscal year ended March 31, 2011, Goldman Sachs incurred the following
expenses in connection with distribution under the Class C Plan on behalf of each of the following
Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing and |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Allocable |
|
|
Mailing of |
|
|
|
|
|
|
|
|
|
|
and Expenses of |
|
|
Overhead, |
|
|
Prospectuses to |
|
|
Preparation and |
|
|
|
|
|
|
|
the Distributor |
|
|
Telephone |
|
|
Other than |
|
|
Distribution of |
|
|
|
Compensation |
|
|
and Its Sales |
|
|
and Travel |
|
|
Current |
|
|
Sales Literature |
|
Fund |
|
to Dealer1 |
|
|
Personnel |
|
|
Expenses |
|
|
Shareholders |
|
|
and Advertising |
|
High Yield Municipal Fund |
|
$ |
0 |
|
|
$ |
44,279 |
|
|
$ |
33,278 |
|
|
$ |
3,332 |
|
|
$ |
5,567 |
|
Municipal Income Fund |
|
|
4 |
|
|
|
9,910 |
|
|
|
7,378 |
|
|
|
739 |
|
|
|
1,234 |
|
Short Duration Tax-Free Fund |
|
|
0 |
|
|
|
14,892 |
|
|
|
11,194 |
|
|
|
1,121 |
|
|
|
1,873 |
|
Government Income Fund |
|
|
9,857 |
|
|
|
6,944 |
|
|
|
5,249 |
|
|
|
526 |
|
|
|
878 |
|
Inflation Protected Securities Fund |
|
|
0 |
|
|
|
4,070 |
|
|
|
3,041 |
|
|
|
305 |
|
|
|
509 |
|
Short Duration Government Fund |
|
|
4,909 |
|
|
|
51,366 |
|
|
|
37,515 |
|
|
|
3,756 |
|
|
|
6,276 |
|
Emerging Markets Debt Fund |
|
|
89 |
|
|
|
10,720 |
|
|
|
7,956 |
|
|
|
797 |
|
|
|
1,331 |
|
High Yield Fund |
|
|
0 |
|
|
|
48,043 |
|
|
|
36,583 |
|
|
|
3,663 |
|
|
|
6,120 |
|
High Yield Floating Rate Fund2 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Strategic Income Fund3 |
|
|
0 |
|
|
|
844 |
|
|
|
622 |
|
|
|
62 |
|
|
|
104 |
|
Local Emerging Markets Debt Fund |
|
|
0 |
|
|
|
1,888 |
|
|
|
1,360 |
|
|
|
136 |
|
|
|
228 |
|
Core Fixed Income Fund |
|
|
0 |
|
|
|
9,085 |
|
|
|
6,610 |
|
|
|
662 |
|
|
|
1,106 |
|
Core Plus Fixed Income Fund |
|
|
0 |
|
|
|
1,012 |
|
|
|
721 |
|
|
|
72 |
|
|
|
121 |
|
Global Income Fund |
|
|
206 |
|
|
|
576 |
|
|
|
424 |
|
|
|
42 |
|
|
|
71 |
|
|
|
|
1 |
|
Advance commissions paid to dealers of 1% on Class C Shares are considered deferred assets
which are amortized over a period of one year; amounts presented above reflect amortization
expense recorded during the period presented. |
|
2 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
3 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
For the fiscal years ended March 31, 2011, March 31, 2010 and March 31, 2009, each Fund
then in existence paid Goldman Sachs the following distribution and service fees under the Class R
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund1 |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Government Income Fund |
|
$ |
48,549 |
|
|
$ |
8,123 |
|
|
$ |
73 |
|
Core Fixed Income Fund |
|
|
79 |
|
|
|
57 |
|
|
|
46 |
|
Inflation Protected Securities Fund |
|
|
3,081 |
|
|
|
525 |
|
|
|
50 |
|
High Yield Fund |
|
|
47,987 |
|
|
|
5,819 |
|
|
|
338 |
|
High Yield Floating Rate Fund2 |
|
|
0 |
|
|
|
|
|
|
|
|
|
Strategic Income Fund3 |
|
|
38 |
|
|
|
|
|
|
|
|
|
Core Plus Fixed Income Fund |
|
|
191 |
|
|
|
131 |
|
|
|
48 |
|
|
|
|
1 |
|
Enhanced Income Fund, Ultra-Short Duration Government Fund, Short-Duration Government Fund,
Short-Duration Tax-Free Fund, Municipal Income Fund, Global Income Fund, High Yield Municipal
Fund, Emerging Markets Debt Fund, Local Emerging Markets Debt Fund, U.S. Mortgages Fund and
Investment Grade Credit Fund currently do not offer Class R Shares. |
|
2 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
3 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
B-142
During the fiscal year ended March 31, 2011, Goldman Sachs incurred the following
expenses in connection with distribution under the Class R Plan on behalf of each of the following
Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing and |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Allocable |
|
|
Mailing of |
|
|
|
|
|
|
|
|
|
|
and Expenses of |
|
|
Overhead, |
|
|
Prospectuses to |
|
|
Preparation and |
|
|
|
|
|
|
|
the Distributor |
|
|
Telephone |
|
|
Other than |
|
|
Distribution of |
|
|
|
Compensation |
|
|
and Its Sales |
|
|
and Travel |
|
|
Current |
|
|
Sales Literature |
|
Fund |
|
to Dealer |
|
|
Personnel |
|
|
Expenses |
|
|
Shareholders |
|
|
and Advertising |
|
Core Fixed Income Fund |
|
$ |
34 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Government Income Fund |
|
|
24,806 |
|
|
|
856 |
|
|
|
793 |
|
|
|
79 |
|
|
|
133 |
|
High Yield Fund |
|
|
24,080 |
|
|
|
785 |
|
|
|
849 |
|
|
|
85 |
|
|
|
142 |
|
High Yield Floating Rate Fund1 |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Strategic Income Fund2 |
|
|
21 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Core Plus Fixed Income Fund |
|
|
77 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Inflation Protected Securities Fund |
|
|
1402 |
|
|
|
2 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
1 |
|
High Yield Floating Rate Fund commenced operations on March 31, 2011. |
|
2 |
|
Strategic Income Fund commenced operations on June 30, 2010. |
SERVICE PLAN AND SHAREHOLDER ADMINISTRATION PLAN
(Service Shares Only)
Each Fund that offers Service Shares has adopted a service plan and a separate shareholder
administration plan (the Plans) with respect to its Service Shares which authorize it to
compensate Authorized Institutions for providing personal and account maintenance services and
shareholder administration services to their customers who are or may become beneficial owners of
such Shares. Pursuant to the Plans, a Fund will enter into agreements with Authorized Institutions
which purchase Service Shares of the Fund on behalf of their customers (Service Agreements).
Under such Service Agreements, the Authorized Institutions may perform some or all of the following
services:
(a) Personal and account maintenance services, including: (i) providing facilities to answer
inquiries and respond to correspondence with customers and other investors about the status of
their accounts or about other aspects of the Trust or the applicable Fund; (ii) acting as
liaison between the Authorized Institutions customers and the Trust, including obtaining
information from the Trust and assisting the Trust in correcting errors and resolving problems;
(iii) providing such statistical and other information as may be reasonably requested by the
Trust or necessary for the Trust to comply with applicable federal or state law; (iv) responding
to investor requests for prospectuses; (v) displaying and making prospectuses available on the
Authorized Institutions premises; and (vi) assisting customers in completing application forms,
selecting dividend and other account options and opening custody accounts with the Authorized
Institution.
(b) Shareholder administration services, including: (i) acting or arranging for another party to
act, as recordholder and nominee of the Service Shares beneficially owned by the Authorized
Institutions customers; (ii) establishing and maintaining or assist in establishing and
maintaining individual accounts and records with respect to the Service Shares owned by each
customer; (iii) processing or assist in processing confirmations concerning customer orders to
purchase, redeem and exchange Service Shares; (iv) receiving and transmitting or assist in
receiving and transmitting funds representing the purchase price or redemption proceeds of such
Service Shares; (v) facilitating the inclusion of Service Shares in accounts, products or
services offered to the Authorized Institutions customers by or through the Authorized
Institution; (vi) processing dividend payments on behalf of customers; and (vii) performing
other related services which do not constitute any activity which is primarily intended to
result in the sale of shares within the meaning of Rule 12b-1 under the Act or personal and
account maintenance services within the meaning of the FINRAs Conduct Rules.
As compensation for such services, a Fund will pay each Authorized Institution a personal and
account maintenance service fee and a shareholder administration service fee in an amount up to
0.25% and 0.25%, respectively (on an annualized basis), of the average daily net assets of the
Service Shares of such Fund attributable to or held in the name of such Authorized Institution.
The amount of the service and shareholder administration fees paid by each Fund then in
existence to Authorized Institutions pursuant to the Plans was as follows for the fiscal years
ended March 31, 2011, March 31, 2010 and March 31, 2009:
B-143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
|
Fiscal year ended |
|
Fund1 |
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Ultra-Short Duration Government |
|
$ |
7,730 |
|
|
$ |
12,556 |
|
|
$ |
16,308 |
|
Short Duration Government |
|
|
803,936 |
|
|
|
688,064 |
|
|
|
429,250 |
|
Short Duration Tax-Free |
|
|
122,974 |
|
|
|
35,916 |
|
|
|
260 |
|
Government Income |
|
|
520,980 |
|
|
|
483,890 |
|
|
|
370,856 |
|
Municipal Income |
|
|
926 |
|
|
|
1,240 |
|
|
|
1,296 |
|
Core Fixed Income |
|
|
23,452 |
|
|
|
32,540 |
|
|
|
82,866 |
|
Global Income |
|
|
490 |
|
|
|
1,068 |
|
|
|
1,384 |
|
High Yield |
|
|
107,582 |
|
|
|
47,840 |
|
|
|
61,410 |
|
Core Plus Fixed Income |
|
|
60 |
|
|
|
56 |
|
|
|
50 |
|
|
|
|
(1) |
|
Enhanced Income Fund, U.S. Mortgages Fund, Investment Grade Credit Fund, Emerging Markets
Debt Fund, Local Emerging Markets Debt Fund, High Yield Floating Rate Fund, Strategic Income
Fund and Inflation Protected Securities Fund currently do not offer Service Shares. |
The Funds offering Service Shares have adopted the Service Plan but not the Shareholder
Administration Plan pursuant to Rule 12b-1 under the Act in order to avoid any possibility that
service fees paid to the Authorized Institutions pursuant to the Service Agreements might violate
the Act. Rule 12b-1, which was adopted by the SEC under the Act, regulates the circumstances under
which an investment company or series thereof may bear expenses associated with the distribution of
its shares. In particular, such an investment company or series thereof cannot engage directly or
indirectly in financing any activity which is primarily intended to result in the sale of shares
issued by the company unless it has adopted a plan pursuant to, and complies with the other
requirements of, such Rule. The Trust believes that fees paid for the services provided in the
service plan and described above are not expenses incurred primarily for effecting the distribution
of Service Shares. However, should such payments be deemed by a court or the SEC to be distribution
expenses, such payments would be duly authorized by the service plan. The Shareholder
Administration Plan has not been adopted pursuant to Rule 12b-1 under the Act.
Conflict of interest restrictions (including the Employee Retirement Income Security Act of
1974, as amended) may apply to a Authorized Institutions receipt of compensation paid by a Fund in
connection with the investment of fiduciary assets in Service Shares of such Fund. Authorized
Institutions, including banks regulated by the Comptroller of the Currency, the Federal Reserve
Board or the Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or state securities
regulators, are urged to consult their legal advisers before investing fiduciary assets in Service
Shares of the Funds. In addition, under some state securities laws, banks and other financial
institutions purchasing Service Shares on behalf of their customers may be required to register as
dealers.
The Trustees, including a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the Plans or the related
Service Agreements, most recently voted to approve each Funds Plans and Service Agreements at a
meeting called for the purpose of voting on such Plans and Service Agreements on June 16, 2011. The
Plans and Service Agreements will remain in effect until June 30, 2012, and will continue in effect
thereafter only if such continuance is specifically approved annually by a vote of the Board of
Trustees in the manner described above. The service plan may not be amended (but the shareholder
administration plan may be amended) to increase materially the amount to be spent for the services
described therein without approval of the shareholders of the affected Fund, and all material
amendments of each Plan must also be approved by the Board of Trustees in the manner described
above. The Plans may be terminated at any time by a majority of the Trustees who are not interested
person of the Trust and who have no direct or indirect financial interest in the operation of the
Plans and Service Agreements or by vote of a majority of the outstanding Service Shares of the
affected Fund. The Service Agreements may be terminated at any time, without payment of any
penalty, by vote of a majority of such Trustees or by a vote of a majority of the outstanding
Service Shares of the affected Fund on not more than 60 days written notice to any other party to
the Service Agreements. The Service Agreements will terminate automatically if assigned. So long
as the Plans are in effect, the selection and nomination of those Trustees who are not interested
persons will be committed to the discretion of the Trusts Governance and Nominating Committee,
which consists of all of the non-interested members of the Board of Trustees. The Board of Trustees
has determined that, in its judgment, there is a reasonable likelihood that the Plans will benefit
the Funds and the holders of Service Shares.
During the fiscal year ended March 31, 2011, Goldman Sachs incurred the following expenses in
connection with distribution under the Service Plan of each of the following Funds with Service
Shares:
B-144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing and |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Allocable |
|
|
Mailing of |
|
|
|
|
|
|
|
|
|
|
and Expenses of |
|
|
Overhead, |
|
|
Prospectuses to |
|
|
Preparation and |
|
|
|
|
|
|
|
the Distributor |
|
|
Telephone |
|
|
Other than |
|
|
Distribution of |
|
|
|
Compensation |
|
|
and Its Sales |
|
|
and Travel |
|
|
Current |
|
|
Sales Literature |
|
Fund |
|
to Dealer |
|
|
Personnel |
|
|
Expenses |
|
|
Shareholders |
|
|
and Advertising |
|
Ultra-Short Duration Government Fund |
|
$ |
17 |
|
|
$ |
364 |
|
|
$ |
273 |
|
|
$ |
27 |
|
|
$ |
46 |
|
Short Duration Government Fund |
|
|
0 |
|
|
|
38,481 |
|
|
|
29,648 |
|
|
|
2,969 |
|
|
|
4,960 |
|
Short Duration Tax-Free Fund |
|
|
0 |
|
|
|
7,557 |
|
|
|
5,708 |
|
|
|
572 |
|
|
|
955 |
|
Government Income Fund1 |
|
|
0 |
|
|
|
26,725 |
|
|
|
20,115 |
|
|
|
2,014 |
|
|
|
3,365 |
|
Municipal Income Fund2 |
|
|
0 |
|
|
|
13 |
|
|
|
13 |
|
|
|
1 |
|
|
|
2 |
|
Core Fixed Income Fund |
|
|
0 |
|
|
|
308 |
|
|
|
266 |
|
|
|
27 |
|
|
|
44 |
|
Core Plus Fixed Income Fund |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Global Income Fund |
|
|
0 |
|
|
|
28 |
|
|
|
22 |
|
|
|
2 |
|
|
|
4 |
|
High Yield Fund |
|
|
132 |
|
|
|
3,625 |
|
|
|
3,507 |
|
|
|
351 |
|
|
|
587 |
|
ADMINISTRATION PLAN
(Administration Shares Only)
The Enhanced Income Fund has adopted an administration plan (the Plan) with respect to its
Administration Shares which authorizes it to compensate Authorized Institutions for providing
certain account administration services to their customers who are beneficial owners of such
Shares. Pursuant to the Plan, the Fund enters into agreements with Authorized Institutions which
purchase Administration Shares on behalf of their customers (Service Agreements). Under such
Service Agreements the Authorized Institutions may agree to perform some or all of the following
services: (a) act, directly or through an agent, as the shareholder of record and nominee for
customers; (b) maintain account records for customers who beneficially own Administration Shares of
the Fund; (c) receive and transmit, or assist in receiving and transmitting, funds for purchases
and redemptions; (d) provide facilities to answer questions and handle correspondence from
customers regarding their accounts; and (e) issue, or assist in issuing, confirmations for
transactions in shares by customers. As compensation for such services, the Fund will pay each
Authorized Institution an account administration fee in an amount up to 0.25% (on an annualized
basis) of the average daily net assets of the Administration Shares of the Fund attributable to or
held in the name of such Authorized Institution.
For the fiscal years ended March 31, 2011, March 31, 2010 and March 31, 2009, fees of $9,929,
$6,799 and $680 were paid by the Enhanced Income Fund under the Plan, respectively.
Conflict of interest restrictions (including the Employee Retirement Income Security Act of
1974, as amended) may apply to a Authorized Institutions receipt of compensation paid by a Fund in
connection with the investment of fiduciary assets in Administration Shares of the Fund. Authorized
Institutions, including banks regulated by the Comptroller of the Currency, the Federal Reserve
Board or the Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing fiduciary assets in
Administration Shares of the Fund. In addition, under some state securities laws, banks and other
financial institutions purchasing Administration Shares on behalf of their customers may be
required to register as dealers.
The Board of Trustees, including a majority of the Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the operation of the Plan or the
related Service Agreements, most recently voted to approve the Plan and Service Agreements with
respect to the Fund at a meeting called for the purpose of voting on such Plan and Service
Agreements on June 16, 2011. The Plan and Service Agreements will remain in effect until June 30,
2012 and will continue in effect thereafter only if such continuance is specifically approved
annually by a vote of the Board of Trustees in the manner described above.
Unless approved by the Board of Trustees in the manner described above, the Plan may not be
amended to increase materially the amount to be spent for the services described therein and other
material amendments of the Plan may not be made. The Plan may be terminated at any time by a
majority of the Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or the related Service Agreements or by
vote of a majority of the Funds outstanding Administration Shares. The Service Agreements may be
terminated at any time, without payment of any penalty, by a vote of a majority of such Trustees or
by a vote of a majority of the outstanding Administration Shares of the Fund on not more than 60
days written notice to any other party to the Service Agreements. The Service Agreements will
terminate automatically if assigned. So long as the Plan is in effect, the selection and nomination
of those Trustees who are not interested persons will be committed to the discretion of the
non-interested Trustees of the Trust. The Board of Trustees has determined that, in its judgment,
there is a reasonable likelihood that the Plan will benefit the Fund and the holders of its
Administration Shares.
B-145
ACCOUNT SERVICE PLAN
(Class A and Institutional Shares Only)
The U.S. Mortgages and Investment Grade Credit Funds had adopted account service plans (the
Plans) with respect to their Class A and Institutional Shares which authorized them to compensate
Goldman Sachs for providing certain account services, personal and account maintenance services,
and other services performed and expenses incurred by Goldman Sachs that were intended to
facilitate or improve the provision of account services and/or personal and account maintenance
services of Authorized Institutions to their customers who are beneficial owners of such Shares
(Customers). Effective December 1, 2010, the Plans were terminated with respect to Class A and
Institutional Shares for U.S. Mortgages and Investment Grade Credit Funds.
Account services under the Plans included, without limitation, (a) acting or arranging for
another party to act, as recordholder and nominee of Class A or Institutional Shares beneficially
owned by Customers; (b) establishing and maintaining or assist in establishing and maintaining
individual accounts and records with respect to Class A or Institutional Shares owned by each
Customer; (c) processing or assist in processing confirmations concerning customer orders to
purchase, redeem and exchange Class A or Institutional Shares; (d) receiving and transmitting or
assist in receiving and transmitting funds representing the purchase price or redemption proceeds
of such Class A or Institutional Shares; (e) providing services to Customers intended to facilitate
or improve their understanding of the benefits and risks of a Fund to Customers; (f) facilitating
or assist in facilitating electronic or computer trading and/or processing in a Fund or providing
or assist in providing electronic, computer or other information regarding a Fund to Customers; and
(g) performing other related services which do not constitute any activity which is primarily
intended to result in the sale of shares within the meaning of Rule 12b-1 under the Act or
personal and account maintenance services within the meaning of the FINRAs Conduct Rules.
Personal and account maintenance services under the Plans included, without limitation, (a)
providing facilities to answer inquiries and respond to correspondence with Customers and other
investors about the status of their accounts or about other aspects of the Trust or the applicable
Fund; (b) acting as liaison between Customers and the Trust, including obtaining information from
the Trust and assisting the Trust in correcting errors and resolving problems; (c) providing such
statistical and other information as may be reasonably requested by the Trust or necessary for the
Trust to comply with applicable federal or state law; (d) responding to investor requests for
Prospectuses; (e) displaying and making Prospectuses available on the Authorized Institutions
premises; (f) assisting Customers in completing application forms, selecting dividend and other
account options and operating custody accounts with the Authorized Institutions; and (g) performing
other related services which constitute personal and account maintenance services within the
meaning of the FINRAs Conduct Rules but do not constitute any activity which is primarily
intended to result in the sale of shares within the meaning of Rule 12b-1 under the Act.
As compensation for such services, each Fund paid Goldman Sachs an account service fee in an
amount up to 0.05% (on an annualized basis) of the average daily net assets of the Class A or
Institutional Shares of such Fund. The Plans provided for account service fees to Goldman Sachs
without regard to the expenses actually incurred by Goldman Sachs. If the fees exceeded Goldman
Sachs expenses, Goldman Sachs may have realized a profit from these arrangements. Goldman Sachs
determined the amount (if any) of the account service fee that was paid to one or more Authorized
Institutions. Payments to Authorized Institutions were subject to agreements entered into with
Goldman Sachs (Service Agreements). In no event did the amount paid to Goldman Sachs or any
Authorized Institution under the Plan for Class A Shares and the Trusts Class A Distribution and
Service Plan for personal and account maintenance services and expenses exceed the maximum limit
on service fees as those terms are defined in Section 2830 of the Conduct Rules of the FINRA. For
the fiscal years ended March 31, 2011, March 31, 2010 and March 31, 2009, the U.S. Mortgages and
Investment Grade Credit Funds paid the following in fees pursuant to the Plans.
|
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|
|
|
|
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|
|
|
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Fiscal Year ended |
|
|
Fiscal Year ended |
|
|
Fiscal Year ended |
|
|
|
March 31, 20111 |
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
Fund |
|
Institutional |
|
|
Class A |
|
|
Institutional |
|
|
Class A |
|
|
Institutional |
|
|
Class A |
|
U.S. Mortgages Fund |
|
$ |
19,707 |
|
|
$ |
3,171 |
|
|
$ |
45,082 |
|
|
$ |
4,776 |
|
|
$ |
45,082 |
|
|
$ |
3,556 |
|
Investment Grade Credit Fund |
|
$ |
66,781 |
|
|
$ |
63,483 |
|
|
$ |
62,010 |
|
|
$ |
69,772 |
|
|
$ |
62,010 |
|
|
$ |
8,320 |
|
|
|
|
1 |
|
Effective December 1, 2010, the Account Service Plans were terminated with respect to Class A and
Institutional Shares. |
B-146
APPENDIX A:
DESCRIPTION OF SECURITIES RATINGS
Short-Term Credit Ratings
A Standard & Poors short-term issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation having an original
maturity of no more than 365 days. The following summarizes the rating categories used by Standard
& Poors for short-term issues:
A-1 A short-term obligation rated A-1 is rated in the highest category by Standard &
Poors. The obligors capacity to meet its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus sign (+). This indicates that the
obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the obligors capacity to meet its financial commitment on the obligation is
satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. Ratings of B-1, B-2, and B-3 may be assigned to indicate finer distinctions
within the B category. The obligor currently has the capacity to meet its financial commitment on
the obligation; however, it faces major ongoing uncertainties which could lead to the obligors
inadequate capacity to meet its financial commitment on the obligation.
B-1 A short-term obligation rated B-1 is regarded as having significant speculative
characteristics, but the obligor has a relatively stronger capacity to meet its financial
commitments over the short-term compared to other speculative-grade obligors.
B-2 A short-term obligation rated B-2 is regarded as having significant speculative
characteristics, and the obligor has an average speculative-grade capacity to meet its financial
commitments over the short-term compared to other speculative-grade obligors.
B-3 A short-term obligation rated B-3 is regarded as having significant speculative
characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments
over the short-term compared to other speculative-grade obligors.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D A short-term obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the applicable grace
period has not expired, unless Standard & Poors believes that such payments will be made during
such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks Country risk considerations are a standard part
of Standard & Poors analysis for credit ratings on any issuer or issue. Currency of repayment is a
key factor in this analysis. An obligors capacity to repay foreign currency obligations may be
lower than its capacity to repay obligations in its local currency due to the sovereign
governments own relatively lower capacity to repay external versus domestic debt. These sovereign
risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign
Currency issuer ratings are also distinguished from local currency issuer ratings to identify those
instances where sovereign risks make them different for the same issuer.
Moodys Investors Service (Moodys) short-term ratings are opinions of the ability of
issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations generally have an original
maturity not exceeding thirteen months, unless explicitly noted.
Moodys employs the following designations to indicate the relative repayment ability of rated
issuers:
P-1 Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2 Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
P-3 Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.
1-A
NP Issuers (or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories.
Fitch, Inc. / Fitch Ratings Ltd. (Fitch) short-term ratings scale applies to foreign
currency and local currency ratings. A short-term rating has a time horizon of less than 13 months
for most obligations, or up to three years for U.S. public finance, in line with industry
standards, to reflect unique risk characteristics of bond, tax, and revenue anticipation notes that
are commonly issued with terms up to three years. Short-term ratings thus place greater emphasis on
the liquidity necessary to meet financial commitments in a timely manner. The following summarizes
the rating categories used by Fitch for short-term obligations:
F1 Securities possess the highest credit quality. This designation indicates the
strongest capacity for timely payment of financial commitments; may have an added + to denote any
exceptionally strong credit feature.
F2 Securities possess good credit quality. This designation indicates a satisfactory
capacity for timely payment of financial commitments, but the margin of safety is not as great as
in the case of the higher ratings.
F3 Securities possess fair credit quality. This designation indicates that the capacity
for timely payment of financial commitments is adequate; however, near term adverse changes could
result in a reduction to non investment grade.
B Securities possess speculative credit quality. This designation indicates minimal
capacity for timely payment of financial commitments, plus vulnerability to near term adverse
changes in financial and economic conditions.
C Securities possess high default risk. Default is a real possibility. This designation
indicates a capacity for meeting financial commitments which is solely reliant upon a sustained,
favorable business and economic environment.
D Indicates an entity or sovereign that has defaulted on all of its financial
obligations.
NR This designation indicates that Fitch does not publicly rate the associated issuer or
issue.
WD This designation indicates that the rating has been withdrawn and is no longer
maintained by Fitch.
The following summarizes the ratings used by Dominion Bond Rating Service Limited (DBRS) for
commercial paper and short-term debt:
R-1 (high) Short-term debt rated R-1 (high) is of the highest credit quality, and
indicates an entity possessing unquestioned ability to repay current liabilities as they fall due.
Entities rated in this category normally maintain strong liquidity positions, conservative debt
levels, and profitability that is both stable and above average. Companies achieving an R-1
(high) rating are normally leaders in structurally sound industry segments with proven track
records, sustainable positive future results, and no substantial qualifying negative factors. Given
the extremely tough definition DBRS has established for an R-1 (high), few entities are strong
enough to achieve this rating.
R-1 (middle) Short-term debt rated R-1 (middle) is of superior credit quality and, in
most cases, ratings in this category differ from R-1 (high) credits by only a small degree. Given
the extremely tough definition DBRS has established for the R-1 (high) category, entities rated
R-1 (middle) are also considered strong credits, and typically exemplify above average strength
in key areas of consideration for the timely repayment of short-term liabilities.
R-1 (low) Short-term debt rated R-1 (low) is of satisfactory credit quality. The
overall strength and outlook for key liquidity, debt and profitability ratios are not normally as
favorable as with higher rating categories, but these considerations are still respectable. Any
qualifying negative factors that exist are considered manageable, and the entity is normally of
sufficient size to have some influence in its industry.
R-2 (high) Short-term debt rated R-2 (high) is considered to be at the upper end of
adequate credit quality. The ability to repay obligations as they mature remains acceptable,
although the overall strength and outlook for key liquidity, debt, and profitability ratios is not
as strong as credits rated in the R-1 (low) category. Relative to the latter category, other
shortcomings often include areas such as stability, financial flexibility, and the relative size
and market position of the entity within its industry.
R-2 (middle) Short-term debt rated R-2 (middle) is considered to be of adequate credit
quality. Relative to the R-2 (high) category, entities rated R-2 (middle) typically have some
combination of higher volatility, weaker debt or liquidity positions, lower future cash flow
capabilities, or are negatively impacted by a weaker industry. Ratings in this category would be
more vulnerable to adverse changes in financial and economic conditions.
R-2 (low) Short-term debt rated R-2 (low) is considered to be at the lower end of
adequate credit quality, typically having some combination of challenges that are not acceptable
for an R-2 (middle) credit. However, R-2 (low) ratings still display a level of credit strength
that allows for a higher rating than the R-3 category, with this distinction often reflecting the
issuers liquidity profile.
2-A
R-3 Short-term debt rated R-3 is considered to be at the lowest end of adequate credit
quality, one step up from being speculative. While not yet defined as speculative, the R-3
category signifies that although repayment is still expected, the certainty of repayment could be
impacted by a variety of possible adverse developments, many of which would be outside the issuers
control. Entities in this area often have limited access to capital markets and may also have
limitations in securing alternative sources of liquidity, particularly during periods of weak
economic conditions.
R-4 Short-term debt rated R-4 is speculative. R-4 credits tend to have weak liquidity
and debt ratios, and the future trend of these ratios is also unclear. Due to its speculative
nature, companies with R-4 ratings would normally have very limited access to alternative sources
of liquidity. Earnings and cash flow would typically be very unstable, and the level of overall
profitability of the entity is also likely to be low. The industry environment may be weak, and
strong negative qualifying factors are also likely to be present.
R-5 Short-tern debt rated R-5 is highly speculative. There is a reasonably high level
of uncertainty as to the ability of the entity to repay the obligations on a continuing basis in
the future, especially in periods of economic recession or industry adversity. In some cases, short
term debt rated R-5 may have challenges that if not corrected, could lead to default.
D A security rated D implies the issuer has either not met a scheduled payment or the
issuer has made it clear that it will be missing such a payment in the near future. In some cases,
DBRS may not assign a D rating under a bankruptcy announcement scenario, as allowances for grace
periods may exist in the underlying legal documentation. Once assigned, the D rating will
continue as long as the missed payment continues to be in arrears, and until such time as the
rating is discontinued or reinstated by DBRS.
Long-Term Credit Ratings
The following summarizes the ratings used by Standard & Poors for long-term issues:
AAA An obligation rated AAA has the highest rating assigned by Standard & Poors. The
obligors capacity to meet its financial commitment on the obligation is extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only to a small
degree. The obligors capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated categories. However, the
obligors capacity to meet its financial commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to the obligors inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will likely impair the obligors capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or economic conditions,
the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C A C rating is assigned to obligations that are currently highly vulnerable to
nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or
obligations of an issuer that is the subject of a bankruptcy petition or similar action which have
not experienced a payment default. Among others, the C rating may be assigned to subordinated
debt, preferred stock or other obligations on which cash payments have been suspended in accordance
with the instruments terms.
3-A
D An obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poors believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the major rating categories.
NR This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poors does not rate a particular
obligation as a matter of policy.
Local Currency and Foreign Currency Risks Country risk considerations are a standard part
of Standard & Poors analysis for credit ratings on any issuer or issue. Currency of repayment is a
key factor in this analysis. An obligors capacity to repay foreign currency obligations may be
lower than its capacity to repay obligations in its local currency due to the sovereign
governments own relatively lower capacity to repay external versus domestic debt. These sovereign
risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign
currency issuer ratings are also distinguished from local currency issuer ratings to identify those
instances where sovereign risks make them different for the same issuer.
The following summarizes the ratings used by Moodys for long-term debt:
Aaa Obligations rated Aaa are judged to be of the highest quality, with minimal credit
risk.
Aa Obligations rated Aa are judged to be of high quality and are subject to very low
credit risk.
A Obligations rated A are considered upper-medium grade and are subject to low credit
risk.
Baa Obligations rated Baa are subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics.
Ba Obligations rated Ba are judged to have speculative elements and are subject to
substantial credit risk.
B Obligations rated B are considered speculative and are subject to high credit risk.
Caa Obligations rated Caa are judged to be of poor standing and are subject to very
high credit risk.
Ca Obligations rated Ca are highly speculative and are likely in, or very near,
default, with some prospect of recovery of principal and interest.
C Obligations rated C are the lowest rated class of bonds and are typically in default,
with little prospect for recovery of principal or interest.
Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification
from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of that generic rating category.
The following summarizes long-term ratings used by Fitch:
AAA Securities considered to be of the highest credit quality. AAA ratings denote the
lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events.
AA Securities considered to be of very high credit quality. AA ratings denote
expectations of very low credit risk. They indicate very strong capacity for payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable events.
A Securities considered to be of high credit quality. A ratings denote expectations of
low credit risk. The capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
BBB Securities considered to be of good credit quality. BBB ratings indicate that there
is currently expectations of low credit risk. The capacity for payment of financial commitments is
considered adequate but adverse changes in circumstances and economic conditions are more likely to
impair this capacity. This is the lowest investment grade category.
4-A
BB Securities considered to be speculative. BB ratings indicate that there is a
possibility of credit risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow financial commitments
to be met. Securities rated in this category are not investment grade.
B Securities considered to be highly speculative. For issuers and performing obligations,
B ratings indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment. For individual
obligations, may indicate distressed or defaulted obligations with potential for extremely high
recoveries. Such obligations would possess a Recovery Rating of RR1 (outstanding).
CCC For issuers and performing obligations, default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable business or economic
conditions. For individual obligations, may indicate distressed or defaulted obligations with
potential for average to superior levels of recovery. Differences in credit quality may be denoted
by plus/minus distinctions. Such obligations typically would possess a Recovery Rating of RR2
(superior), or RR3 (good) or RR4 (average).
CC For issuers and performing obligations, default of some kind appears probable. For
individual obligations, may indicate distressed or defaulted obligations with a Recovery Rating of
RR4 (average) or RR5 (below average).
C For issuers and performing obligations, default is imminent. For individual
obligations, may indicate distressed or defaulted obligations with potential for below-average to
poor recoveries. Such obligations would possess a Recovery Rating of RR6 (poor).
RD Indicates an entity that has failed to make due payments (within the applicable grace
period) on some but not all material financial obligations, but continues to honor other classes of
obligations.
D Indicates an entity or sovereign that has defaulted on all of its financial
obligations.
Plus (+) or minus (-) may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the AAA category or to categories below CCC.
NR Denotes that Fitch does not publicly rate the associated issue or issuer.
WD Indicates that the rating has been withdrawn and is no longer maintained by Fitch.
The following summarizes the ratings used by DBRS for long-term debt:
AAA Long-term debt rated AAA is of the highest credit quality, with exceptionally
strong protection for the timely repayment of principal and interest. Earnings are considered
stable, the structure of the industry in which the entity operates is strong, and the outlook for
future profitability is favorable. There are few qualifying factors present that would detract from
the performance of the entity. The strength of liquidity and coverage ratios is unquestioned and
the entity has established a credible track record of superior performance. Given the extremely
high standard that DBRS has set for this category, few entities are able to achieve a AAA rating.
AA Long-term debt rated AA is of superior credit quality, and protection of interest
and principal is considered high. In many cases they differ from long-term debt rated AAA only to
a small degree. Given the extremely restrictive definition DBRS has for the AAA category,
entities rated AA are also considered to be strong credits, typically exemplifying above-average
strength in key areas of consideration and unlikely to be significantly affected by reasonably
foreseeable events.
A Long-term debt rated A is of satisfactory credit quality. Protection of interest and
principal is still substantial, but the degree of strength is less than that of AA rated
entities. While A is a respectable rating, entities in this category are considered to be more
susceptible to adverse economic conditions and have greater cyclical tendencies than higher-rated
securities.
BBB Long-term debt rated BBB is of adequate credit quality. Protection of interest and
principal is considered acceptable, but the entity is fairly susceptible to adverse changes in
financial and economic conditions, or there may be other adverse conditions present which reduce
the strength of the entity and its rated securities.
BB Long-term debt rated BB is defined to be speculative and non-investment grade, where
the degree of protection afforded interest and principal is uncertain, particularly during periods
of economic recession. Entities in the BB range typically have limited access to capital markets
and additional liquidity support. In many cases, deficiencies in critical mass, diversification,
and competitive strength are additional negative considerations.
5-A
B Long-term debt rated B is considered highly speculative and there is a reasonably
high level of uncertainty as to the ability of the entity to pay interest and principal on a
continuing basis in the future, especially in periods of economic recession or industry adversity.
CCC, CC and C Long-term debt rated in any of these categories is very highly
speculative and is in danger of default of interest and principal. The degree of adverse elements
present is more severe than long-term debt rated B. Long-term debt rated below B often have
features which, if not remedied, may lead to default. In practice, there is little difference
between these three categories, with CC and C normally used for lower ranking debt of companies
for which the senior debt is rated in the CCC to B range.
D A security rated D implies the issuer has either not met a scheduled payment of
interest or principal or that the issuer has made it clear that it will miss such a payment in the
near future. In some cases, DBRS may not assign a D rating under a bankruptcy announcement
scenario, as allowances for grace periods may exist in the underlying legal documentation. Once
assigned, the D rating will continue as long as the missed payment continues to be in arrears,
and until such time as the rating is discontinued or reinstated by DBRS.
(high, low) Each rating category is denoted by the subcategories high and low. The
absence of either a high or low designation indicates the rating is in the middle of the
category. The AAA and D categories do not utilize high, middle, and low as differential
grades.
Municipal Note Ratings
A Standard & Poors U.S. municipal note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely receive a note rating.
Notes maturing beyond three years will most likely receive a long-term debt rating. The following
criteria will be used in making that assessment:
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|
Amortization schedule-the larger the final maturity relative to other maturities, the
more likely it will be treated as a note; and |
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Source of payment-the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note. |
Note rating symbols are as follows:
SP-1 The issuers of these municipal notes exhibit a strong capacity to pay principal and
interest. Those issues determined to possess a very strong capacity to pay debt service are given a
plus (+) designation.
SP-2 The issuers of these municipal notes exhibit a satisfactory capacity to pay
principal and interest, with some vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 The issuers of these municipal notes exhibit speculative capacity to pay principal
and interest.
Moodys uses three rating categories for short-term municipal obligations that are considered
investment grade. These ratings are designated as Municipal Investment Grade (MIG) and are
divided into three levels MIG-1 through MIG-3. In addition, those short-term obligations
that are of speculative quality are designated SG, or speculative grade. MIG ratings expire at
the maturity of the obligation. The following summarizes the ratings used by Moodys for these
short-term obligations:
MIG-1 This designation denotes superior credit quality. Excellent protection is afforded
by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to
the market for refinancing.
MIG-2 This designation denotes strong credit quality. Margins of protection are ample,
although not as large as in the preceding group.
MIG-3 This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less well-established.
SG This designation denotes speculative-grade credit quality. Debt instruments in this
category may lack sufficient margins of protection.
In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned;
a long- or short-term debt rating and a demand obligation rating. The first element represents
Moodys evaluation of the degree of risk associated with scheduled principal and interest payments.
The second element represents Moodys evaluation of the degree of risk associated with the ability
to
6-A
receive purchase price upon demand (demand feature), using a variation of the MIG rating
scale, the Variable Municipal Investment Grade or VMIG rating.
When either the long- or short-term aspect of a VRDO is not rated, that piece is designated
NR, e.g., Aaa/NR or NR/VMIG-1.
VMIG rating expirations are a function of each issues specific structural or credit features.
VMIG-1 This designation denotes superior credit quality. Excellent protection is afforded
by the superior short-term credit strength of the liquidity provider and structural and legal
protections that ensure the timely payment of purchase price upon demand.
VMIG-2 This designation denotes strong credit quality. Good protection is afforded by the
strong short-term credit strength of the liquidity provider and structural and legal protections
that ensure the timely payment of purchase price upon demand.
VMIG-3 This designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity provider and structural
and legal protections that ensure the timely payment of purchase price upon demand.
SG This designation denotes speculative-grade credit quality. Demand features rated in
this category may be supported by a liquidity provider that does not have an investment grade
short-term rating or may lack the structural and/or legal protections necessary to ensure the
timely payment of purchase price upon demand.
Fitch uses the same ratings for municipal securities as described above for other short-term
credit ratings.
About Credit Ratings
A Standard & Poors issue credit rating is a current opinion of the creditworthiness of an
obligor with respect to a specific financial obligation, a specific class of financial obligations,
or a specific financial program (including ratings on medium-term note programs and commercial
paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation and takes into account the currency in which the
obligation is denominated. The issue credit rating is not a recommendation to purchase, sell, or
hold a financial obligation, inasmuch as it does not comment as to market price or suitability for
a particular investor.
Moodys credit ratings must be construed solely as statements of opinion and not as statements
of fact or recommendations to purchase, sell or hold any securities.
Fitchs credit ratings provide an opinion on the relative ability of an entity to meet
financial commitments, such as interest, preferred dividends, repayment of principal, insurance
claims or counterparty obligations. Fitch credit ratings are used by investors as indications of
the likelihood of receiving their money back in accordance with the terms on which they invested.
Fitchs credit ratings cover the global spectrum of corporate, sovereign (including supranational
and sub-national), financial, bank, insurance, municipal and other public finance entities and the
securities or other obligations they issue, as well as structured finance securities backed by
receivables or other financial assets.
DBRS credit ratings are not buy, hold or sell recommendations, but rather the result of
qualitative and quantitative analysis focusing solely on the credit quality of the issuer and its
underlying obligations.
7-A
Effective: February 2012
APPENDIX B
GSAM Proxy Voting Guidelines Summary
The following is a summary of the material GSAM Proxy Voting Guidelines (the Guidelines),
which form the substantive basis of GSAMs Policy on Proxy Voting for Client Accounts (Policy).
As described in the main body of the Policy, one or more GSAM portfolio management teams may
diverge from the Guidelines and a related Recommendation on any particular proxy vote or in
connection with any individual investment decision in accordance with the override process
described in the Policy.
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US proxy items:
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1.
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Operational Items
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page 1-B |
2.
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Board of Directors
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page 2-B |
3.
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Executive and Director
Compensation
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page 4-B |
4.
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Proxy Contests and Access
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page 7-B |
5.
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Shareholder Rights and Defenses
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page 7-B |
6.
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Mergers and Corporate
Restructurings
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page 8-B |
7.
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State of Incorporation
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page 8-B |
8.
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Capital Structure
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page 9-B |
9.
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Corporate Social Responsibility
(CSR)/Environmental, Social,
Governance (ESG) Issues
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page 9-B |
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International proxy items:
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1.
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Operational Items
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page 11-B |
2.
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Board of Directors
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page 12-B |
3.
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Compensation
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page 14-B |
4.
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Board Structure
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page 14-B |
5.
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Capital Structure
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page 15-B |
6.
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Other
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page 16-B |
7.
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Environmental, Climate Change
and Social Issues
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page 17-B |
The following section is a summary of the Guidelines, which form the substantive basis of the Policy with respect to U.S. public equity investments.
1. Operational Items
Auditor Ratification
Vote FOR proposals to ratify auditors, unless any of the following apply within the last year:
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An auditor has a financial interest in or association with the company, and is
therefore not independent; |
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There is reason to believe that the independent auditor has rendered an opinion
which is neither accurate nor indicative of the companys financial position; |
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Poor accounting practices are identified that rise to a serious level of concern,
such as: fraud; misapplication of GAAP; or material weaknesses identified in Section
404 disclosures; or |
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Fees for non-audit services are excessive. |
Non-audit fees are excessive if:
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Non-audit fees exceed audit fees + audit-related fees + tax compliance/preparation
fees. |
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit their auditors
from engaging in non-audit services taking into account issues that are consistent with Securities
and Exchange Commission (SEC) rules adopted to fulfill the mandate of Sarbanes Oxley such as an
audit
1-B
firm providing services that would impair its independence or the overall scope and
disclosure of fees for all services done by the audit firm.
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation, taking into account:
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The tenure of the audit firm; |
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The length of rotation specified in the proposal; |
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Any significant audit-related issues at the company; |
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The number of Audit Committee meetings held each year; |
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The number of financial experts serving on the committee; |
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Whether the company has a periodic renewal process where the auditor is evaluated
for both audit quality and competitive price; and |
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Whether the auditors are being changed without explanation. |
2. Board of Directors
The Board of Directors should promote the interests of shareholders by acting in an oversight
and/or advisory role; the board should consist of a majority of independent directors and should be
held accountable for actions and results related to their responsibilities. When evaluating board
composition, GSAM believes a diversity of ethnicity, gender and experience is an important
consideration.
Classification
of Directors
Where applicable, the New York Stock Exchange or NASDAQ Listing Standards definition is to be used
to classify directors as insiders or affiliated outsiders. General definitions are as follows:
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Employee of the company or one of its affiliates |
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Among the five most highly paid individuals (excluding interim CEO) |
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Listed as an officer as defined under Section 16 of the Securities and
Exchange Act of 1934 |
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Current interim CEO |
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Beneficial owner of more than 50 percent of the companys voting power (this
may be aggregated if voting power is distributed among more than one member of
a defined group) |
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Affiliated Outside Director |
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Board attestation that an outside director is not independent |
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Former CEO or other executive of the company within the last 3 years |
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Former CEO or other executive of an acquired company within the past three
years |
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Independent Outside Director |
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No material connection to the company other than a board seat |
Additionally, GSAM will consider compensation committee interlocking directors to be affiliated
(defined as CEOs who sit on each others compensation committees).
Voting on Director Nominees in Uncontested Elections
Vote on director nominees should be determined on a CASE-BY-CASE basis.
Vote AGAINST or WITHHOLD from individual directors who:
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Attend less than 75 percent of the board and committee meetings without a disclosed
valid excuse for each of the last two years; |
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Sit on more than six public company boards; |
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Are CEOs of public companies who sit on the boards of more than two public companies
besides their ownwithhold only at their outside boards. |
Other items considered for an AGAINST vote include specific concerns about the individual or the
company, such as criminal wrongdoing or breach of fiduciary responsibilities, sanctions from
government or authority, violations of laws and regulations, or other issues related to improper
business practice.
2-B
Vote AGAINST or WITHHOLD from Inside Directors and Affiliated Outside Directors (per the
Classification of Directors above) when:
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The inside or affiliated outside director serves on the audit, compensation, or
nominating (vote against affiliated directors only for nominating) committees; |
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The company lacks an audit compensation, or nominating (vote against affiliated
directors only for nominating) committee so that the full board functions as that
committee and insiders are participating in voting on matters that independent
committees should be voting on; |
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The full board is less than majority independent (in this case withhold from
affiliated outside directors); at controlled companies, GSAM will vote against the
election of affiliated outsiders and nominees affiliated with the parent and will not
vote against the executives of the issuer. |
Vote AGAINST or WITHHOLD from members of the appropriate committee for the following reasons (or
independent Chairman or lead director in cases of a classified board and members of appropriate
committee are not up for reelection). Extreme cases may warrant a vote against the entire board.
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Material failures of governance, stewardship, or fiduciary responsibilities at the
company; |
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Egregious actions related to the director(s) service on other boards that raise
substantial doubt about his or her ability to effectively oversee management and serve
the best interests of shareholders at any company; |
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At the previous board election, any director received more than 50 percent
withhold/against votes of the shares cast and the company has failed to address the
underlying issue(s) that caused the high withhold/against vote (members of the
Nominating or Governance Committees); |
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The board failed to act on a shareholder proposal that received approval of the
majority of shares cast for the previous two consecutive years (a management proposal
with other than a FOR recommendation by management will not be considered as sufficient
action taken); an adopted proposal that is substantially similar to the original
shareholder proposal will be deemed sufficient; (vote against members of the committee
of the board that is responsible for the issue under consideration). If GSAM did not
support the shareholder proposal in both years, GSAM will still vote against the
committee member (s) |
Vote AGAINST or WITHHOLD from the members of the Audit Committee if:
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The non-audit fees paid to the auditor are excessive; |
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The company receives an adverse opinion on the companys financial statements from
its auditor; or |
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There is persuasive evidence that the audit committee entered into an inappropriate
indemnification agreement with its auditor that limits the ability of the company, or
its shareholders, to pursue legitimate legal recourse against the audit firm. |
Vote CASE-BY-CASE on members of the Audit Committee and/or the full board if poor accounting
practices, which rise to a level of serious concern are identified, such as: fraud; misapplication
of GAAP; and material weaknesses identified in Section 404 disclosures.
Examine the severity, breadth, chronological sequence and duration, as well as the companys
efforts at remediation or corrective actions in determining whether negative vote recommendations
are warranted against the members of the Audit Committee who are responsible for the poor
accounting practices, or the entire board.
See section 3 on executive and director compensation for reasons to withhold from members of the
Compensation Committee.
In limited circumstances, GSAM may vote AGAINST or WITHHOLD from all nominees of the board of
directors (except from new nominees who should be considered on a CASE-BY-CASE basis and except as
discussed below) if:
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The companys poison pill has a dead-hand or modified dead-hand feature for two or
more years. Vote against/withhold every year until this feature is removed; however,
vote against the poison pill if there is one on the ballot with this feature rather
than the director; |
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The board adopts or renews a poison pill without shareholder approval, does not
commit to putting it to shareholder vote within 12 months of adoption (or in the case
of an newly public company, does not commit to put the pill to a shareholder vote
within 12 months following the IPO), or reneges on a commitment to put the pill to a
vote, and has not yet received a withhold/against recommendation for this issue; |
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The board failed to act on takeover offers where the majority of the shareholders
tendered their shares; |
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If in an extreme situation the board lacks accountability and oversight, coupled
with sustained poor performance relative to peers. |
Shareholder proposal regarding Independent Chair (Separate Chair/CEO)
3-B
Vote on a CASE-BY-CASE basis.
GSAM will generally recommend a vote AGAINST shareholder proposals requiring that the chairmans
position be filled by an independent director, if the company satisfies 3 of the 4 following
criteria:
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Designated lead director, elected by and from the independent board members with
clearly delineated and comprehensive duties; |
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Two-thirds independent board; |
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All independent key committees; or |
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Established, disclosed governance guidelines. |
Majority Vote Shareholder Proposals
GSAM will vote FOR proposals requesting that the board adopt majority voting in the election of
directors provided it does not conflict with the state law where the company is incorporated.
GSAM also looks for companies to adopt a post-election policy outlining how the company will
address the situation of a holdover director.
Cumulative Vote Shareholder Proposals
GSAM will generally support shareholder proposals to restore or provide cumulative voting unless:
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The company has adopted majority vote standard with a carve-out for plurality voting
in situations where there are more nominees than seats, and a director resignation
policy to address failed elections. |
3. Executive and Director Compensation
Pay Practices
Good pay practices should align managements interests with long-term shareholder value creation.
Detailed disclosure of compensation criteria is preferred; proof that companies follow the criteria
should be evident and retroactive performance target changes without proper disclosure is not
viewed favorably. Compensation practices should allow a company to attract and retain proven
talent. Some examples of poor pay practices include: abnormally large bonus payouts without
justifiable performance linkage or proper disclosure, egregious employment contracts, excessive
severance and/or change in control provisions, repricing or replacing of underwater stock
options/stock appreciation rights without prior shareholder approval, and excessive perquisites. A
company should also have an appropriate balance of short-term vs. long-term metrics and the metrics should be
aligned with business goals and objectives.
If the company maintains problematic or poor pay practices, generally vote first:
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AGAINST Management Say on Pay (MSOP) Proposals or; |
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AGAINST an equity-based incentive plan proposal if excessive non-performance-based
equity awards are the major contributor to a pay-for-performance misalignment, then; |
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If no MSOP or equity-based incentive plan proposal item is on the ballot,
AGAINST/WITHHOLD on compensation committee members |
Equity Compensation Plans
Vote CASE-BY-CASE on equity-based compensation plans. Reasons to vote AGAINST the equity plan
could include the following factors:
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The plan is a vehicle for poor pay practices; |
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The plan expressly permits the repricing of stock options/stock appreciation rights
(SARs) without prior shareholder approval OR does not expressly prohibit the repricing
without shareholder approval; |
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The CEO is a participant in the proposed equity-based compensation plan and there is
a disconnect between CEO pay and the companys performance where over 50 percent of the
year-over-year increase is attributed to equity awards; |
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The companys three year burn rate and Shareholder Value Transfer (SVT) calculations
both materially exceed industry group metrics; or |
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There is a long-term disconnect between CEO pay and the companys total shareholder
return in conjunction with the qualitative overlay as outlined in the policy guidelines
OR the company has a poor record of compensation practices, which is highlighted either
in analysis of the compensation plan or the evaluation of the election of directors. |
4-B
Advisory Vote on Executive Compensation (Say-on-Pay, MSOP) Management Proposals
Vote CASE-BY-CASE on management proposals for an advisory vote on executive compensation. For U.S.
companies, consider the following factors in the context of each companys specific circumstances
and the boards disclosed rationale for its practices. In general two or more of the following in
conjunction with a long-term pay-for-performance disconnect will warrant an AGAINST vote. If there
is not a long-term pay for performance disconnect GSAM will look for multiple problematic factors
to be present to warrant a vote against.
Relative Considerations:
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Assessment of performance metrics relative to business strategy, as discussed and
explained in the Compensation Discussion and Analysis (CD&A) section of a companys
proxy; |
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Evaluation of peer groups used to set target pay or award opportunities; |
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Alignment of long-term company performance and executive pay trends over time; |
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Assessment of disparity between total pay of the CEO and other Named Executive
Officers (NEOs). |
Design Considerations:
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Balance of fixed versus performance-driven pay; |
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Assessment of excessive practices with respect to perks, severance packages,
supplemental executive pension plans, and burn rates. |
Communication Considerations: |
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Evaluation of information and board rationale provided in CD&A about how
compensation is determined (e.g., why certain elements and pay targets are used, and
specific incentive plan goals, especially retrospective goals);
Assessment of boards responsiveness to investor input and engagement on
compensation issues (e.g., in responding to majority-supported shareholder proposals
on executive pay topics). |
Other considerations include: |
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Board responsiveness to the majority vote outcome of previous frequency on pay
votes |
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Boards responsiveness if company received 70% or less shareholder support in the
previous years MSOP vote |
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Abnormally large bonus payouts without justifiable performance linkage or proper
disclosure: |
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Includes performance metrics that are changed, canceled, or replaced during
the performance period without adequate explanation of the action and the link
to performance |
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Egregious employment contracts |
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Excessive severance and/or change in control provisions |
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Repricing or replacing of underwater stock options/stock appreciation rights
without prior shareholder approval |
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Excessive Perquisites |
5-B
The following reasons could warrant a vote AGAINST or WITHHOLD from the members of the Compensation
Committee:
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The company fails to submit one-time transfers of stock options to a shareholder
vote; |
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The company fails to fulfill the terms of a burn rate commitment they made to
shareholders; or |
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The company has backdated options. |
Other Compensation Proposals and Policies
Employee Stock Purchase Plans Non-Qualified Plans
Vote CASE-BY-CASE on nonqualified employee stock purchase plans. Vote FOR nonqualified employee
stock purchase plans with all the following features:
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Broad-based participation (i.e., all employees of the company with the exclusion of
individuals with 5 percent or more of beneficial ownership of the company); |
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Limits on employee contribution, which may be a fixed dollar amount or expressed as
a percent of base salary; |
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Company matching contribution up to 25 percent of employees contribution, which is
effectively a discount of 20 percent from market value; and |
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No discount on the stock price on the date of purchase since there is a company
matching contribution. |
Option Exchange Programs/Repricing Options
Vote CASE-BY-CASE on management proposals seeking approval to exchange/reprice options, taking into
consideration:
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Historic trading patternsthe stock price should not be so volatile that the
options are likely to be back in-the-money over the near term; |
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Rationale for the re-pricing |
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If it is a value-for-value exchange |
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If surrendered stock options are added back to the plan reserve |
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Option vesting |
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Term of the optionthe term should remain the same as that of the replaced option; |
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Exercise priceshould be set at fair market or a premium to market; |
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Participantsexecutive officers and directors should be excluded. |
6-B
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
Other Shareholder Proposals on Compensation
Advisory Vote on Executive Compensation (Frequency on Pay)
Vote for annual frequency.
Golden Coffins/Executive Death Benefits
Generally vote FOR proposals calling on companies to adopt a policy of obtaining shareholder
approval for any future agreements and corporate policies that could oblige the company to make
payments or awards following the death of a senior executive in the form of unearned salary or
bonuses, accelerated vesting or the continuation in force of unvested equity grants, perquisites
and other payments or awards made in lieu of compensation. This would not apply to any benefit
programs or equity plan proposals for which the broad-based employee population is eligible.
Stock retention holding period
Vote FOR Shareholder proposals asking for a policy requiring that senior executives retain a
significant percentage of shares acquired through equity compensation programs if the policy allows
retention for two years or less following the termination of their employment (through retirement
or otherwise) and a holding threshold percentage of 50% or less.
Also consider:
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Whether the company has any holding period, retention ratio, or officer ownership
requirements in place. |
Elimination of accelerated vesting in the event of a change in control
Vote AGAINST shareholder proposals seeking a policy eliminating the accelerated vesting of
time-based equity awards in the event of a change in control.
Tax Gross-Up Proposals
Generally vote FOR proposals asking companies to adopt a policy of not providing tax gross-up
payments to executives, except where gross-ups are provided pursuant to a plan, policy, or
arrangement applicable to management employees of the company, such as a relocation or expatriate
tax equalization policy.
Performance-based equity awards and pay-for-superior-performance proposals
Generally support unless there is sufficient evidence that the current compensation structure is
already substantially performance-based. GSAM considers performance-based awards to include awards
that are tied to shareholder return or other metrics that are relevant to the business.
4. Proxy Contests and Access
Voting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors in contested elections, considering the following
factors:
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Long-term financial performance of the target company relative to its industry; |
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Managements track record; |
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Background to the proxy contest; |
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Qualifications of director nominees (both slates); |
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Strategic plan of dissident slate and quality of critique against management; |
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Likelihood that the proposed goals and objectives can be achieved (both slates); |
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Stock ownership positions. |
7-B
Proxy Access
Vote CASE-BY-CASE on shareholder or management proposals asking for open proxy access.
GSAM may support proxy access as an important right for shareholders and as an alternative to
costly proxy contests. While this could be an important shareholder right, the following will be
taken into account when evaluating the shareholder proposals:
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The ownership thresholds, percentage and duration proposed (GSAM will not support if the
ownership threshold is less than 3%); The maximum proportion of directors that shareholders
may nominate each year (GSAM will not support if the proportion of directors is greater
than 25%); |
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The method of determining which nominations should appear on the ballot if multiple
shareholders submit nominations. |
Reimbursing Proxy Solicitation Expenses
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When voting in
conjunction with support of a dissident slate, vote FOR the reimbursement of all appropriate proxy
solicitation expenses associated with the election.
5. Shareholders Rights & Defenses
Shareholder Ability to Act by Written Consent
Generally vote FOR shareholder proposals that provide shareholders with the ability to act by
written consent, unless:
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The company already gives shareholders the right to call special
meetings at a threshold of 25% or lower; and |
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The company has a history of strong governance practices. |
Shareholder Ability to Call Special Meetings
Generally vote FOR management proposals that provide shareholders with the ability to call special
meetings.
Generally vote FOR shareholder proposals that provide shareholders with the ability to call special
meetings at a threshold of 25% or lower if the company currently does not give shareholders the
right to call special meetings. However, if a company already gives shareholders the right to call
special meetings at a threshold of at least 25%, do not support shareholder proposals to further
reduce the threshold.
Advance Notice Requirements for Shareholder Proposals/Nominations
Vote CASE-BY-CASE on advance notice proposals, giving support to proposals that allow shareholders
to submit proposals/nominations reasonably close to the meeting date and within the broadest window
possible, recognizing the need to allow sufficient notice for company, regulatory and shareholder
review.
Poison Pills
Vote FOR shareholder proposals requesting that the company submit its poison pill to a shareholder
vote or redeem it UNLESS the company has: (1) A shareholder-approved poison pill in place; or (2)
the company has adopted a policy concerning the adoption of a pill in the future specifying certain
shareholder friendly provisions.
Vote FOR shareholder proposals calling for poison pills to be put to a vote within a time period of
less than one year after adoption.
8-B
Vote CASE-BY-CASE on management proposals on poison pill ratification, focusing on the features of
the shareholder rights plan.
In addition, the rationale for adopting the pill should be thoroughly explained by the company. In
examining the request for the pill, take into consideration the companys existing governance
structure, including: board independence, existing takeover defenses, and any problematic
governance concerns.
6. Mergers and Corporate Restructurings
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following based on publicly
available information:
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Valuation; |
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Market reaction; |
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Strategic rationale; |
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Managements track record of successful integration of historical acquisitions; |
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Presence of conflicts of interest; and |
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Governance profile of the combined company. |
7. State of Incorporation
Reincorporation Proposals
GSAM may support management proposals to reincorporate as long as the reincorporation would not
substantially diminish shareholder rights. GSAM may not support shareholder proposals for
reincorporation unless the current state of incorporation is substantially less shareholder
friendly than the proposed reincorporation, there is a strong economic case to reincorporate or the
company has a history of making decisions that are not shareholder friendly.
Exclusive venue for shareholder lawsuits
Generally Vote FOR on exclusive venue proposals, taking into account:
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Whether the company has been materially harmed by shareholder litigation outside its
jurisdiction of incorporation, based on disclosure in the companys proxy statement; |
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Whether the company has the following good governance features: |
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An annually elected board; |
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A majority vote standard in uncontested director elections; and |
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The absence of a poison pill, unless the pill was approved by shareholders. |
8. Capital Structure
Common Stock Authorization
Votes on proposals to increase the number of shares of common stock authorized for issuance are
determined on a CASE-BY-CASE basis. We consider company-specific factors that include, at a
minimum, the following:
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Past Board performance; |
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The companys use of authorized shares during the last three years; |
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One- and three-year total shareholder return; |
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9-B
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The boards governance structure and practices; |
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The current request; |
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Disclosure in the proxy statement of specific reasons for the proposed increase; |
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The dilutive impact of the request as determined through an allowable increase,
which examines the companys need for shares and total shareholder returns; and |
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Risks to shareholders of not approving the request. |
9. Corporate Social Responsibility (CSR)/Environmental, Social, Governance (ESG) Issues
Overall Approach
GSAM recognizes that Environmental, Social and Governance (ESG) factors can affect investment
performance, expose potential investment risks and provide an indication of management excellence
and leadership. When evaluating ESG proxy issues GSAM balances the purpose of a proposal with the
overall benefit to shareholders.
Shareholder proposals considered under this category could include: Reports asking for details on
1) labor and safety policies, 2) impact on the environment of the companys oil sands or fracturing
operations or 3) water-related risks
When evaluating social and environmental shareholder proposals the following factors should be
considered:
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Whether adoption of the proposal is likely to enhance or protect shareholder value; |
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Whether the information requested concerns business issues that relate to a
meaningful percentage of the companys business; |
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The degree to which the companys stated position on the issues raised in the
proposal could affect its reputation or sales, or leave it vulnerable to a boycott or
selective purchasing; |
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Whether the company has already responded in some appropriate manner to the request
embodied in the proposal; |
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What other companies have done in response to the issue addressed in the proposal; |
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Whether the proposal itself is well framed and the cost of preparing the report is
reasonable; |
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Whether the subject of the proposal is best left to the discretion of the board; |
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Whether the company has material fines or violations in the area and if so, if
appropriate actions have already been taken to remedy going forward; |
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Whether the requested information is available to shareholders either from the
company or from a publicly available source; and |
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Whether providing this information would reveal proprietary or confidential
information that would place the company at a competitive disadvantage. |
Sustainability, climate change reporting
Generally vote FOR proposals requesting the company to report on its policies, initiatives, and
oversight mechanisms related to social, economic, and environmental sustainability, or how the
company may be impacted by climate change. The following factors will be considered:
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The companys current level of publicly-available disclosure including if the
company already discloses similar information through existing reports or policies |
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If the company has formally committed to the implementation of a reporting program
based on Global Reporting Initiative (GRI) guidelines or a similar standard within a
specified time frame; |
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If the companys current level of disclosure is comparable to that of its industry
peers; and |
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If there are significant controversies, fines, penalties, or litigation associated
with the companys environmental performance. |
Establishing goals or targets for emissions reduction
Vote CASE-BY-CASE on proposals that call for the adoption of GHG reduction goals from products and
operations, taking into account:
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Overly prescriptive requests for the reduction in GHG emissions by specific amounts or
within a specific time frame; |
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Whether company disclosure lags behind industry peers; |
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Whether the company has been the subject of recent, significant violations, fines,
litigation, or controversy related to GHG emissions; |
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The feasibility of reduction of GHGs given the companys product line and current
technology and; |
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Whether the company already provides meaningful disclosure on GHG emissions from its
products and operations. |
Political Contributions and Trade Association Spending/Lobbying Expenditures and Initiatives
Generally vote AGAINST proposals asking the company to affirm political nonpartisanship in the
workplace so long as:
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There are no recent, significant controversies, fines or litigation regarding the
companys political contributions or trade association spending; and |
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The company has procedures in place to ensure that employee contributions to
company-sponsored political action committees (PACs) are strictly voluntary and
prohibits coercion. |
Vote CASE-BY-CASE on proposals to improve the disclosure of a companys political contributions and
trade association spending, considering:
10-B
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Recent significant controversy or litigation related to the companys political
contributions or governmental affairs; |
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The public availability of a company policy on political contributions and trade
association spending including information on the types of organizations supported,
the business rationale for supporting these organizations, and the oversight and
compliance procedures related to such expenditures of corporate assets; and |
GSAM will not necessarily vote for the proposal merely to encourage further disclosure of trade
association or lobbying spending. |
Vote AGAINST proposals barring the company from making political contributions. Businesses are
affected by legislation at the federal, state, and local level and barring political contributions
can put the company at a competitive disadvantage.
Gender Identity and Sexual Orientation
A company should have a clear, public Equal Employment Opportunity (EEO) statement and/or diversity
policy. Generally vote FOR proposals seeking to amend a companys EEO statement or diversity
policies to additionally prohibit discrimination based on sexual orientation and/or gender
identity.
Labor and Human Rights Standards
Generally vote FOR proposals requesting a report or implementation of a policy on company or
company supplier labor and/or human rights standards and policies unless such information is
already publicly disclosed considering:
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The degree to which existing relevant policies and practices are disclosed; |
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Whether or not existing relevant policies are consistent with internationally
recognized standards; |
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Whether company facilities and those of its suppliers are monitored and how; |
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Company participation in fair labor organizations or other internationally
recognized human rights initiatives; |
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Scope and nature of business conducted in markets known to have higher risk of
workplace labor/human rights abuse; |
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Recent, significant company controversies, fines, or litigation regarding human
rights at the company or its suppliers; |
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The scope of the request; and |
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Deviation from industry sector peer company standards and practices. |
The following section is a broad summary of the Guidelines, which form the basis of the Policy with respect to non-U.S. public equity investments.
Applying these guidelines is subject to certain regional and country-specific exceptions and modifications and
is not inclusive of all considerations in each market.
1. Operational Items
Financial Results/Director and Auditor Reports
Vote FOR approval of financial statements and director and auditor reports, unless:
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There are concerns about the accounts presented or audit procedures used; or |
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The company is not responsive to shareholder questions about specific items
that should be publicly disclosed. |
11-B
Appointment of Auditors and Auditor Fees
Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees,
unless:
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There are serious concerns about the accounts presented, audit procedures used
or audit opinion rendered; |
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There is reason to believe that the auditor has rendered an opinion, which is
neither accurate nor indicative of the companys financial position; |
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Name of the proposed auditor has not been published; |
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The auditors are being changed without explanation; non-audit-related fees are
substantial or are in excess of standard annual audit-related fees; or the appointment
of external auditors if they have previously served the company in an executive
capacity or can otherwise be considered affiliated with the company. |
Appointment of Statutory Auditors
Vote FOR the appointment or reelection of statutory auditors, unless:
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There are serious concerns about the statutory reports presented or the audit
procedures used; |
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Questions exist concerning any of the statutory auditors being appointed; or |
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The auditors have previously served the company in an executive capacity or can
otherwise be considered affiliated with the company. |
Allocation of Income
Vote FOR approval of the allocation of income, unless:
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The dividend payout ratio has been consistently low without adequate
explanation; or |
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The payout is excessive given the companys financial position. |
Stock (Scrip) Dividend Alternative
Vote FOR most stock (scrip) dividend proposals.
Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the
cash option is harmful to shareholder value.
Amendments to Articles of Association
Vote amendments to the articles of association on a CASE-BY-CASE basis.
Change in Company Fiscal Term
Vote FOR resolutions to change a companys fiscal term unless a companys motivation for the change
is to postpone its AGM.
Lower Disclosure Threshold for Stock Ownership
Vote AGAINST resolutions to lower the stock ownership disclosure threshold below 5 percent unless
specific reasons exist to implement a lower threshold.
Amend Quorum Requirements
Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis.
Transact Other Business
Vote AGAINST other business when it appears as a voting item.
2. Board of Directors
Director Elections
Vote FOR management nominees in the election of directors, unless:
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Adequate disclosure has not been provided in a timely manner; or |
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12-B
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There are clear concerns over questionable finances or restatements; or |
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There have been questionable transactions or conflicts of interest; or |
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There are any records of abuses against minority shareholder interests; or |
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The board fails to meet minimum corporate governance standards. or |
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There are reservations about: |
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Director terms |
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Bundling of proposals to elect directors |
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Board independence |
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Disclosure of named nominees |
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Combined Chairman/CEO |
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Election of former CEO as Chairman of the Board |
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Overboarded directors |
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Composition of committees |
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Director independence |
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Specific concerns about the individual or company, such as criminal wrongdoing or
breach of fiduciary responsibilities; |
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Repeated absences at board meetings have not been explained (in countries where
this information is disclosed); or |
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Unless there are other considerations which may include sanctions from government
or authority, violations of laws and regulations, or other issues related to improper
business practice, failure to replace management, or egregious actions related to
service on other boards. |
Vote on a CASE-BY-CASE basis in contested elections of directors, e.g., the election of shareholder
nominees or the dismissal of incumbent directors, determining which directors are best suited to
add value for shareholders.
The analysis will generally be based on, but not limited to, the following major decision factors:
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Company performance relative to its peers; |
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Strategy of the incumbents versus the dissidents; |
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Independence of board candidates; |
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Experience and skills of board candidates; |
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Governance profile of the company; |
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Evidence of management entrenchment; |
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Responsiveness to shareholders; |
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Whether a takeover offer has been rebuffed; |
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Whether minority or majority representation is being sought. |
Vote FOR employee and/or labor representatives if they sit on either the audit or compensation
committee and are required by law to be on those committees.
Vote AGAINST employee and/or labor representatives if they sit on either the audit or compensation
committee, if they are not required to be on those committees.
Classification of directors
Executive Director
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Employee or executive of the company; |
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Any director who is classified as a non-executive, but receives salary, fees,
bonus, and/or other benefits that are in line with the highest-paid executives of the
company. |
Non-Independent Non-Executive Director (NED)
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Any director who is attested by the board to be a non-independent NED; |
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Any director specifically designated as a representative of a significant
shareholder of the company; |
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Any director who is also an employee or executive of a significant shareholder
of the company; |
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Beneficial owner (direct or indirect) of at least 10% of the companys stock,
either in economic terms or in voting rights (this may be aggregated if voting power
is distributed among more than one member of a defined group, e.g., family members who
beneficially own less than 10% individually, but collectively own more than 10%),
unless market best practice dictates a lower ownership and/or disclosure threshold
(and in other special market-specific circumstances); |
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Government representative; |
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Currently provides (or a relative provides) professional services to the company,
to an affiliate of the company, or to an individual officer of the company or of one
of its affiliates in excess of $10,000 per year; |
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Represents customer, supplier, creditor, banker, or other entity with which
company maintains transactional/commercial relationship (unless company discloses information to apply
a materiality test); |
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Any director who has conflicting or cross-directorships with executive
directors or the chairman of the company; |
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Relative of a current employee of the company or its affiliates; |
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13-B
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Relative of a former executive of the company or its affiliates; |
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A new appointee elected other than by a formal process through the General Meeting
(such as a contractual appointment by a substantial shareholder); |
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Founder/co-founder/member of founding family but not currently an employee; |
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Former executive (5 year cooling off period); |
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Years of service is generally not a determining factor unless it is recommended
best practice in a market and/or in extreme circumstances, in which case it may be
considered; |
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Any additional relationship or principle considered to compromise independence
under local corporate governance best practice guidance. |
Independent NED
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No material connection, either directly or indirectly, to the company other
than a board seat. |
Employee Representative
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Represents employees or employee shareholders of the company (classified as
employee representative but considered a non-independent NED). |
Discharge of Directors
Generally vote FOR the discharge of directors, including members of the management board and/or
supervisory board, unless there is reliable information about significant and compelling
controversies that the board is not fulfilling its fiduciary duties warranted by:
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A lack of oversight or actions by board members which invoke shareholder distrust
related to malfeasance or poor supervision, such as operating in private or company interest
rather than in shareholder interest; or |
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Any legal issues (e.g., civil/criminal) aiming to hold the board responsible for
breach of trust in the past or related to currently alleged actions yet to be
confirmed (and not only the fiscal year in question), such as price fixing, insider
trading, bribery, fraud, and other illegal actions; or |
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Other egregious governance issues where shareholders may bring legal action against
the company or its directors; or |
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Vote on a CASE-BY-CASE basis where a vote against other agenda items are deemed
inappropriate. |
3. Compensation
Good pay practices should align managements interests with long-term shareholder value creation.
Detailed disclosure of compensation criteria is preferred; proof that companies follow the criteria
should be evident and retroactive performance target changes without proper disclosure is not
viewed favorably. Compensation practices should allow a company to attract and retain proven
talent. Some examples of poor pay practices include: abnormally large bonus payouts without
justifiable performance linkage or proper disclosure, egregious employment contracts, excessive
severance and/or change in control provisions, repricing or replacing of underwater stock
options/stock appreciation rights without prior shareholder approval, and excessive perquisites. A
company should also have an appropriate balance of short-term vs. long-term metrics and the metrics
should be aligned with business goals and objectives.
Director Compensation
Vote FOR proposals to award cash fees to non-executive directors unless the amounts are excessive
relative to other companies in the country or industry.
Vote non-executive director compensation proposals that include both cash and share-based
components on a CASE-BY-CASE basis.
Vote proposals that bundle compensation for both non-executive and executive directors into a
single resolution on a CASE-BY-CASE basis.
Vote AGAINST proposals to introduce retirement benefits for non-executive directors.
Compensation Plans
Vote compensation plans on a CASE-BY-CASE basis.
14-B
Director, Officer, and Auditor Indemnification and Liability Provisions
Vote proposals seeking indemnification and liability protection for directors and officers on a
CASE-BY-CASE basis.
Vote AGAINST proposals to indemnify auditors.
4. Board Structure
Vote FOR proposals to fix board size.
Vote AGAINST the introduction of classified boards and mandatory retirement ages for directors.
Vote AGAINST proposals to alter board structure or size in the context of a fight for control of
the company or the board.
Chairman CEO combined role (for applicable markets)
GSAM will generally recommend a vote AGAINST shareholder proposals requiring that the chairmans
position be filled by an independent director, if the company satisfies 3 of the 4 following
criteria:
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2/3 independent board, or majority in countries where employee representation is
common practice; |
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A designated, or a rotating, lead director, elected by and from the independent board
members with clearly delineated and comprehensive duties; |
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Fully independent key committees; and/or |
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Established, publicly disclosed, governance guidelines and director
biographies/profiles. |
5. Capital Structure
Share Issuance Requests
General Issuances:
Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued
capital.
Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued
capital.
Specific Issuances:
Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights.
Increases in Authorized Capital
Vote FOR non-specific proposals to increase authorized capital up to 100 percent over the current
authorization unless the increase would leave the company with less than 30 percent of its new
authorization outstanding.
Vote FOR specific proposals to increase authorized capital to any amount, unless:
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The specific purpose of the increase (such as a share-based acquisition or merger)
does not meet guidelines for the purpose being proposed; or |
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The increase would leave the company with less than 30 percent of its new
authorization outstanding after adjusting for all proposed issuances. |
Vote AGAINST proposals to adopt unlimited capital authorizations.
Reduction of Capital
Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are
unfavorable to
shareholders.
Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BY-CASE
basis.
Capital Structures
Vote FOR resolutions that seek to maintain or convert to a one-share, one-vote capital structure.
15-B
Vote AGAINST requests for the creation or continuation of dual-class capital structures or the
creation of new or additional super voting shares.
Preferred Stock
Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to
50 percent of issued capital unless the terms of the preferred stock would adversely affect the
rights of existing shareholders.
Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of
common
shares that could be issued upon conversion meets guidelines on equity issuance requests.
Vote AGAINST the creation of a new class of preference shares that would carry superior voting
rights to the common shares.
Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the
authorization will not be used to thwart a takeover bid.
Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis.
Debt Issuance Requests
Vote non-convertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive
rights.
Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of
common shares that could be issued upon conversion meets guidelines on equity issuance requests.
Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring
would
adversely affect the rights of shareholders.
Pledging of Assets for Debt
Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis.
Increase in Borrowing Powers
Vote proposals to approve increases in a companys borrowing powers on a CASE-BY-CASE basis.
Share Repurchase Plans
GSAM will generally recommend FOR share repurchase programs if the terms comply with the following
criteria:
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A repurchase limit of up to 10 percent of outstanding issued share capital (15
percent in U.K./Ireland); |
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A holding limit of up to 10 percent of a companys issued share capital in treasury
(on the shelf); and |
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Duration of no more than 5 years, or such lower threshold as may be set by
applicable law, regulation, or code of governance best practice. |
In markets where it is normal practice not to provide a repurchase limit, the proposal will be
evaluated based on the companys historical practice. In such cases, the authority must comply with
the following criteria:
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A holding limit of up to 10 percent of a companys issued share capital in treasury
(on the shelf); and |
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Duration of no more than 5 years. |
In addition, vote AGAINST any proposal where:
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The repurchase can be used for takeover defenses; |
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There is clear evidence of abuse; |
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There is no safeguard against selective buybacks; |
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Pricing provisions and safeguards are deemed to be unreasonable in light of market
practice. |
16-B
Reissuance of Repurchased Shares
Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this
authority in the past.
Capitalization of Reserves for Bonus Issues/Increase in Par Value
Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value.
6. Other
Reorganizations/Restructurings
Vote reorganizations and restructurings on a CASE-BY-CASE basis.
Mergers and Acquisitions
Vote CASE-BY-CASE on mergers and acquisitions taking into account the following based on publicly
available information:
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Valuation; |
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Market reaction; |
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Strategic rationale; |
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Managements track record of successful integration of historical acquisitions; |
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Presence of conflicts of interest; and |
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Governance profile of the combined company. |
Mandatory Takeover Bid Waivers
Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis.
Antitakeover Mechanisms
Generally vote AGAINST all antitakeover proposals, unless they are structured in such a way that
they give
shareholders the ultimate decision on any proposal or offer.
Reincorporation Proposals
Vote reincorporation proposals on a CASE-BY-CASE basis.
Expansion of Business Activities
Vote FOR resolutions to expand business activities unless the new business takes the company into
inappropriately risky areas.
Related-Party Transactions
Vote related-party transactions on a CASE-BY-CASE basis, considering factors including, but not
limited to, the following:
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The parties on either side of the transaction; |
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The nature of the asset to be transferred/service to be provided; |
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The pricing of the transaction (and any associated professional valuation); |
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The views of independent directors (where provided); |
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The views of an independent financial adviser (where appointed); |
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Whether any entities party to the transaction (including advisers) is conflicted; and |
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The stated rationale for the transaction, including discussions of timing. |
Shareholder Proposals
Vote all shareholder proposals on a CASE-BY-CASE basis.
Vote FOR proposals that would improve the companys corporate governance or business profile at a
reasonable cost.
Vote AGAINST proposals that limit the companys business activities or capabilities or result in
significant costs being incurred with little or not benefit.
7. |
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Environmental, climate change and social issues |
Please refer to page 9 for our current approach to these important topics.
17-B
APPENDIX C
STATEMENT OF INTENTION
(applicable only to Class A Shares)
If a shareholder anticipates purchasing within a 13-month period Class A Shares of the Fund
alone or in combination with Class A Shares of another Goldman Sachs Fund in the amount of $100,000
or more ($500,000 in the case of Enhanced Income, Ultra-Short Duration Government, Short Duration
Government and Short Duration Tax-Free Funds), the shareholder may obtain shares of the Fund at the
same reduced sales charge as though the total quantity were invested in one lump sum by checking
and filing the Statement of Intention in the Account Application. Income dividends and capital gain
distributions taken in additional shares, as well as any appreciation on shares previously
purchased, will not apply toward the completion of the Statement of Intention.
To ensure that the reduced price will be received on future purchases, the investor must
inform Goldman Sachs that the Statement of Intention is in effect each time shares are purchased.
Subject to the conditions mentioned below, each purchase will be made at the public offering price
applicable to a single transaction of the dollar amount specified on the Account Application. The
investor makes no commitment to purchase additional shares, but if the investors purchases within
13 months plus the value of shares credited toward completion do not total the sum specified, the
investor will pay the increased amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5% of the dollar amount
specified on the Account Application will be held in escrow by the Transfer Agent in the form of
shares registered in the investors name. All income dividends and capital gains distributions on
escrowed shares will be paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the investor will be
notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be asked to remit to Goldman
Sachs any difference between the sales charge on the amount specified and on the amount actually
attained. If the investor does not within 20 days after written request by Goldman Sachs pay such
difference in the sales charge, the Transfer Agent will redeem, pursuant to the authority given by
the investor in the Account Application, an appropriate number of the escrowed shares in order to
realize such difference. Shares remaining after any such redemption will be released by the
Transfer Agent.
1-C