PROSPECTUS

EX-17.(G) 69 exhibit_17g.htm PROSPECTUS

Prospectus


	Institutional Shares

	February 27, 2004

GOLDMAN SACHS TAXABLE FIXED INCOME FUNDS


		n Goldman Sachs Enhanced Income Fund n Goldman Sachs Ultra-Short Duration Government Fund n Goldman Sachs Short Duration Government Fund n Goldman Sachs Government Income Fund n Goldman Sachs U.S. Mortgages Fund n Goldman Sachs Core Fixed Income Fund n Goldman Sachs Investment Grade Credit Fund n Goldman Sachs Global Income Fund n Goldman Sachs High Yield Fund n Goldman Sachs Emerging Markets Debt Fund


	THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.


	AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT RISKS, AND YOU MAY LOSE MONEY IN A FUND.






NOT FDIC-INSURED	May Lose Value	No Bank Guarantee


	General Investment Management Approach

	Goldman Sachs Asset Management, L.P. (“GSAM®”), serves as investment adviser to the Enhanced Income, Ultra-Short Duration Government, Short Duration Government, Government Income, U.S. Mortgages, Core Fixed Income, Investment Grade Credit, High Yield and Emerging Markets Debt Funds. Goldman Sachs Asset Management International serves as investment adviser to the Global Income Fund. Goldman Sachs Asset Management, L.P., and Goldman Sachs Asset Management International are each referred to in this Prospectus as the “Investment Adviser.”

The Funds Described In This Prospectus, Including The Enhanced Income Fund, Are Not Money Market Funds. Investors In The Funds Should Understand That The Net Asset Value (“NAV”) Of The Funds Will Fluctuate Which May Result In A Loss Of A Portion Of The Principal Amount Invested.

Goldman Sachs’ Fixed Income Investing Philosophy:

The Fixed Income investment philosophy focuses on consistently striving to add value through a disciplined investment approach. The globally integrated team actively seeks to generate multiple sources of return through a process based on four beliefs:

n multiple investment strategies are key to achieving optimal risk-adjusted returns;

n global integration is essential;

n short-term, tactical opportunities and long-term, investment views are equally important; and

n consistent, long-term returns can best be achieved through a risk aware approach.

The investment process revolves around four groups: the Investment Strategy Group (ISG), the Top-down Strategy Teams, the Bottom-up Sector Teams, and the Portfolio Teams. Cross-membership of portfolio managers across these groups enables them to fully capitalize on the expertise of the entire investment team.

1. Investment Strategy Group establishes overall macro-economic view— This view serves as the backdrop for the sector allocation, security selection, duration and yield curve strategies.

2. Top-down Strategy Teams formulate decisions across all GSAM portfolios— Using the ISG outlook as a backdrop, these four teams are responsible, to the extent applicable for a particular Fund, for Cross-Sector, Duration, Country and Currency decisions.

3. Bottom-up Sector Teams formulate subsector allocation and security selection decisions— Concurrently, these teams formulate subsector allocation and security selection decisions.

4. Portfolio Teams assess the risk for each Fund— Ultimately accountable for the aggregate result, these teams calibrate the “Best Ideas” generated by the Top-down Strategy and Bottom-up Sector Teams, carefully incorporating Fund guidelines and objectives.

The Investment Adviser de-emphasizes interest rate predictions as a means of generating incremental return. Instead, the Investment Adviser seeks to add value through the selection of particular securities and investment sector allocation as described above.

GENERAL INVESTMENT MANAGEMENT APPROACH

With every fixed-income portfolio, the Investment Adviser applies a team approach that emphasizes risk management and capitalizes on Goldman Sachs’ extensive research capabilities.

Each of the Funds described in this Prospectus has a target duration. A Fund’s duration approximates its price sensitivity to changes in interest rates. Maturity measures the time until final payment is due; it takes no account of the pattern of a security’s cash flows over time. In computing portfolio duration, a Fund will estimate the duration of obligations that are subject to prepayment or redemption by the issuer, taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as “option-adjusted” duration. The Investment Adviser may use futures contracts and options on futures contracts to manage the Funds’ target duration in accordance with their benchmark or benchmarks. A Fund will not be limited as to its maximum weighted average portfolio maturity or the maximum stated maturity with respect to individual securities unless otherwise noted.

Each Fund also has credit rating requirements for the securities it buys. A Fund will deem a security to have met its minimum credit rating requirement if the security has the required rating at the time of purchase from at least one nationally recognized statistical rating organization (“NRSRO”) even though it has been rated below the minimum rating by one or more other NRSROs. Unrated securities may be purchased by the Funds if they are determined by the Investment Adviser to be of comparable quality. A security satisfies a Fund’s minimum rating requirement regardless of its relative ranking (for example, plus or minus) within a designated major rating category (for example, BBB or Baa). If a security satisfies a Fund’s minimum rating requirement at the time of purchase and is subsequently downgraded below such rating, the Fund will not be required to dispose of such security. This is so even if the downgrade causes the average credit quality of the Fund to be lower than that stated in the Prospectus. Furthermore, during this period, the Investment Adviser will only buy securities at or above the Fund’s average rating requirement. If a downgrade occurs, the Investment Adviser will consider what action, including the sale of such security, is in the best interests of a Fund and its shareholders.

References in the Prospectus to a Fund’s benchmark are for informational purposes only, and unless otherwise noted are not necessarily an indication of how the Fund is managed.


	Fund Investment Objectives and Strategies


	Goldman Sachs Enhanced Income Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Six-Month U.S. Treasury Bill Index to One-Year U.S. Treasury Note Index




Expected Approximate Interest Rate Sensitivity:		9-month U.S. Treasury bill




Credit Quality:		Minimum = A by a NRSRO at the time of purchase or, if unrated, determined by the Investment Adviser to be of comparable quality Weighted Average = AA




Benchmarks:		Six-Month U.S. Treasury Bill Index One-Year U.S. Treasury Note Index




Symbol:		GEIIX

INVESTMENT OBJECTIVE

The Fund seeks to generate return in excess of traditional money market products while maintaining an emphasis on preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, primarily in a portfolio of fixed-income securities, including non-mortgage securities issued or guaranteed by the U.S. government, its agencies, instrumentalities or sponsored enterprises (“U.S. Government Securities”), corporate notes and commercial paper and fixed and floating rate asset-backed securities. Except for Treasury Securities deliverable into futures transactions, the Fund will not invest in securities with remaining maturities of more than 5 years as determined in accordance with the Statement of Additional Information (the “Additional Statement”). The Fund may invest across a broad range of high-grade fixed-income sectors with an emphasis on the preservation of capital and liquidity. In pursuing the Fund’s investment objective, the Investment Adviser will seek to enhance the Fund’s return by identifying those high grade fixed-income securities that are within the maturity limitations discussed above and that the Investment Adviser believes offer advantageous yields relative to other similar securities.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.

FUND INVESTMENT OBJECTIVES AND STRATEGIES


	Goldman Sachs Ultra-Short Duration Government Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Six-Month U.S. Treasury Bill Index to One-Year U.S. Treasury Note Index Maximum = 2 years




Expected Approximate Interest Rate Sensitivity:		9-month U.S. Treasury bill




Credit Quality:		U.S. Government Securities and repurchase agreements collateralized by such securities; non-U.S. Government Securities rated AAA or Aaa by a NRSRO at the time of purchase, or if unrated, determined by the Investment Adviser to be of comparable quality




Benchmarks:		Six-Month U.S. Treasury Bill Index One-Year U.S. Treasury Note Index




Symbol:		GSARX

INVESTMENT OBJECTIVE

The Fund seeks to provide a high level of current income, consistent with low volatility of principal.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in U.S. Government Securities, including securities representing an interest in or collateralized by adjustable rate and fixed rate mortgage loans (“Mortgage-Backed Securities”), and in repurchase agreements collateralized by U.S. Government Securities. The remainder of the Fund’s Net Assets (up to 20%) may be invested in other non-government securities. 100% of the Fund’s portfolio will be invested in U.S. dollar-denominated securities.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.


	Goldman Sachs Short Duration Government Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Two-Year U.S. Treasury Note Index plus or minus 0.5 years Maximum = 3 years




Expected Approximate Interest Rate Sensitivity:		2-year U.S. Treasury note




Credit Quality:		U.S. Government Securities and repurchase agreements collateralized by such securities




Benchmark:		Two-Year U.S. Treasury Note Index




Symbols:		GSTGX

INVESTMENT OBJECTIVE

The Fund seeks a high level of current income and secondarily, in seeking current income, may also consider the potential for capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in U.S. Government Securities and in repurchase agreements collateralized by such securities. Substantially all of the Fund’s Net Assets will be invested in U.S. Government Securities and instruments based on U.S. Government Securities. 100% of the Fund’s portfolio will be invested in U.S. dollar-denominated securities.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.

FUND INVESTMENT OBJECTIVES AND STRATEGIES


	Goldman Sachs Government Income Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Lehman Brothers Government/Mortgage Index plus or minus 1 year Maximum = 6 years




Expected Approximate Interest Rate Sensitivity:		5-year U.S. Treasury note




Credit Quality:		U.S. Government Securities; non-U.S. Government Securities rated AAA or Aaa by a NRSRO at the time of purchase or, if unrated, determined by the Investment Adviser to be of comparable quality




Benchmark:		Lehman Brothers Government/Mortgage Index




Symbols:		GSOIX

INVESTMENT OBJECTIVE

The Fund seeks a high level of current income, consistent with safety of principal.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in U.S. Government Securities and in repurchase agreements collateralized by such securities. The remainder of the Fund’s Net Assets (up to 20%) may be invested in non-government securities such as privately issued Mortgage-Backed Securities, asset-backed securities and corporate securities. 100% of the Fund’s portfolio will be invested in U.S. dollar-denominated securities.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.


	Goldman Sachs U.S. Mortgages Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Lehman Brothers Securitized Index plus or minus 0.5 years




Credit Quality:		Minimum = BBB- or Baa3 at time of purchase




Benchmark:		Lehman Brothers Securitized Index




Symbols:		GSUIX

INVESTMENT OBJECTIVE

The Fund seeks a high level of total return consisting of income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in securities representing direct or indirect interests in or that are collateralized by Mortgage-Backed Securities. The Fund may also invest in U.S. Government Securities and asset-backed securities.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.

FUND INVESTMENT OBJECTIVES AND STRATEGIES


	Goldman Sachs Core Fixed Income Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Lehman Brothers Aggregate Bond Index plus or minus one year Maximum = 6 years




Expected Approximate Interest Rate Sensitivity:		5-year U.S. Treasury note




Credit Quality:		Minimum = BBB- or Baa3 at time of purchase; Securities will either be rated by a NRSRO or, if unrated, determined by the Investment Adviser to be of comparable quality




Benchmark:		Lehman Brothers Aggregate Bond Index




Symbols:		GSFIX

INVESTMENT OBJECTIVE

The Fund seeks a total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers Aggregate Bond Index (the “Index”).

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in fixed-income securities, including U.S. Government Securities, corporate debt securities, privately issued Mortgage-Backed Securities and asset-backed securities. The Fund may also invest in custodial receipts, Municipal Securities and convertible securities. The Fund’s investments in non-U.S. dollar denominated obligations will not exceed 25% of its total assets at the time of investment and 10% of the Fund’s total assets may be invested in obligations of issuers in countries with emerging markets or economies (“emerging countries”). However, to the extent that the Investment Adviser has entered into transactions that are intended to hedge the Fund’s position in a non-U.S. dollar denominated obligation against currency risk, such obligation will not be counted when calculating compliance with the 25% limitation on obligations in non-U.S. currency. In pursuing its investment objective, the Fund uses the Index as its performance benchmark, but the Fund will not attempt to replicate the Index. The Fund may, therefore, invest in securities that are not included in the Index.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.


	Goldman Sachs Investment Grade Credit Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Lehman Brothers U.S. Credit Index plus or minus one year




Expected Approximate Interest Rate Sensitivity:		7-year U.S. Treasury note




Credit Quality:		Minimum = BBB- or Baa3 at time of purchase




Benchmark:		Lehman Brothers U.S. Credit Index




Symbol:		GSGDX

INVESTMENT OBJECTIVE

The Fund seeks a high level total return consisting of capital appreciation and income that exceeds the total return of the Lehman Brothers U.S. Credit Index (the “Index”).

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in investment grade fixed-income securities. Investment grade securities are securities that are rated at the time of purchase at least BBB- by Standard & Poor’s Rating Group (“Standard & Poor’s”) or at least Baa3 by Moody’s Investors Service, Inc. (“Moody’s”), have a comparable rating by another NRSRO or, if unrated, are determined by the Investment Adviser to be of comparable quality. The Fund may invest in corporate securities, U.S. Government Securities, Mortgage-Backed Securities, asset-backed securities, and 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 thereof (“Municipal Securities”). Although the Fund may invest without limit in foreign securities, the Fund’s investments in non-U.S. dollar denominated obligations will not exceed 25% of its total assets at the time of investment, and 10% of the Fund’s total assets may be invested in obligations of emerging countries. However, to the extent that the Investment Adviser has entered into transactions that are intended to hedge the Fund’s position in a non-U.S. dollar denominated obligation against currency risk, such obligation will not be counted when calculating compliance with the 25% limitation on obligations in non-U.S. currency. In pursuing its investment objective, the Fund uses the Index as its performance benchmark, but the Fund will not attempt to replicate the Index. The Fund may, therefore, invest in securities that are not included in the Index.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.

FUND INVESTMENT OBJECTIVES AND STRATEGIES


	Goldman Sachs Global Income Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = J.P. Morgan Global Government Bond Index (hedged) plus or minus 2.5 years Maximum = 7.5 years




Expected Approximate Interest Rate Sensitivity:		6-year government bond




Credit Quality:		Minimum = BBB- or Baa3 at time of purchase; at least 50% of total assets = AAA or Aaa Securities will either be rated by a NRSRO or, if unrated, determined by the Investment Adviser to be of comparable quality




Benchmark:		J.P. Morgan Global Government Bond Index (hedged)




Symbols:		GSGLX

INVESTMENT OBJECTIVE

The Fund seeks a high total return, emphasizing current income, and, to a lesser extent, providing opportunities for capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in a portfolio of fixed-income securities of U.S. and foreign issuers. The Fund also enters into transactions in foreign currencies. Under normal market conditions, the Fund will:

n Have at least 30% of its Net Assets, after considering the effect of currency positions, denominated in U.S. dollars

n Invest in securities of issuers in at least three countries

n Seek to meet its investment objective by pursuing investment opportunities in foreign and domestic fixed-income securities markets and by engaging in currency transactions to seek to enhance returns and to seek to hedge its portfolio against currency exchange rate fluctuations


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.


	Goldman Sachs Global Income Fund continued

The Fund may invest more than 25% of its total assets in the securities of corporate and governmental issuers located in each of Canada, Germany, Japan and the United Kingdom as well as in the securities of U.S. issuers. Not more than 25% of the Fund’s total assets will be invested in securities of issuers in any other single foreign country. The Fund may also invest up to 10% of its total assets in issuers in emerging countries.

The fixed-income securities in which the Fund may invest include:

n U.S. Government Securities and custodial receipts therefor

n Securities issued or guaranteed by a foreign government or any of its political subdivisions, authorities, agencies, instrumentalities or by supranational entities

n Corporate debt securities

n Certificates of deposit and bankers’ acceptances issued or guaranteed by, or time deposits maintained at, U.S. or foreign banks (and their branches wherever located) having total assets of more than $1 billion

n Commercial paper

n Mortgage-Backed Securities and asset-backed securities

The Global Income Fund is “non-diversified” under the Investment Company Act of 1940 (the “Act”), and may invest more of its assets in fewer issuers than “diversified” mutual funds. Therefore, the Global Income Fund may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments.

FUND INVESTMENT OBJECTIVES AND STRATEGIES


	Goldman Sachs High Yield Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = Lehman Brothers U.S. Corporate High Yield Bond Index plus or minus 2.5 years Maximum = 7.5 years




Expected Approximate Interest Rate Sensitivity:		6-year U.S. Treasury note




Credit Quality:		At least 80% of net assets = BB or Ba or lower at the time of purchase or, if unrated, determined by the Investment Adviser to be of comparable quality




Benchmark:		Lehman Brothers U.S. Corporate High Yield Bond Index




Symbols:		GSHIX

INVESTMENT OBJECTIVE

The Fund seeks a high level of current income and may also consider the potential for capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in high-yield, fixed-income securities that, at the time of purchase, are non-investment grade securities. Non-investment grade securities are securities rated BB, Ba or below by a NRSRO, or, if unrated, determined by the Investment Adviser to be of comparable quality. The Fund may invest in all types of fixed-income securities, including:

n Senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper)

n Convertible and non-convertible corporate debt obligations

n Loan participations

n Custodial receipts

n Municipal Securities

n Preferred stock


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.


	Goldman Sachs High Yield Fund continued

The Fund may invest up to 25% of its total assets in obligations of domestic and foreign issuers which are denominated in currencies other than the U.S. dollar and in securities of issuers located in emerging countries denominated in any currency. However, to the extent that the Investment Adviser has entered into transactions that are intended to hedge the Fund’s position in a non-U.S. dollar denominated obligation against currency risk, such obligation will not be counted when calculating compliance with the 25% limitation on obligations in non-U.S. currency.

Under normal market conditions, the Fund may invest up to 20% of its Net Assets in investment grade fixed-income securities, including U.S. Government Securities. The Fund may also invest in common stocks, warrants, rights and other equity securities, but will generally hold such equity investments only when debt or preferred stock of the issuer of such equity securities is held by the Fund or when the equity securities are received by the Fund in connection with a corporate restructuring of an issuer.

Non-investment grade fixed-income securities (commonly known as “junk bonds”) tend to offer higher yields than higher rated securities with similar maturities. Non-investment grade fixed-income securities are, however, considered speculative and generally involve greater price volatility and greater risk of loss of principal and interest than higher rated securities. The Fund may purchase the securities of issuers that are in default.

FUND INVESTMENT OBJECTIVES AND STRATEGIES


	Goldman Sachs Emerging Markets Debt Fund


FUND FACTS



Duration* (under normal interest rate conditions):		Target = JP Morgan EMBI Global Diversified Index plus or minus 2 years Maximum = 7 years




Expected Approximate Interest Rate Sensitivity:		10-year government bond




Credit Quality:		Minimum = D (Standard & Poor’s) or C (Moody’s)




Benchmark:		JP Morgan EMBI Global Diversified Index




Symbol:		GSDIX

INVESTMENT OBJECTIVE

The Fund seeks a high level of total return consisting of income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) (“Net Assets”) in fixed-income securities of issuers located in emerging countries. The Investment Adviser may consider, but is not bound by, classifications by the World Bank, the International Finance Corporation or the United Nations and its agencies in determining whether a country is emerging or developed. Currently, Emerging Countries include, among others, most African, Asian, Eastern European, Middle Eastern, South and Central American nations. The Investment Adviser currently intends that the Fund’s investment focus will be in the following emerging countries: Argentina, Brazil, Bulgaria, Colombia, Dominican Republic, Ecuador, Egypt, Malaysia, Mexico, Nigeria, Panama, Peru, The Philippines, Poland, Russia, South Africa, South Korea, Turkey, Ukraine, Uruguay, Venezuela as well as other emerging countries to the extent that foreign investors are permitted by applicable law to make such investments.


*	The Fund’s duration approximates its price sensitivity to changes in interest rates.


	Goldman Sachs Emerging Markets Debt Fund continued

The Fund may invest in all types of emerging country fixed-income securities, including the following:

n Brady bonds and other debt issued by governments, their agencies and instrumentalities, or by their central banks,

n interests issued by entities organized and operated for the purpose of restructuring the investment characteristics of instruments issued by emerging country issuers,

n fixed and floating rate, senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper),

n loan participations, and

n repurchase agreements with respect to the foregoing.

The majority of the countries in which the Fund invests will have sovereign ratings that are below investment grade or are unrated. Moreover, to the extent the Fund invests in corporate or other privately issued debt obligations, many of the issuers of such obligations will be smaller companies with stock market capitalizations of $1 billion or less at the time of investment. Although a majority of the Fund’s assets may be denominated in U.S. Dollars, the Fund may invest in securities denominated in any currency and may be subject to the risk of adverse currency fluctuations.

Non-investment grade fixed-income securities (commonly known as “junk bonds”) tend to offer higher yields than higher-rated securities with similar maturities. Non-investment grade securities are, however, considered speculative and generally involve greater price volatility and greater risk of loss of principal and interest than more highly rated securities. The Fund may purchase the securities of issuers that are in default.

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Other Investment Practices
and Securities

The table below identifies some of the investment techniques that may (but are not required to) be used by the Funds in seeking to achieve their investment objectives. The table also highlights the differences among the Funds in their use of these techniques and other investment practices and investment securities. Numbers in this table show allowable usage only; for actual usage, consult the Funds’ annual and semi-annual reports. For more information about these and other investment practices and securities, see Appendix A.




10 Percent of total assets (including securities lending collateral) (italic type)
10 Percent of net assets (excluding borrowings for investment purposes) (roman type)
• No specific percentage limitation		Ultra-Short	Short
on usage; limited only by the	Enhanced	Duration	Duration	Government
objectives and strategies of the Fund	Income	Government	Government	Income
— Not permitted	Fund	Fund	Fund	Fund


Investment Practices

Borrowings	33 1/3	33 1/3	33 1/3	33 1/3

Credit, Interest Rate and Total Return Swaps*	•	•	•	•

Currency Options and Futures	—	—	—	—

Cross Hedging of Currencies	—	—	—	—

Currency Swaps*	—	—	—	—

Financial Futures Contracts	•	•	•	•

Forward Foreign Currency Exchange Contracts	—	—	—	—

Interest Rate Floors, Caps and Collars	•	•	•	•

Mortgage Dollar Rolls	—	•	•	•

Mortgage Swaps*	—	•	•	•

Options (including Options on Futures)	•	•	•	•

Options on Foreign Currencies	—	—	—	—

Repurchase Agreements	•**	•	•	•

Securities Lending	33 1/3	33 1/3	33 1/3	33 1/3

When-Issued Securities and Forward Commitments	•	•	•	•


*		Limited to 15% of net assets (together with other illiquid securities) for all structured securities which are not deemed to be liquid and all swap transactions.
**		The Enhanced Income, Core Fixed Income, Global Income and High Yield Funds may enter into repurchase agreements collateralized by securities issued by foreign governments. The U.S. Mortgages and Investment Grade Credit Funds may enter into repurchase agreements collateralized by U.S. Government Securities and securities rated at least AAA by Standard & Poor’s or Aaa by Moody’s or have a comparable rating by another NRSRO. The Emerging Markets Debt Fund may enter into repurchase agreements collateralized by securities issued by foreign governments and their central banks.

OTHER INVESTMENT PRACTICES AND SECURITIES


		Investment			Emerging
U.S.	Core Fixed	Grade	Global		Markets
Mortgages	Income	Credit	Income	High Yield	Debt
Fund	Fund	Fund	Fund	Fund	Fund




33 1/3	33 1/3	33 1/3	33 1/3	33 1/3	33 1/3


•	•	•	•	•	•

—	•	•	•	•	•

—	•	•	•	•	•

—	•	•	•	•	•

•	•	•	•	•	•


—	•	•	•	•	•


•	•	•	•	•	•

•	•	•	•	—	—

•	•	•	•	•	—


•	•	•	•	•	•

—	•	•	•	•	•

•**	•**	•**	•**	•**	•**

33 1/3	33 1/3	33 1/3	33 1/3	33 1/3	33 1/3


•	•	•	•	•	•

10 Percent of total assets (italic type)

10 Percent of Net Assets (including borrowings for investment purposes) (roman type)

• No specific percentage limitation

Ultra-Short

Short

on usage; limited only by the

Enhanced

Duration

Government

U.S.

objectives and strategies of the Fund

Income

Government

Income

Mortgages

— Not permitted

Fund

Investment Securities

Asset-Backed Securities

•

Bank Obligations

•

—

•

Convertible Securities

•

—

Corporate Debt Obligations and
Trust Preferred Securities

•

—

•

Emerging Country Securities

—

Floating and Variable Rate
Obligations

•

Foreign Securities²

•

—

Loan Participations

—

Mortgage-Backed Securities

Adjustable Rate Mortgage Loans

—

•

Collateralized Mortgage Obligations

—

•

Fixed Rate Mortgage Loans

—

•

Government Issued Mortgage-Backed Securities

—

•

Multiple Class Mortgage-Backed Securities

—

•

Privately Issued Mortgage-Backed Securities

—

•

—

•

Stripped Mortgage-Backed
Securities

—

•

Lower Grade Fixed Income
Securities

—

Preferred Stock, Warrants and
Rights

•

—

Structured Securities*

•

Taxable Municipal Securities

—

•

—

•

Tax-Free Municipal Securities

—

•

—

•

Temporary Investments

•

U.S. Government Securities

•

80+

•


*		Limited to 15% of net assets (together with other illiquid securities) for all structured securities which are not deemed to be liquid and all swap transactions.
¹		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.
²		Includes issuers domiciled in one country and issuing securities denominated in the currency of another. Non-dollar securities are not permitted for the Enhanced Income Fund.
³		Of the Funds’ investments in foreign securities, 10% of each Fund’s total assets in the aggregate may be invested in emerging country securities.

OTHER INVESTMENT PRACTICES AND SECURITIES

Core Fixed

Investment

Global

Emerging

Income

Grade Credit

Income

High Yield

Markets Debt

Fund

•

—

•

⁴

•

⁴

•

⁴

•

⁴

•

—

•

—

•

—

•

—

•

—

•

—

•

—

•

—

•

—

80+

⁵

•

—

•

—

•

—

•

—

•

—

•

—

•

⁶

•

⁶

•


⁴		The Core Fixed Income and Investment Grade Credit Funds may each invent up to 25% of their respective total assets in securities not denominated in U.S. dollars (unless a Fund’s position is hedged against currency risk). The High Yield Fund may invest up to 25% of its total assets in securities not denominated in U.S. dollars (unless the Fund’s position is hedged against currency risk) and in emerging country securities denominated in any currency.
⁵		The High Yield Fund will invest at least 80%, of its Net Assets in lower grade securities under normal circumstances.
⁶		The High Yield Fund and Emerging Markets Debt Fund may for this purpose invest in investment grade and high grade securities without limit.

Principal Risks of the Funds

Loss of money is a risk of investing in each Fund. An investment in a Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. The following summarizes important risks that apply to the Funds and may result in a loss of your investment. None of the Funds should be relied upon as a complete investment program. There can be no assurance that a Fund will achieve its investment objective.



			Ultra-Short	Short
		Enhanced	Duration	Duration	Government	U.S.
• Applicable		Income	Government	Government	Income	Mortgages
— Not applicable		Fund	Fund	Fund	Fund	Fund


NAV		•	•	•	•	•

Interest Rate		•	•	•	•	•

Credit/Default		•	•	•	•	•

Call		•	•	•	•	•

Extension		•	•	•	•	•

Derivatives		•	•	•	•	•

U.S. Government Securities		•	•	•	•	•

Market		•	•	•	•	•

Management		•	•	•	•	•

Liquidity		•	•	•	•	•

Non-Diversification		—	—	—	—	—

Sovereign
	Political	•	—	—	—	—

	Economic	•	—	—	—	—

	Repayment	•	—	—	—	—

Foreign		•	—	—	—	—

Emerging Countries		—	—	—	—	—

Junk Bond		—	—	—	—	—

Concentration		—	—	—	—	—

PRINCIPAL RISKS OF THE FUNDS



Core Fixed	Investment	Global		Emerging
Income	Grade Credit	Income	High Yield	Markets Debt
Fund	Fund	Fund	Fund	Fund


•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

—	—	•	—	—


•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

•	•	•	•	•

—	—	—	•	•

—	—	•	—	•

All Funds:

n NAV Risk—The risk that the net asset value (“NAV”) of the Fund and the value of your investment will fluctuate.

n Interest Rate Risk—The risk that when interest rates increase, fixed-income securities held by a Fund will decline in value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.

n Credit/Default Risk—The risk that an issuer or guarantor of fixed-income securities held by a Fund (which may have low credit ratings) may default on its obligation to pay interest and repay principal.

n Call Risk—The risk that an issuer will exercise its right to pay principal on an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than expected. This may happen when there is a decline in interest rates. Under these circumstances, a Fund may be unable to recoup all of its initial investment and will also suffer from having to reinvest in lower yielding securities.

n Extension Risk—The risk that an issuer will exercise its right to pay principal on an obligation held by a Fund (such as a Mortgage-Backed Security) later than expected. This may happen when there is a rise in interest rates. Under these circumstances, the value of the obligation will decrease, and a Fund will also suffer from the inability to invest in higher yielding securities.

n Derivatives Risk—The risk that loss may result from a Fund’s investments in options, futures, swaps, options on swaps, structured securities and other derivative investments. These instruments may be leveraged so that small changes may produce disproportionate losses to a Fund.

n U.S. Government Securities Risk—The risk that the U.S. government will not provide financial support to U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law. Although many U.S. Government Securities purchased by the Funds, such as those issued by the Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal Home Loan Banks may be chartered or sponsored by Acts of Congress, their securities are neither issued nor guaranteed by the United States Treasury and, therefore, are not backed by the full faith and credit of the United States. The maximum potential liability of the issuers of some U.S. Government Securities held by a Fund may greatly exceed their current resources, including their 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.

n Market Risk—The risk that the value of the securities in which a Fund invests may go up or down in response to the prospects of individual companies, particular industry sectors or governments and/or general economic conditions. Price changes may be temporary or last for extended periods. A Fund’s investments may be overweighted from time to time in one or more industry sectors, which will

PRINCIPAL RISKS OF THE FUNDS

increase a Fund’s exposure to risk of loss from adverse developments affecting those sectors.

n Management Risk—The risk that a strategy used by the Investment Adviser may fail to produce the intended results.

n Liquidity Risk—The risk that a Fund will not be able to pay redemption proceeds within the time period stated in this Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Funds that invest in non-investment grade fixed-income securities or emerging country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within these investment categories, will shrink or disappear suddenly and without warning as a result of adverse economic, market or political events, or adverse investor perceptions whether or not accurate. The Goldman Sachs Asset Allocation Portfolios (the “Asset Allocation Portfolios”) expect to invest a significant percentage of their assets in the Funds and other funds for which GSAM or an affiliate now or in the future acts as investment adviser or underwriter. Redemptions by an Asset Allocation Portfolio of its position in a Fund may further increase liquidity risk and may impact a Fund’s NAV.

Specific Funds:

n Non-Diversification Risk—The Global Income Fund is non-diversified, meaning that the Fund is permitted to invest more of its assets in fewer issuers than “diversified” mutual funds. Thus, the Fund may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments.

n Sovereign Risk—The Enhanced Income, Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds will be subject to the risk that the issuer of the sovereign debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay the principal or interest when due.

n Political Risk—The risks associated with the general political and social environment of a country. These factors may include among other things government instability, poor socioeconomic conditions, corruption, lack of law and order, lack of democratic accountability, poor quality of the bureaucracy, internal and external conflict, and religious and ethnic tensions. High political risk can impede the economic welfare of a country.

n Economic Risk—The risks associated with the general economic environment of a country. These can encompass, among other things, low quality and growth rate of Gross Domestic Product (“GDP”), high inflation or deflation, high government deficits as a percentage of GDP, weak financial sector, overvalued exchange rate, and high current account deficits as a percentage of GDP.

n Repayment Risk—The risk associated with the inability of a country to pay its external debt obligations in the immediate future. Repayment risk factors may include but are not limited to high foreign debt as a percentage of GDP, high foreign debt service as a percentage of exports, low foreign exchange reserves as a percentage of short-term debt or exports, and an unsustainable exchange rate structure.

n Foreign Risk—The Enhanced Income, Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds will be subject to risks of loss with respect to their foreign investments that are not typically associated with domestic issuers. Loss may result because of less foreign government regulation, less public information and less economic, political and social stability. Loss may also result from the imposition of exchange controls, confiscations and other government restrictions. The Funds will also be subject to the risk of negative foreign currency rate fluctuations. Foreign risks will normally be greatest when a Fund invests in issuers located in emerging countries.

n Emerging Countries Risk—The Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds may invest in emerging countries. The securities markets of Asian, Latin, Central and South American, Eastern European, Middle Eastern, African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not subject to as extensive and frequent accounting, financial and other reporting requirements as the securities markets of more developed countries. These risks are not normally associated with investments in more developed countries.

n “Junk Bond” Risk—The High Yield and Emerging Markets Debt Funds will invest in non-investment grade fixed-income securities (commonly known as “junk bonds”) that are considered predominantly speculative by traditional investment standards. Non-investment grade fixed-income securities and unrated securities of comparable credit quality are subject to the increased risk of an issuer’s inability to meet principal and interest payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.

n Concentration Risk—The risk that if the Global Income or Emerging Markets Debt Funds invest more than 25% of its total assets in issuers within the same country, state, region, currency, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated. In addition, the Global Income Fund may invest more than 25% of its total assets in the securities of corporate and governmental issuers located in each of Canada, Germany, Japan and the United Kingdom, as well as in the securities of U.S. issuers. Concentration of the Global

PRINCIPAL RISKS OF THE FUNDS

Income Fund’s investments in such issuers will subject the Fund, to a greater extent than if investments were less concentrated, to losses arising from adverse developments affecting those issuers or countries.

More information about the Funds’ portfolio securities and investment techniques, and their associated risks, is provided in Appendix A. You should consider the investment risks discussed in this section and in Appendix A. Both are important to your investment choice.


	Fund Performance

HOW THE FUNDS HAVE PERFORMED

The bar chart and table provide an indication of the risks of investing in a Fund by showing: (a) changes in the performance of a Fund’s Institutional Shares from year to year for up to the last ten years; and (b) how the average annual total returns of a Fund’s Institutional Shares compare to those of broad-based securities market indices. The bar chart and table assume reinvestment of dividends and distributions. A Fund’s past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future. Performance reflects expense limitations in effect. If expense limitations were not in place, a Fund’s performance would have been reduced. The U.S. Mortgages, Investment Grade Credit and Emerging Markets Debt Funds commenced operations on November 3, 2003, November 3, 2003 and August 29, 2003, respectively. Since these Funds have less than one full calendar year’s performance, no performance information is provided in this section for these Funds.

INFORMATION ON AFTER-TAX RETURNS

These definitions apply to the after-tax returns.

Average Annual Total Returns Before Taxes. These returns do not reflect taxes on distributions on a Fund’s Institutional Shares nor do they show how performance can be impacted by taxes when shares are redeemed (sold) by you.

Average Annual Total Returns After Taxes on Distributions. These returns assume that taxes are paid on distributions on a Fund’s Institutional Shares (i.e., dividends and capital gains) but do not reflect taxes that may be incurred upon redemption (sale) of the Institutional Shares at the end of the performance period.

Average Annual Total Returns After Taxes on Distributions and Sale of Shares. These returns reflect taxes paid on distributions on a Fund’s Institutional Shares and taxes applicable when the shares are redeemed (sold).

Note on Tax Rates. The after-tax performance figures are calculated using the historically highest individual federal marginal income tax rates at the time of the distributions (as of the date of this Prospectus, 35% for ordinary income dividends and 15% for long-term capital gains distributions) and do not reflect state and local taxes. In calculating the federal income taxes due on redemptions, capital gains taxes resulting from a redemption are subtracted from the redemption proceeds and the tax benefits from capital losses resulting from the redemption are added to the redemption proceeds. Under certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the Returns After Taxes on Distributions and Sale of Fund Shares to be greater than the Returns After Taxes on Distributions or even the Returns Before Taxes.

FUND PERFORMANCE

Enhanced Income Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q1 ’01 +2.23% Worst Quarter* Q4 ’03 +0.28%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		Since Inception






Institutional Shares (Inception 8/2/00)
Returns Before Taxes		1.72%		4.51%
Returns After Taxes on Distributions**		0.52%		2.71%
Returns After Taxes on Distributions and Sale of Fund Shares**		1.11%		2.74%
Six-Month U.S. Treasury Bill Index***		1.29%		3.37%
One-Year U.S. Treasury Note Index***		1.45%		4.18%
Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index****		1.89%		5.89%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The Six-Month U.S. Treasury Bill Index and One-Year U.S. Treasury Note Index, as reported by Merrill Lynch, do not reflect any deduction for fees, expenses or taxes.
****		The Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index, an unmanaged index, does not reflect any deduction for fees, expenses or taxes.

Ultra-Short Duration Government Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q4 ’00 +2.29% Worst Quarter* Q2 ’03 +0.13%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		5 Years		10 Years		Since Inception






Institutional Shares (Inception 7/17/91)
Returns Before Taxes		1.63%		4.76%		5.03%		5.09%
Returns After Taxes on Distributions**		0.32%		2.79%		2.86%		2.98%
Returns After Taxes on Distributions and Sale of Fund Shares**		1.05%		2.85%		2.93%		3.04%
Six-Month U.S. Treasury Bill Index***		1.29%		3.95%		4.66%		4.62%
One-Year U.S. Treasury Note Index***		1.45%		4.40%		4.96%		5.08%
Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index****		1.89%		5.23%		5.54%		5.79%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The Six-Month U.S. Treasury Bill Index and One-Year U.S. Treasury Note Index, as reported by Merrill Lynch, do not reflect any deduction for fees, expenses or taxes.
****		The Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index, an unmanaged index, does not reflect any deduction for fees, expenses or taxes.

FUND PERFORMANCE

Short Duration Government Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q3 ’01 +3.77% Worst Quarter* Q1 ’94 -0.63%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		5 Years		10 Years		Since Inception






Institutional Shares (Inception 8/15/88)
Returns Before Taxes		2.39%		5.91%		5.93%		6.67%
Returns After Taxes on Distributions**		1.09%		3.74%		3.53%		3.62%
Returns After Taxes on Distributions and Sale of Fund Shares**		1.54%		3.68%		3.53%		3.62%
Two-Year U.S. Treasury Note Index***		2.23%		5.26%		5.51%		6.49%
Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index****		2.01%		5.50%		5.73%		6.73%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The Two-Year U.S. Treasury Note Index, as reported by Merrill Lynch, does not reflect any deduction for fees, expenses or taxes.
****		The Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index, an unmanaged index, does not reflect any deduction for fees, expenses or taxes.

Government Income Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q4 ’00 +4.83% Worst Quarter* Q2 ’99 –0.98%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		5 Years		Since Inception






Institutional Shares (Inception 8/15/97)
Returns Before Taxes		3.54%		6.47%		7.01%
Returns After Taxes on Distributions**		2.00%		4.20%		4.49%
Returns After Taxes on Distributions and Sale of Fund Shares**		2.36%		4.11%		4.41%
Lehman Brothers Government/ Mortgage Index***		2.73%		6.34%		7.05%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The Lehman Brothers Government/ Mortgage Index, an unmanaged index, does not reflect any deduction for fees, expenses or taxes.

FUND PERFORMANCE

Core Fixed Income Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q2 ’95 +5.99% Worst Quarter* Q1 ’96 –1.89%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		5 Years		Since Inception


Institutional Shares (Inception 1/5/94)
Returns Before Taxes		6.47%		6.72%		7.00%
Returns After Taxes on Distributions**		3.90%		4.20%		4.30%
Returns After Taxes on Distributions and Sale of Fund Shares**		4.40%		4.18%		4.28%
Lehman Brothers Aggregate Bond Index***		4.10%		6.62%		6.95%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified portfolio of fixed-income securities, including U.S. Treasuries, investment-grade corporate bonds, and mortgage-backed and asset-backed securities. The Index figures do not reflect any deduction for fees, expenses or taxes.

Global Income Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q3 ’98 +5.70% Worst Quarter* Q2 ’99 –1.60%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		5 Years		Since Inception


Institutional Shares (Inception 8/1/95)
Returns Before Taxes		4.38%		4.86%		7.51%
Returns After Taxes on Distributions**		1.07%		2.24%		4.51%
Returns After Taxes on Distributions and Sale of Fund Shares**		2.83%		2.53%		4.56%
J.P. Morgan Global Government Bond Index (hedged)***		2.09%		5.59%		7.76%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index, does not reflect any deduction for fees, expenses or taxes.

FUND PERFORMANCE

High Yield Fund


TOTAL RETURN		CALENDAR YEAR



Best Quarter* Q2 ’03 +10.85% Worst Quarter* Q3 ’98 –6.52%

AVERAGE ANNUAL TOTAL RETURN


For the period ended December 31, 2003	1 Year		5 Years		Since Inception


Institutional Shares (Inception 8/1/97)
Returns Before Taxes		28.92%		6.52%		6.28%
Returns After Taxes on Distributions**		25.18%		2.52%		2.43%
Returns After Taxes on Distributions and Sale of Fund Shares**		18.74%		2.98%		2.87%
Lehman Brothers U.S. Corporate High Yield Bond Index***		28.97%		5.23%		4.94%


*		Please note that “Best Quarter” and “Worst Quarter” figures are applicable only to the time period covered by the bar chart.
**		After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. In addition, the after-tax returns shown are not relevant to investors who hold Fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
***		The Lehman Brothers U.S. Corporate High Yield Bond Index is a total return performance benchmark for fixed-income securities having a maximum quality rating of Ba1 (as determined by Moody’s Investors Service), a minimum amount outstanding of $100 million and at least one year to maturity. The Index is unmanaged and does not reflect any deduction for fees, expenses or taxes.

Fund Fees and Expenses (Institutional Shares)

This table describes the fees and expenses that you would pay if you buy and hold Institutional Shares of a Fund.

Ultra-Short

Short

Enhanced

Duration

Income

Government

Fund

Shareholder Fees
(fees paid directly from your investment):

Maximum Sales Charge (Load) Imposed on Purchases

None

Maximum Deferred Sales Charge (Load)

None

Maximum Sales Charge (Load) Imposed on Reinvested Dividends

None

Redemption Fees

None

Exchange Fees

None

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):¹

Management Fees²

0.25%

0.40%

0.50%

Account Service Fees

None

Distribution and Service (12b-1) Fees

None

Other Expenses³

0.06%

0.11%

Total Fund Operating Expenses*

0.31%

0.46%

0.61%

See page 38 for all other footnotes.

* As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the Funds are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser or Transfer Agent, as applicable. If this occurs, “Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.

Ultra-Short

Short

Enhanced

Duration

Income

Government

Fund¹

Fund⁴

Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):

Management Fees²

0.20%

0.40%

0.50%

Account Service Fees

None

Distribution and Service (12b-1) Fees

None

Other Expenses³

0.05%

0.06%

0.04%

Total Fund Operating Expenses (after current waivers and expense limitations)

0.25%

0.46%

0.54%

FUND FEES AND EXPENSES

Government

Core Fixed

Investment

Global

Emerging

Income

U.S. Mortgages

Income

Grade

Income

High Yield

Markets

Fund

Credit Fund

Fund

Debt Fund

None

0.65%

0.40%

0.90%

0.70%

0.80%

None

0.05%

None

0.05%

None

0.13%

0.25%

0.09%

0.25%

0.19%

0.09%

1.90%

0.78%

0.70%

0.49%

0.70%

1.09%

0.79%

2.70%

Government

Core Fixed

Global

Emerging

Income

U.S. Mortgages

Income

Investment Grade

Income

High Yield

Markets

Fund⁴

Fund¹

Credit Fund¹

Fund⁴

Debt Fund¹

0.54%

0.33%

0.40%

0.33%

0.65%

0.70%

0.80%

None

0.05%

None

0.05%

None

0.04%

0.02%

0.09%

0.02%

0.04%

0.06%

0.08%

0.58%

0.40%

0.49%

0.40%

0.69%

0.76%

0.88%

Fund Fees and Expenses continued

¹
The Funds’ annual operating expenses are based on actual expenses for the fiscal year ended October 31, 2003, except for the U.S. Mortgages, Investment Grade Credit and Emerging Markets Debt Funds which have been estimated for the current fiscal year.

²
The Investment Adviser has voluntarily agreed not to impose a portion of the management fee on the Enhanced Income, Government Income, U.S. Mortgages, Investment Grade Credit and Global Income Funds equal to 0.05%, 0.11%, 0.07%, 0.07% and 0.25%, respectively of such Fund’s average daily net assets. As a result of fee waivers, the current management fees of the Enhanced Income, Government Income, U.S. Mortgages, Investment Grade Credit and Global Income Funds are 0.20%, 0.54%, 0.33%, 0.33% and 0.65%, respectively, of such Funds’ average daily net assets. The waivers may be terminated at any time at the option of the Investment Adviser.

³
“Other Expenses” include transfer agency fees and expenses equal on an annualized basis to 0.04% of the average daily net assets of each Fund’s Institutional Shares, plus all other ordinary expenses not detailed above. The Transfer Agent has voluntarily agreed to reduce or limit a portion of the transfer agency fee on the Institutional Shares of the U.S. Mortgages and Investment Grade Credit Funds equal to 0.02% of the Funds’ Institutional Shares average daily net assets. The waiver may be terminated at any time at the option of the Investment Adviser or Transfer Agent, as applicable. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” of each Fund (excluding management fees, transfer agency fees and expenses, taxes, interest, brokerage fees and litigation, indemnification, shareholder meetings and other extraordinary expenses) to the following percentages (rounded) of each Fund’s average daily net assets:


	Other
Fund	Expenses


Enhanced Income		0.01%
Ultra-Short Duration Government		0.05%
Short Duration Government		0.00%
Government Income		0.00%
U.S. Mortgages		0.00%
Core Fixed Income		0.10%
Investment Grade Credit		0.00%
Global Income		0.00%
High Yield		0.02%
Emerging Markets Debt		0.04%


⁴		The “Other Expenses” and “Total Fund Operating Expenses” of the Funds (after any waivers and expense limitations) have been restated to reflect the current expense limitations that are expected for the current year. In addition, during the last fiscal year, the Funds incurred certain extraordinary and non-recurring expenses that are not reflected in the table.

Example

The following Example is intended to help you compare the cost of investing in a Fund (without the waivers and expense limitations) with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in Institutional Shares of a Fund for the time periods indicated and then redeem all of your Institutional Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that a Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:


Fund	1 Year		3 Years		5 Years		10 Years


Enhanced Income	$	32	$	100	$	174	$	393

Ultra-Short Duration Government	$	47	$	148	$	258	$	579

Short Duration Government	$	62	$	195	$	340	$	762

Government Income	$	80	$	249	$	433	$	966

U.S. Mortgages	$	72	$	224		N/A		N/A

Core Fixed Income	$	50	$	157	$	274	$	616

Investment Grade Credit	$	72	$	224		N/A		N/A

Global Income	$	111	$	347	$	601	$	1,329

High Yield	$	81	$	252	$	439	$	978

Emerging Markets Debt	$	273	$	838		N/A		N/A

Institutions that invest in Institutional Shares on behalf of their customers may charge other fees directly to their customer accounts in connection with their investments. You should contact your institution for information regarding such charges. Such fees, if any, may affect the return such customers realize with respect to their investments.

Certain institutions that invest in Institutional Shares may receive other compensation in connection with the sale and distribution of Institutional Shares or for services to their customers’ accounts and/or the Funds. For additional information regarding such compensation, see “Shareholder Guide” in the Prospectus and “Other Information” in the Additional Statement.


	Service Providers

INVESTMENT ADVISERS


Investment Adviser		Fund


Goldman Sachs Asset Management, L.P. (“GSAM”) 32 Old Slip New York, New York 10005		Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income U.S. Mortgages Core Fixed Income Investment Grade Credit High Yield Emerging Markets Debt

Goldman Sachs Asset Management International (“GSAMI”) Christchurch Court 10-15 Newgate Street London, England EC1A 7HD		Global Income

GSAM has been registered as an investment adviser with the Securities and Exchange Commission (“SEC”) since 1990 and is an affiliate of Goldman Sachs. GSAMI, a member of the Investment Management Regulatory Organization Limited since 1990 and a registered investment adviser since 1991, is an affiliate of Goldman Sachs. As of December 31, 2003, GSAM and GSAMI, along with other units of the Investment Management Division of Goldman Sachs, had assets under management of $375.7 billion.

The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser makes the investment decisions for the Funds and places purchase and sale orders for the Funds’ portfolio transactions in U.S. and foreign markets. As permitted by applicable law, these orders may be directed to any brokers, including Goldman Sachs and its affiliates. While the Investment Adviser is ultimately responsible for the management of the Funds, it is able to draw upon the research and expertise of its asset management affiliates for portfolio decisions and management with respect to certain portfolio securities. In addition, the Investment Adviser has access to the research and certain proprietary technical models developed by Goldman Sachs, and will apply quantitative and qualitative analysis in determining the appropriate allocations among categories of issuers and types of securities.

SERVICE PROVIDERS

The Investment Adviser also performs the following additional services for the Funds:

n Supervises all non-advisory operations of the Funds

n Provides personnel to perform necessary executive, administrative and clerical services to the Funds

n Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional information and other reports filed with the SEC and other regulatory authorities

n Maintains the records of each Fund

n Provides office space and all necessary office equipment and services

MANAGEMENT FEES

As compensation for its services and its assumption of certain expenses, the Investment Adviser is entitled to the following fees, computed daily and payable monthly, at the annual rates listed below (as a percentage of each respective Fund’s average daily net assets):


			Actual Rate
			For the Fiscal
			Year Ended
	Contractual Rate		October 31, 2003


GSAM:

Enhanced Income		0.25%		0.20%

Ultra-Short Duration Government		0.40%		0.40%

Short Duration Government		0.50%		0.50%

Government Income		0.65%		0.54%

U.S. Mortgages		0.40%		N/A*

Core Fixed Income		0.40%		0.40%

Investment Grade Credit		0.40%		N/A*

High Yield		0.70%		0.70%

Emerging Markets Debt		0.80%		0.80%

GSAMI:

Global Income		0.90%		0.65%

* The U.S. Mortgages Fund and Investment Grade Credit Fund commenced operations after October 31, 2003.

The difference, if any, between the stated fees and the actual fees paid by the Funds reflects that the Investment Adviser did not charge the full amount of the fees to which it would have been entitled. The Investment Adviser may discontinue or modify any such voluntary limitations in the future at its discretion.

FUND MANAGERS

Jonathan Beinner, a Managing Director of Goldman Sachs, is the Chief Investment Officer and a Co-Head of the U.S. and Global Fixed Income portfolio management teams. Mr. Beinner joined the Investment Adviser in 1990, and became a portfolio manager in 1992. Prior to being named Chief Investment Officer, Mr. Beinner was Co-Head of the U.S. Fixed Income portfolio management team.

Tom Kenny, a Managing Director of Goldman Sachs, is a Co-Head of the U.S. and Global Fixed Income portfolio management teams. Mr. Kenny joined the Investment Adviser in 1999 as a senior portfolio manager. Prior to joining the Investment Adviser, he spent 13 years at Franklin Templeton where he was a portfolio manager of high yield municipal and municipal funds, Director of Municipal Research and Director of the Municipal Bond Department.

Fixed Income Portfolio Management Team

n The investment process revolves around four groups: the Investment Strategy Group, the Top-down Strategy Teams, the Bottom-up Sector Teams and the Portfolio Teams.

n These teams strive to maximize risk-adjusted returns by de-emphasizing interest rate anticipation and focusing on security selection and sector allocation

n The team manages approximately $105.6 billion in fixed-income assets for retail, institutional and high net worth clients

______________________________________________________________________________________________________________

U.S. Fixed Income-Investment Management Team


		Years
		Primarily
Name and Title	Fund Responsibility	Responsible	Five Year Employment History






James B. Clark Managing Director, Co-Head U.S. Fixed Income Team	Senior Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income Core Fixed Income U.S. Mortgages Investment Grade Credit Emerging Markets Debt	Since 2000 1994 1994 1994 2000 2003 2003 2003	Mr. Clark joined the Investment Adviser in 1994 as a portfolio manager after working as an investment manager in the mortgage-backed securities group at Travelers Insurance Company.

Christopher Sullivan Managing Director, Co-Head U.S. Fixed Income Team	Senior Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income Core Fixed Income	Since 2001 2001 2001 2001 2001	Mr. Sullivan joined the Investment Adviser in 2001 as a portfolio manager and as Co-Head of the U.S. Fixed Income Team. Since 1997, he was a senior member of the account management group of Pacific Investment Management Company (PIMCO). Prior to joining PIMCO, he was an equity portfolio manager for Hawaiian Trust Company for three years.

SERVICE PROVIDERS


		Years
		Primarily
Name and Title	Fund Responsibility	Responsible	Five Year Employment History






James McCarthy Managing Director	Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income Core Fixed Income	Since 2000 1995 1995 1995 1995	Mr. McCarthy joined the Investment Adviser in 1995 after working for Nomura Securities as an assistant vice president.

Thomas D. Teles Managing Director	Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Core Fixed Income U.S. Mortgages	Since 2000 2000 2000 2000 2003	Mr. Teles joined the Investment Adviser in 2000. Prior to his current position, he worked for three years as a mortgage trader and in the research department for Goldman, Sachs & Co.

James Cielinski Executive Director	Senior Portfolio Manager— Global Income Investment Grade Credit Enhanced Income Core Fixed Income	Since 2000 2003 2003 2003	Mr. Cielinski joined the Investment Adviser in 1998 as a portfolio manager. Prior to his current position, he spent five years at Utah Retirement Systems, where he managed the fixed income group.

Mark Van Wyk Vice President	Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income Core Fixed Income	Since 2000 1994 1994 1994 1994	Mr. Van Wyk joined the Investment Adviser in 1994 and specializes in U.S. government and financial derivatives. He worked with an options trading firm prior to joining the Investment Adviser.

Peter D. Dion Vice President	Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income U.S. Mortgages Core Fixed Income	Since 2000 1995 1995 1995 2003 1995	Mr. Dion joined the Investment Adviser in 1992. From 1994 to 1995 he was an associate portfolio manager. He became a portfolio manager in 1995.

Stig S. Hansen Vice President	Portfolio Manager— Enhanced Income Ultra-Short Duration Government Short Duration Government Government Income Core Fixed Income	Since 2000 1997 1997 1997 1997	Mr. Hansen joined the Investment Adviser in 1997 and specializes in U.S. government and agency securities. Prior to joining the Investment Adviser, he spent one year as an Investment Officer at the Travelers Group and was a portfolio manager with MIMCO (MetLife Investment Management Corp.).


		Years
		Primarily
Name and Title	Fund Responsibility	Responsible	Five Year Employment History






Steven Kuhn Vice President	Portfolio Manager— Ultra-Short Duration Government Short Duration Government Government Income Core Fixed Income U.S. Mortgages	Since 2002 2002 2002 2002 2003	Mr. Kuhn joined the Investment Adviser in 2002 as a portfolio manager. Prior to his current position, he worked at Citadel Investment Group for two and one half years, where he was primarily responsible for Japanese convertible bond arbitrage and contributed in the development of risk models and portfolio analytics. Prior to joining Citadel Investment Group, he worked for six years in mortgage backed securities with Cargill Investments and Piper Capital Management.

Ben Johnson Vice President	Portfolio Manager— Investment Grade Credit	Since 2003	Mr. Johnson joined the Investment Adviser in 1998 and specializes in credit research. Prior to joining the Investment Adviser, he worked for Prudential Insurance Company of America where he invested in private placement debt securities.

Stephen Warren Vice President	Portfolio Manager— U.S. Mortgages	Since 2003	Mr. Warren joined the Investment Adviser in 2003 as a member of the mortgage-backed securities team. Mr. Warren was previously a portfolio manager responsible for asset-backed securities and U.S. government bonds for the Investment Adviser from 1993 to 1997. From 1997 to 2003, he worked as a Principal and Chief Investment Officer at Integrity Capital Management, a quantitative hedge fund, and then as a managing director at Urbanfetch, an Internet company.

Samuel Finkelstein, CFA Vice President	Portfolio Manager— Emerging Markets Debt	Since 2003	Mr. Finkelstein joined the investment manager in 1997. Prior to joining the emerging market team in 2000, he worked in the fixed income risk and strategy group where he constructed portfolios and monitored risk exposure. Prior to that, he worked for one year as a foreign currency trader at the Union Bank of Switzerland.

SERVICE PROVIDERS


		Years
		Primarily
Name and Title	Fund Responsibility	Responsible	Five Year Employment History






Ricardo Penfold Vice President	Portfolio Manager— Emerging Markets Debt	Since 2003	Mr. Penfold joined the Investment Adviser in 2000. Prior to that he was Head of Research and Economics in Venezuela for Santander Investments and Banco Santander Central Hispano for four years.

Owi Ruivivar, Ph.D Vice President	Portfolio Manager— Emerging Markets Debt	Since 2003	Ms. Ruivivar joined the Investment Adviser in 2002. Prior to joining GSAM she worked for five years at BNP Paribas where for her last two years there she headed global emerging market debt strategy. Before joining the finance industry in 1997 she worked in economics research at the International Monetary Fund, and at various other international development institutions.

U.S. Fixed Income-High Yield Investment Management Team


		Years
		Primarily
Name and Title	Fund Responsibility	Responsible	Five Year Employment History






Andrew Jessop Managing Director and Head of High Yield Team	Senior Portfolio Manager— High Yield	Since 1997	Mr. Jessop joined the Investment Adviser in 1997 as a portfolio manager. He is responsible for managing high yield assets. Previously, he worked six years managing high yield portfolios at Saudi International Bank in London.

Diana Gordon Vice President	Portfolio Manager— High Yield	Since 2001	Ms. Gordon joined the Investment Adviser in 1999 covering the high yield technology and communications sectors in addition to trading. Before joining the Investment Adviser, she was a high yield portfolio manager at Saudi International Bank.

Rob Cignarella Vice President	Portfolio Manager— High Yield	Since 2003	Mr. Cignarella joined the Investment Adviser in 1998 as a high yield credit research analyst. Prior to his current position he worked in investment banking at Salomon Brothers.

Global Fixed Income—Investment Management Team


		Years
		Primarily
Name and Title	Fund Responsibility	Responsible	Five Year Employment History






Andrew Wilson Managing Director and Co-Head Global Fixed Income Team	Senior Portfolio Manager— Global Income	Since 1995	Mr. Wilson joined the Investment Adviser in 1995 as a portfolio manager. Prior to his current position, he spent three years as an Assistant Director at Rothschild Asset Management, where he was responsible for managing global and international bond portfolios with specific focus on the U.S., Canadian, Australian and Japanese economies.

Philip Moffitt Managing Director and Co-Head Global Fixed Income Team	Senior Portfolio Manager— Global Income	Since 2000	Mr. Moffitt joined the Investment Adviser in 1999 as a portfolio manager. Prior to joining the Investment Adviser he worked for three years as a proprietary trader for Tokai Asia Ltd in Hong Kong. Before that Mr. Moffitt spent ten years with Bankers Trust Asset Management in Australia, where he was a Managing Director responsible for all active global fixed income funds as well as a member of the Asset Allocation Committee.

Jennifer Youde Executive Director	Senior Portfolio Manager— Global Income	Since 2000	Ms. Youde joined the Investment Adviser in 1996. Prior to joining the Investment Adviser, she worked for thirteen years at CINMan where for her last five years there she headed the bond desk, managing UK, global and index-linked portfolios.

DISTRIBUTOR AND TRANSFER AGENT

Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”) of each Fund’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as each Fund’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing functions.

From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves the right to redeem at any time some or all of the shares acquired for its own account.

SERVICE PROVIDERS

ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER
ACCOUNTS MANAGED BY GOLDMAN SACHS

The involvement of the Investment Adviser, Goldman Sachs and their affiliates in the management of, or their interest in, other accounts and other activities of Goldman Sachs may present conflicts of interest with respect to a Fund or limit a Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and advise accounts and funds which have investment objectives similar to those of the Funds and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Funds. Goldman Sachs and its affiliates will not have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Funds. The results of a Fund’s investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that a Fund could sustain losses during periods in which Goldman Sachs and its affiliates and other accounts achieve significant profits on their trading for proprietary or other accounts. In addition, the Funds may, from time to time, enter into transactions in which Goldman Sachs or its other clients have an adverse interest. A Fund’s activities may be limited because of regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions. As a global financial services firm, Goldman Sachs also provides a wide range of investment banking and financial services to issuers of securities and investors in securities. Goldman Sachs, its affiliates and others associated with it may create markets or specialize in, have positions in and affect transactions in, securities of issuers held by the Funds, and may also perform or seek to perform investment banking and financial services for those issuers.

Under a securities lending program approved by the Funds’ Board of Trustees, the Funds have retained an affiliate of the Investment Adviser to serve as the securities lending agent for each Fund to the extent that the Funds engage in the securities lending program. For these services, the lending agent may receive a fee from the Funds, including a fee based on the returns earned on the Funds’ investment of the cash received as collateral for the loaned securities. In addition, the Funds may make brokerage and other payments to Goldman Sachs and its affiliates in connection with the Funds’ portfolio investment transactions.


	Dividends

	Each Fund pays dividends from its investment company taxable income and distributions from net realized capital gains. You may choose to have dividends and distributions paid in:


	n	Cash
	n	Additional shares of the same class of the same Fund
	n	Shares of the same or an equivalent class of another Goldman Sachs Fund. Special restrictions may apply for certain Goldman Sachs Institutional Liquid Assets Portfolios (“ILA Portfolios”). See the Additional Statement.

You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular dividend or distribution. If you do not indicate any choice, your dividends and distributions will be reinvested automatically in the applicable Fund. If cash dividends are elected with respect to the Fund’s monthly net investment income dividends, then cash dividends must also be elected with respect to the non-long-term capital gains component, if any, of the Fund’s annual dividend.

The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated as received by you and then used to purchase the shares.

Dividends from investment company taxable income and distributions from net capital gains are declared and paid as follows:



	Investment Income		Capital Gains
	Dividends		Distributions

Fund	Declared	Paid	Declared and Paid


Enhanced Income	Daily	Monthly	Annually

Ultra-Short Duration Government	Daily	Monthly	Annually

Short Duration Government	Daily	Monthly	Annually

Government Income	Daily	Monthly	Annually

U.S. Mortgages	Daily	Monthly	Annually

Core Fixed Income	Daily	Monthly	Annually

Investment Grade Credit	Daily	Monthly	Annually

Global Income	Monthly	Monthly	Annually

High Yield	Daily	Monthly	Annually

Emerging Markets Debt	Daily	Monthly	Annually

DIVIDENDS

From time to time a portion of a Fund’s dividends may constitute a return of capital.

When you purchase shares of a Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the distributions (or portions thereof) represent a return of a portion of the purchase price.


	Shareholder Guide

	The following section will provide you with answers to some of the most often asked questions regarding buying and selling the Funds’ Institutional Shares.

HOW TO BUY SHARES

How Can I Purchase Institutional Shares Of The Funds?

You may purchase Institutional Shares on any business day at their NAV next determined after receipt of an order. No sales load is charged. You should place an order with Goldman Sachs at 1-800-621-2550 and either:

n Wire federal funds to The Northern Trust Company (“Northern”), as subcustodian for State Street Bank and Trust Company (“State Street”) (the Fund’s custodian) on the next business day; or

n Send a check or Federal Reserve draft payable to Goldman Sachs Funds—(Name of Fund and Class of Shares), 4900 Sears Tower, 51^st Floor, Chicago, IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or a third-party check.

In order to make an initial investment in a Fund, you must furnish to the Fund or Goldman Sachs the Account Application. Purchases of Institutional Shares must be settled within three business days of receipt of a complete purchase order.

How Do I Purchase Shares Through A Financial Institution?

Certain institutions (including banks, trust companies, brokers and investment advisers) that provide recordkeeping, reporting and processing services to their customers may be authorized to accept, on behalf of the Goldman Sachs Trust (the “Trust”), purchase, redemption and exchange orders placed by or on behalf of their customers and may designate other intermediaries to accept such orders, if approved by the Trust. In these cases:

n A Fund will be deemed to have received an order in proper form when the order is accepted by the authorized institution or intermediary on a business day, and the order will be priced at the Fund’s NAV next determined after such acceptance.

n Authorized institutions or intermediaries will be responsible for transmitting accepted orders and payments to the Trust within the time period agreed upon by them.

You should contact your institution or intermediary directly to learn whether it is authorized to accept orders for the Trust. These institutions may receive payments from the Funds or Goldman Sachs for the services provided by them with respect

SHAREHOLDER GUIDE

to the Funds’ Institutional Shares. These payments may be in addition to other payments borne by the Funds.

With respect to the U.S. Mortgages and Investment Grade Credit Funds, Goldman Sachs is also entitled to receive an account service fee equal on an annual basis to 0.05% of each Fund’s average daily net assets attributed to Institutional Shares. This fee is for account services and may be used to make payments to Service Organizations for account maintenance, processing orders to purchase, redeem and exchange Institutional Shares and other services.

The Investment Adviser, Distributor and/or their affiliates may pay additional compensation from time to time, out of their assets and not as an additional charge to the Funds, to certain institutions and other persons in connection with the sale, distribution and/or servicing of shares of the Funds and other Goldman Sachs Funds. Additional compensation based on sales may, but is normally not expected to, exceed 0.50% (annualized) of the amount invested.

In addition to Institutional Shares, each Fund also offers other classes of shares to investors. These other share classes are subject to different fees and expenses (which affect performance), have different minimum investment requirements and are entitled to different services than Institutional Shares. Information regarding these other share classes may be obtained from your sales representative or from Goldman Sachs by calling the number on the back cover of this Prospectus.

What Is My Minimum Investment In The Funds?


Type of Investor		Minimum Investment


n Banks, trust companies or other depository institutions investing for their own account or on behalf of their clients n Section 401(k), profit sharing, money purchase pension, tax- sheltered annuity, defined benefit pension or other employee benefit plans that are sponsored by one or more employers (including governmental or church employers) or employee organizations n State, county, city or any instrumentality, department, authority or agency thereof n Corporations with at least $100 million in assets or in outstanding publicly traded securities n “Wrap” account sponsors (provided they have an agreement covering the arrangement with GSAM) n Registered investment advisers investing for accounts for which they receive asset-based fees		$1,000,000 in Institutional Shares of a Fund alone or in combination with other assets under the management of GSAM and its affiliates

n Individual investors n Qualified non-profit organizations, charitable trusts, foundations and endowments n Accounts over which GSAM or its advisory affiliates have investment discretion		$10,000,000

n Individual Retirement Accounts (IRAs) for which GSAM or its advisory affiliates act as fiduciary		No minimum

The minimum investment requirement may be waived for current and former officers, partners, directors or employees of Goldman Sachs or any of its affiliates; brokerage or advisory clients of Goldman Sachs Private Wealth Management; and for other investors at the discretion of the Trust’s officers. No minimum amount is required for subsequent investments.

SHAREHOLDER GUIDE

What Else Should I Know About Share Purchases?

The Trust reserves the right to:

n Refuse to open an account if you fail to (i) provide a Social Security Number or other taxpayer identification number; or (ii) certify that such number is correct (if required to do so under applicable law).

n Modify or waive the minimum investment amounts.

n Reject or restrict any purchase or exchange order by a particular purchaser (or group of related purchasers) for any reason in its discretion. Without limiting the foregoing, the Trust may reject or restrict purchase and exchange orders by a particular purchaser (or group of related purchasers) when a pattern of frequent purchases, sales or exchanges of Institutional Shares of a Fund is evident, or if purchases, sales or exchanges are, or a subsequent abrupt redemption might be, of a size that would disrupt the management of a Fund.

n Close a Fund to new investors from time to time and reopen any such Fund whenever it is deemed appropriate by a Fund’s Investment Adviser.

The Funds may allow you to purchase shares with securities instead of cash if consistent with a Fund’s investment policies and operations and if approved by the Fund’s Investment Adviser.

Customer Identification Program. Federal law requires the Funds to obtain, verify and record identifying information, which may include the name, residential or business street address, date of birth (for an individual), Social Security Number or taxpayer identification number or other identifying information, for each investor who opens an account with the Funds. Applications without the required information, or (where applicable) without an indication that a Social Security Number or taxpayer identification number has been applied for, may not be accepted by the Funds. After accepting an application, to the extent permitted by applicable law or their customer identification program, the Funds reserve the right to: (i) place limits on transactions in any account until the identity of the investor is verified; (ii) refuse an investment in the Funds; and (iii) involuntarily redeem an investor’s shares and close an account in the event that the Funds are unable to verify an investor’s identity. The Funds and their agents will not be responsible for any loss in an investor’s account resulting from the investor’s delay in providing all required identifying information or from closing an account and redeeming an investor’s shares pursuant to the customer identification program.

How Are Shares Priced?

The price you pay or receive when you buy, sell or exchange Institutional Shares is the Fund’s next determined NAV. The Funds calculate NAV as follows:


NAV =		(Value of Assets of the Class) - (Liabilities of the Class) Number of Outstanding Shares of the Class

The Funds’ investments are valued based on market quotations, which may be furnished by a pricing service or provided by securities dealers. If accurate quotations are not readily available, or if the Investment Adviser believes that such quotations 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. Debt obligations with a remaining maturity of 60 days or less may be valued at amortized cost.

n NAV per share of each class is generally calculated by the accounting agent on each business day as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. New York time) or such later time as the New York Stock Exchange or NASDAQ market may officially close. This occurs after the determination, if any, of the income to be declared as a dividend (except in the case of the Global Income Fund). Fund shares will generally not be priced on any day the New York Stock Exchange is closed.

n When you buy shares, you pay the NAV next calculated after the Funds receive your order in proper form.

n When you sell shares, you receive the NAV next calculated after the Funds receive your order in proper form.

n On any business day when the Bond Market Association (“BMA”) recommends that the securities markets close early, each Fund reserves the right to close at or prior to the BMA recommended closing time. If a Fund does so, it will cease granting same business day credit for purchase and redemption orders received after the Fund’s closing time and credit will be given to the next business day.

n The Trust reserves the right to reprocess purchase, redemption and exchange transactions that were processed at an NAV other than a Fund’s official closing NAV that is subsequently adjusted, and to recover amounts from (or distribute amounts to) shareholders accordingly based on the offered closing NAV.

n 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.

Note: The time at which transactions and shares are priced and the time by which orders must be received may be changed in case of an emergency or if

SHAREHOLDER GUIDE

regular trading on the New York Stock Exchange is stopped at a time other than 4:00 p.m. New York time. In the event the New York Stock Exchange does not open for business because of an emergency, the Trust may, but is not required to, open one or more Funds for purchase, redemption and exchange transactions if the Federal Reserve wire payment system is open. To learn whether a Fund is open for business during an emergency situation, please call 1-800-621-2550.

Foreign securities may trade in their local markets on days a Fund is closed. As a result, the NAV of a Fund that holds foreign securities may be impacted on days when investors may not purchase or redeem Fund shares.

In addition, if an event that affects the value of a security occurs after the publication of market quotations used by a Fund to price its securities but before the close of trading on the New York Stock Exchange, the Trust in its discretion and consistent with applicable regulatory guidance may determine whether to make an adjustment in light of the nature and significance of the event.

When Will Shares Be Issued And Dividends Begin To Be Paid?

Global Income Fund: If a purchase order is received in proper form before the Fund’s NAV is determined, shares will be issued the same day and will be entitled to any dividends declared which have a record date on or after such purchase date.

For all other Funds:

n Shares Purchased by Federal Funds Wire:

  n If a purchase order in proper form specifies a settlement date and is received before the Fund’s NAV is determined that day, shares will be issued and dividends will begin to accrue on the purchased shares on the later of (i) the business day after the purchase order is received, or (ii) the day that the federal funds wire is received by State Street.

  n If a purchase order in proper form does not specify a settlement date, shares will be issued and dividends will begin to accrue on the business day after payment is received.

n Shares Purchased by Check or Federal Reserve Draft

  n If a purchase order in proper form specifies a settlement date and is received before the Fund’s NAV is determined that day, shares will be issued and dividends will begin to accrue on the business day after payment is received.

  n If a purchase order in proper form does not specify a settlement date, shares will be issued and dividends will begin to accrue on the business day after payment is received.

HOW TO SELL SHARES

How Can I Sell Institutional Shares Of The Funds?

You may arrange to take money out of your account by selling (redeeming) some or all of your shares. Generally, each Fund will redeem its Institutional Shares upon request on any business day at their NAV next determined after receipt of such request in proper form. You may request that redemption proceeds be sent to you by check or by wire (if the wire instructions are on record). Redemptions may be requested in writing or by telephone.


Instructions For Redemptions:


By Writing:		n Write a letter of instruction that includes:
		n Your name(s) and signature(s)
		n Your account number
		n The Fund name and Class of Shares
		n The dollar amount you want to sell
		n How and where to send the proceeds
		n Obtain a signature guarantee (see details below)
		n Mail the request to: Goldman Sachs Funds 4900 Sears Tower 51^stFloor Chicago, IL 60606-6372

By Telephone:		If you have elected the telephone redemption privilege on your Account Application:
		n 1-800-621-2550 (8:00 a.m. to 4:00 p.m. New York time)

Certain institutions and intermediaries are authorized to accept redemption requests on behalf of the Fund as described under “How Do I Purchase Shares Through A Financial Institution?”

When Do I Need A Signature Guarantee To Redeem Shares?

A signature guarantee may be required if:

n You would like the redemption proceeds sent to an address that is not your address of record; or

n You would like to change your current bank designations.

A signature guarantee must be obtained from a bank, brokerage firm or other financial intermediary that is a member of an approved Medallion Guarantee Program or that is otherwise approved by the Trust. A notary public cannot provide a signature guarantee. Additional documentation may be required for executors, trustees or corporations or when deemed appropriate by the Transfer Agent.

SHAREHOLDER GUIDE

What Do I Need To Know About Telephone Redemption Requests?

The Trust, the Distributor and the Transfer Agent will not be liable for any loss you may incur in the event that the Trust accepts unauthorized telephone redemption requests that the Trust reasonably believes to be genuine. In an effort to prevent unauthorized or fraudulent redemption and exchange requests by telephone, Goldman Sachs employs reasonable procedures specified by the Trust to confirm that such instructions are genuine. If reasonable procedures are not employed, the Trust may be liable for any loss due to unauthorized or fraudulent transactions. The following general policies are currently in effect:

n All telephone requests are recorded.

n Any redemption request that requires money to go to an account or address other than that designated on the Account Application must be in writing and signed by an authorized person designated on the Account Application. The written request may be confirmed by telephone with both the requesting party and the designated bank account to verify instructions.

n The telephone redemption option may be modified or terminated at any time.

Note: It may be difficult to make telephone redemptions in times of drastic economic or market conditions.

How Are Redemption Proceeds Paid?

By Wire: You may arrange for your redemption proceeds to be wired as federal funds to the domestic bank account designated in your Account Application. The following general policies govern wiring redemption proceeds:

n Redemption proceeds will normally be wired on the next business day in federal funds (for a total of one business day delay), but may be paid up to three business days following receipt of a properly executed wire transfer redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days. If the Federal Reserve Bank is closed on the day that the redemption proceeds would ordinarily be wired, wiring the redemption proceeds may be delayed one additional business day.

n To change the bank designated on your Account Application, you must send written instructions signed by an authorized person designated on the Account Application to the Transfer Agent.

n Neither the Trust, Goldman Sachs nor any other institution assumes any responsibility for the performance of your bank or any intermediaries in the transfer process. If a problem with such performance arises, you should deal directly with your bank or any such intermediaries.

By Check: You may elect in writing to receive your redemption proceeds by check. Redemption proceeds paid by check will normally be mailed to the address of

record within three business days of a properly executed redemption request. If you are selling shares you recently paid for by check, the Fund will pay you when your check has cleared, which may take up to 15 days.

What Else Do I Need To Know About Redemptions?

The following generally applies to redemption requests:

n Institutional shares of each Fund (other than the Global Income Fund) earn dividends declared on the day the shares are redeemed.

n Additional documentation may be required when deemed appropriate by the Transfer Agent. A redemption request will not be in proper form until such additional documentation has been received.

n Institutions (including banks, trust companies, brokers and investment advisers) are responsible for the timely transmittal of redemption requests by their customers to the Transfer Agent. In order to facilitate the timely transmittal of redemption requests, these institutions may set times by which they must receive redemption requests. These institutions may also require additional documentation from you.

The Trust reserves the right to:

n Redeem your shares if your account balance falls below $50 as a result of a redemption. The Funds will not redeem your shares on this basis if the value of your account falls below the minimum account balance solely as a result of market conditions. The Fund will give you 60 days’ prior written notice to allow you to purchase sufficient additional shares of the Fund in order to avoid such redemption.

n Redeem your shares in other circumstances determined by the Board of Trustees to be in the best interest of the Trust.

n Pay redemptions by a distribution in-kind of securities (instead of cash). If you receive redemption proceeds in-kind, you should expect to incur transaction costs upon the disposition of those securities.

n Reinvest any dividends or other distributions which you have elected to receive in cash should your check for such dividends or other distributions be returned to a Fund as undeliverable or remain uncashed for six months. In addition, that distribution and all future distributions payable to you will be reinvested at the NAV on the day of reinvestment in additional Institutional Shares of the Fund that pays the distributions. No interest will accrue on amounts represented by uncashed distribution or redemption checks.

SHAREHOLDER GUIDE

Can I Exchange My Investment From One Fund To Another?

You may exchange Institutional Shares of a Fund at NAV for Institutional Shares of another Goldman Sachs Fund. The exchange privilege may be materially modified or withdrawn at any time upon 60 days’ written notice to you.


Instructions For Exchanging Shares:


By Writing:		n Write a letter of instruction that includes:
		n Your name(s) and signature(s)
		n Your account number
		n The Fund names and Class of Shares
		n The dollar amount to be exchanged
		n Mail the request to: Goldman Sachs Funds 4900 Sears Tower 51st Floor Chicago, IL 60606-6372

By Telephone:		If you have elected the telephone exchange privilege on your Account Application:
		n 1-800-621-2550 (8:00 a.m. to 4:00 p.m. New York time)

You should keep in mind the following factors when making or considering an exchange:

n You should obtain and carefully read the prospectus of the Fund you are acquiring before making an exchange.

n All exchanges which represent an initial investment in a Fund must satisfy the minimum initial investment requirements of that Fund, except that this requirement may be waived at the discretion of the Trust.

n Telephone exchanges normally will be made only to an identically registered account.

n Shares may be exchanged among accounts with different names, addresses and social security or other taxpayer identification numbers only if the exchange instructions are in writing and are signed by an authorized person designated on the Account Application.

n Exchanges are available only in states where exchanges may be legally made.

n It may be difficult to make telephone exchanges in times of drastic economic or market conditions.

n Goldman Sachs may use reasonable procedures described under “What Do I Need To Know About Telephone Redemption Requests?” in an effort to prevent unauthorized or fraudulent telephone exchange requests.

n Exchanges into Funds that are closed to new investors may be restricted.

For federal income tax purposes, an exchange from one Fund to another is treated as a redemption of the shares surrendered in the exchange, on which you may be subject to tax, followed by a purchase of shares received in the exchange. You should consult your tax adviser concerning the tax consequences of an exchange.

Restrictions on Excessive Trading Practices. The Trust does not permit market-timing or other excessive trading practices. Purchases and exchanges should be made for long-term investment purposes only. The Trust and Goldman Sachs reserve the right to reject or restrict purchase or exchange requests from any investor. Excessive, short-term (market-timing) trading practices may disrupt portfolio management strategies, harm Fund performance and negatively impact long-term shareholders. The Trust and Goldman Sachs will not be held liable for any loss resulting from rejected purchase or exchange orders. To minimize harm to the Trust (or Goldman Sachs) and its shareholders, the Trust (or Goldman Sachs) will exercise these rights if, in the Trust’s (or Goldman Sachs’) judgment, an investor has a history of excessive trading or if an investor’s trading, in the judgment of the Trust (or Goldman Sachs), has been or may be disruptive to a Fund. In making this judgment, trades executed in multiple accounts under common ownership or control may be considered together.

What Types Of Reports Will I Be Sent Regarding Investments in Institutional Shares?

You will receive an annual report containing audited financial statements and a semi-annual report. To eliminate unnecessary duplication, only one copy of such reports will be sent to shareholders with the same mailing address. If you would like a duplicate copy to be mailed to you, please contact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a printed confirmation for each transaction in your account and a monthly account statement. The Funds do not generally provide sub-accounting services.


	Taxation

	As with any investment, you should consider how your investment in the Funds will be taxed. The tax information below is provided as general information. More tax information is available in the Additional Statement. You should consult your tax adviser about the federal, state, local or foreign tax consequences of your investment in the Funds.

	Unless your investment is an IRA or other tax-advantaged account, you should consider the possible tax consequences of Fund distributions and the sale of your Fund shares.

DISTRIBUTIONS

Each Fund contemplates declaring as dividends each year all or substantially all of its taxable income. Distributions you receive from the Funds are generally subject to federal income tax, and may also be subject to state or local taxes. This is true whether you reinvest your distributions in additional Fund shares or receive them in cash. For federal tax purposes, Fund distributions attributable to short-term capital gains and net investment income are generally taxable to you as ordinary income, while distributions attributable to long-term capital gains are taxable as long-term capital gains, no matter how long you have owned your Fund shares.

Under recent changes to the Internal Revenue Code, the maximum long-term capital gain tax rate applicable to individuals, estates, and trusts is reduced to 15%. Also, Fund distributions to noncorporate shareholders attributable to dividends received by the Funds from U.S. and certain qualified foreign corporations will generally be taxed at the long-term capital gain rate, as long as certain other requirements are met. The amount of a Fund’s distributions that qualify for this favorable tax treatment will be reduced as a result of a Fund’s securities lending activities, by a high portfolio turnover rate or by investments in debt securities or “non-qualified” foreign corporations. For these lower rates to apply, the non-corporate shareholder must own the relevant Fund shares for at least 61 days during the 121-day period beginning 60 days before the Fund’s ex-dividend date.

Although distributions are generally treated as taxable to you in the year they are paid, distributions declared in October, November or December but paid in January are taxable as if they were paid in December. A percentage of the Funds’ dividends paid to corporate shareholders may be eligible for the corporate dividends-received deduction. This percentage may, however, be reduced as a result of a Fund’s securities lending activities, by a high portfolio turnover rate or by investments in

debt securities or foreign corporations. The Funds will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year.

The Enhanced Income, Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds may be subject to foreign withholding or other foreign taxes on income or gain from certain foreign securities. In general, the Funds may deduct these taxes in computing their taxable income. Shareholders of the Global Income and Emerging Markets Debt Funds may be entitled to claim a credit or a deduction with respect to foreign taxes if the Fund elects to pass through these taxes to you. Your January statement will provide the relevant foreign tax information to you.

If you buy shares of a Fund before it makes a distribution, the distribution will be taxable to you even though it may actually be a return of a portion of your investment. This is known as “buying a dividend.”

SALES AND EXCHANGES

Your sale of Fund shares is a taxable transaction for federal income tax purposes, and may also be subject to state and local taxes. For tax purposes, the exchange of your Fund shares for shares of a different Goldman Sachs Fund is the same as a sale. When you sell your shares, you will generally recognize a capital gain or loss in an amount equal to the difference between your adjusted tax basis in the shares and the amount received. Generally, this gain or loss is long-term or short-term depending on whether your holding period exceeds twelve months, except that any loss realized on shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends that were received on the shares. Additionally, any loss realized on a sale, exchange or redemption of shares of a Fund may be disallowed under “wash sale” rules to the extent the shares disposed of are replaced with other shares of that Fund within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of, such as pursuant to a dividend reinvestment in shares of that Fund. If disallowed, the loss will be reflected in an adjustment to the basis of the shares acquired.

TAXATION

OTHER INFORMATION

When you open your account, you should provide your social security or tax identification number on your Account Application. By law, each Fund must withhold 28% of your taxable distributions and any redemption proceeds if you do not provide your correct taxpayer identification number, or certify that it is correct, or if the IRS instructs the Fund to do so.

Non-U.S. investors may be subject to U.S. withholding and estate tax.


	Appendix A Additional Information on Portfolio Risks, Securities and Techniques

A. General Portfolio Risks

The Funds will be subject to the risks associated with fixed-income securities. These risks include interest rate risk, credit risk and call/extension risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase (although many mortgage related securities will have less potential than other debt securities for capital appreciation during periods of declining rates). Conversely, when interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that the issuer or guarantor could default on its obligations, and a Fund will not recover its investment. Call risk and extension risk are normally present in adjustable rate mortgage loans (“ARMs”), Mortgage-Backed Securities and asset-backed securities. For example, homeowners have the option to prepay their mortgages. Therefore, the duration of a security backed by home mortgages can either shorten (call risk) or lengthen (extension risk). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors. The same would be true of asset-backed securities, such as securities backed by car loans.

The Investment Adviser will not consider the portfolio turnover rate a limiting factor in making investment decisions for a Fund. A high rate of portfolio turnover (100% or more) involves correspondingly greater expenses which must be borne by a Fund and its shareholders and is also likely to result in higher short-term capital gains taxable to shareholders. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of a Fund’s portfolio securities, excluding securities having a maturity at the date of purchase of one year or less. See “Financial Highlights” in Appendix B for a statement of the Funds’ historical portfolio turnover rates.

The following sections provide further information on certain types of securities and investment techniques that may be used by the Funds, including their associated risks. Additional information is provided in the Additional Statement, which is available upon request. Among other things, the Additional Statement describes certain fundamental investment restrictions that cannot be changed

APPENDIX A

without shareholder approval. You should note, however, that all investment objectives and all investment policies not specifically designated as fundamental are non-fundamental, and may be changed without shareholder approval. If there is a change in a Fund’s investment objective, you should consider whether that Fund remains an appropriate investment in light of your then current financial position and needs.

B. Other Portfolio Risks

Credit/Default Risks. Debt securities purchased by the Funds may include securities (including zero coupon bonds) issued by the U.S. government (and its agencies, instrumentalities and sponsored enterprises), foreign governments, domestic and foreign corporations, banks and other issuers. Some of these fixed-income securities are described in the next section below. Further information is provided in the Additional Statement.

Debt securities rated BBB- or higher by Standard & Poor’s Rating Group (“Standard & Poor’s”), or Baa3 or higher by Moody’s Investors Service, Inc. (“Moody’s”) or having a comparable rating by another NRSRO are considered “investment grade.” Securities rated BBB- or Baa3 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. A security will be deemed to have met a rating requirement if it receives the minimum required rating from at least one such rating organization even though it has been rated below the minimum rating by one or more other rating organizations, or if unrated by such rating organizations, the security is determined by the Investment Adviser to be of comparable credit quality. If a security satisfies a Fund’s minimum rating requirement at the time of purchase and is subsequently downgraded below that rating, the Fund will not be required to dispose of the security. If a downgrade occurs, the Investment Adviser will consider which action, including the sale of the security, is in the best interest of a Fund and its shareholders.

Certain Funds may invest in fixed-income securities rated BB or Ba or below (or comparable unrated securities) which are commonly referred to as “junk bonds.” Junk bonds are considered predominantly speculative and may be questionable as to principal and interest payments.

In some cases, junk bonds may be highly speculative, have poor prospects for reaching investment grade standing and be in default. As a result, investment in such bonds will present greater speculative risks than those associated with investment in investment grade bonds. Also, to the extent that the rating assigned

to a security in a Fund’s portfolio is downgraded by a rating organization, the market price and liquidity of such security may be adversely affected.

Risks of Derivative Investments. A Fund’s transactions in options, futures, options on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities, stripped mortgage-backed securities and foreign currency transactions involve additional risk of loss. Loss can result from a lack of correlation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in securities prices, interest rates or currency prices. Each Fund may also invest in derivative investments for non-hedging purposes (that is, to seek to increase total return). Investing for non-hedging purposes is considered a speculative practice and presents even greater risk of loss.

Derivative Mortgage-Backed Securities (such as principal-only (“POs”), interest-only (“IOs”) or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flow and the market value of these securities. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of slower than anticipated prepayments generally adversely affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced Mortgage-Backed Securities. In addition, particular derivative securities may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magnified.

Some floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced below market rates if a designated interest rate floats outside of a specified interest rate band or collar. Dual index or yield curve floaters are subject to lower prices in the event of an unfavorable change in the spread between two designated interest rates.

Risks of Foreign Investments. In general, certain Funds may make foreign investments. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and changes in exchange control regulations (e.g., currency blockage). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar

APPENDIX A

would reduce the value of the portfolio security. In addition, if the currency in which a Fund receives dividends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States, and the legal remedies for investors may be more limited than the remedies available in the United States. Foreign securities markets may have substantially less volume than U.S. securities markets and securities of many foreign issuers are less liquid and more volatile than securities of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions), limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.

Concentration of a Fund’s assets in one or a few countries and currencies will subject a Fund to greater risks than if a Fund’s assets were not geographically concentrated.

Risks of Sovereign Debt. Investment in sovereign debt obligations by a Fund involves risks not present in debt obligations of corporate issuers. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and a Fund may have limited recourse to compel payment in the event of a default. Periods of economic uncertainty may result in the volatility of market prices of sovereign debt, and in turn a Fund’s NAV, to a greater extent than the volatility inherent in debt obligations of U.S. issuers.

A sovereign debtor’s willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the 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 sovereign debtor’s policy toward international lenders, and the political constraints to which a sovereign debtor may be subject.

Risks of Euro. On January 1, 1999, the European Economic and Monetary Union (EMU) introduced a new single currency called the euro. The euro has replaced the national currencies of the following member countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. In addition, ten new countries, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, are preparing for entry into the EMU in 2004.

The European Central Bank has control over each country’s monetary policies. Therefore, the member countries no longer control their own monetary policies by directing independent interest rates for their currencies. The national governments of the participating countries, however, have retained the authority to set tax and spending policies and public debt levels.

The change to the euro as a single currency is relatively new and untested. The elimination of currency risk among EMU countries has affected the economic environment and behavior of investors, particularly in European markets, but the long-term impact of those changes on currency values or on the business or financial condition of European countries and issuers cannot be fully assessed at this time. In addition, the introduction of the euro presents other unique uncertainties, including the fluctuation of the euro relative to non-euro currencies; whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries that now are or may in the future become members of the European Union (“EU”) will have an impact on the euro. Also, it is possible that the euro could be abandoned in the future by countries that have already adopted its use. These or other events, including political and economic developments, could cause market disruptions, and could adversely affect the value of securities held by the Funds. Because of the number of countries using this single currency, a significant portion of the assets held by the Funds may be denominated in the euro.

Risks of Emerging Countries. Certain Funds may invest in securities of issuers located in emerging countries. The risks of foreign investment are heightened when the issuer is located in an emerging country. Emerging countries are generally located in the Asia and Pacific regions, the Middle East, Eastern Europe, Latin, Central and South America and Africa. A Fund’s purchase and sale of portfolio

APPENDIX A

securities in certain emerging countries may be constrained by limitations relating 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.

Foreign investment in the securities markets of certain emerging countries is restricted or controlled to varying degrees which may limit investment in such countries or increase the administrative costs of such investments. For example, certain Asian countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer’s outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals. In addition, certain countries may restrict or prohibit investment opportunities in issuers or industries deemed important to national interests. Such restrictions may affect the market price, liquidity and rights of securities that may be purchased by a Fund. The repatriation of both investment income and capital from certain emerging countries is subject to restrictions such as the need for governmental consents. In situations where a country restricts direct investment in securities (which may occur in certain Asian and other countries), a Fund may invest in such countries through other investment funds in such countries.

Many emerging countries have recently experienced currency devaluations and substantial (and, in some cases, extremely high) rates of inflation. Other emerging countries have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of those emerging countries. Economies in emerging countries generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

Many emerging countries are subject to a substantial degree of economic, political and social instability. Governments of some emerging countries are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other emerging countries have periodically used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffection, among other factors, have also led to social

unrest, violence and/or labor unrest in some emerging countries. Unanticipated political or social developments may result in sudden and significant investment losses. Investing in emerging countries involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested. As an example, in the past some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no assurance that similar expropriations will not recur in Eastern European or other countries.

A Fund’s investment in emerging countries may also be subject to withholding or other taxes, which may be significant and may reduce the return from an investment in such countries to the Fund.

Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and may involve a Fund’s delivery of securities before receipt of payment for their sale. In addition, significant delays may occur in certain markets in registering the transfer of securities. Settlement or registration problems may make it more difficult for a Fund to value its portfolio securities and could cause the Fund to miss attractive investment opportunities, to have a portion of its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities the Fund has delivered or the Fund’s inability to complete its contractual obligations because of theft or other reasons.

The creditworthiness of the local securities firms used by a Fund in emerging countries may not be as sound as the creditworthiness of firms used in more developed countries. As a result, the Fund may be subject to a greater risk of loss if a securities firm defaults in the performance of its responsibilities.

The small size and inexperience of the securities markets in certain emerging countries and the limited volume of trading in securities in those countries may make a Fund’s investments in such countries less liquid and more volatile than investments in countries with more developed securities markets (such as the United States, Japan and most Western European countries). A Fund’s investments in emerging countries are subject to the risk that the liquidity of a particular investment, or investments generally, in such countries will shrink or disappear suddenly and without warning as a result of adverse economic, market or political conditions or adverse investor perceptions, whether or not accurate. Because of the lack of sufficient market liquidity, a Fund may incur losses because it will be required to effect sales at a disadvantageous time and then only at a substantial drop in price. Investments in emerging countries may be more difficult to price precisely because of the characteristics discussed above and lower trading volumes.

APPENDIX A

A Fund’s use of foreign currency management techniques in emerging countries may be limited. Due to the limited market for these instruments in emerging countries, the Investment Adviser does not currently anticipate that a significant portion of the Funds’ currency exposure in emerging countries, if any, will be covered by such instruments.

Risks of Investments in Central and South America. A significant portion of the Emerging Markets Debt Fund’s portfolio 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. 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. Certain Central and South American countries have entered into regional trade agreements that would, among other things, reduce barriers between 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. Any of the foregoing risk factors could have an adverse impact on the Fund’s investments in Central and South America.

Risks of Illiquid Securities. Each Fund may invest up to 15% of its net assets in illiquid securities which cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include:

n Both domestic and foreign securities that are not readily marketable

n Certain municipal leases and participation interests

n Certain stripped Mortgage-Backed Securities

n Repurchase agreements and time deposits with a notice or demand period of more than seven days

n Certain over-the-counter options

n Certain structured securities and all swap transactions

n Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted security, that such restricted security is liquid because it is so-called “4(2) commercial paper” or is otherwise eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (“144A Securities”).

Investing in 144A Securities may decrease the liquidity of a Fund’s portfolio to the extent that qualified institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liquid market exists.

Temporary Investment Risks. Each Fund may, for temporary defensive purposes, invest a certain percentage of its total assets in:

n U.S. Government Securities

n Repurchase agreements collateralized by U.S. Government Securities

When a Fund’s assets are invested in such instruments, the Fund may not be achieving its investive objective.

C. Portfolio Securities and Techniques

This section provides further information on certain types of securities and investment techniques that may be used by the Funds, including their associated risks.

The Funds may purchase other types of securities or instruments similar to those described in this section if otherwise consistent with the Fund’s investment objective and policies. Further information is provided in the Additional Statement, which is available upon request.

U.S. Government Securities. Each Fund may invest in U.S. Government Securities. U.S. Government Securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or sponsored enterprises. U.S. Government Securities may be supported by (a) the full faith and credit of the U.S. Treasury; (b) the right of the issuer to borrow from the U.S. Treasury; (c) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (d) only the credit of the issuer. U.S. Government Securities also include Treasury receipts, zero coupon bonds and other stripped U.S. Government Securities, where the interest and principal components of stripped U.S. Government Securities are traded independently.

APPENDIX A

Custodial Receipts and Trust Certificates. Each Fund may invest in custodial receipts and trust certificates 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 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 certain securities laws purposes, 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. If for tax purposes a Fund is not considered to be the owner of the underlying securities held in the custodial or trust account, the Fund may suffer adverse tax consequences. 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. Each Fund may also invest in separately issued interests in custodial receipts and trust certificates.

Mortgage-Backed Securities. Certain Funds may invest in Mortgage-Backed Securities. Mortgage-Backed Securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Mortgage-Backed Securities can be backed by either fixed rate mortgage loans or adjustable rate mortgage loans, and may be issued by either a governmental or non-governmental entity.

Certain Funds may invest in privately-issued mortgage pass-through securities that represent interests in pools of mortgage loans that are issued by trusts formed by originators of and institutional investors in mortgage loans (or represent interests in custodial arrangements administered by such institutions). These originators and institutions include commercial banks, savings and loans associations, credit unions, savings banks, mortgage bankers, insurance companies, investment banks or special purpose subsidiaries of the foregoing. The pools underlying privately-issued mortgage pass-through securities consist of mortgage loans secured by mortgages or deeds of trust creating a first lien on commercial, residential, residential multi-family and mixed residential/ commercial properties. These Mortgage-Backed Securities typically do not have the same credit standing as U.S. government guaranteed Mortgage-Backed Securities.

Privately-issued mortgage pass-through securities generally offer a higher yield than similar securities issued by a government entity because of the absence of any direct or indirect government or agency payment guarantees. However, timely payment of interest and principal on mortgage loans in these pools may be supported by various forms of insurance or guarantees, including individual loan,

pool and hazard insurance, subordination and letters of credit. The insurance and guarantees are issued by government entities, private insurers, banks and mortgage poolers. Mortgage-Backed Securities without insurance or guarantees may also be purchased by the Fund if they have the required rating from an NRSRO. Some Mortgage-Backed Securities issued by private organizations may not be readily marketable.

Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations (“CMOs”) and Real Estate Mortgage Investment Conduit (“REMIC”) pass-through or participation certificates. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real property and other permitted investments. CMOs provide an investor with a specified interest in the cash flow from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs are issued in multiple classes each with a specified fixed or floating interest rate and a final scheduled distribution date. In many cases, payments of principal are applied to the CMO classes in the order of their respective stated maturities, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full.

Sometimes, however, CMO classes are “parallel pay,” i.e., payments of principal are made to two or more classes concurrently. In some cases, CMOs may have the characteristics of a stripped mortgage-backed security whose price can be highly volatile. CMOs may exhibit more or less price volatility and interest rate risk than other types of Mortgage-Backed Securities, and under certain interest rate and payment scenarios, the Fund may fail to recoup fully its investment in certain of these securities regardless of their credit quality.

To the extent a Fund concentrates its investments in pools of Mortgage-Backed Securities sponsored by the same sponsor or serviced by the same servicer, it may be subject to additional risks. Servicers of mortgage-related pools collect payments on the underlying mortgage assets for pass-through to the pool on a periodic basis. Upon insolvency of the servicer, the pool may be at risk with respect to collections received by the servicer but not yet delivered to the pool.

Mortgaged-Backed Securities also include stripped Mortgage-Backed Securities (“SMBS”), which are derivative multiple class Mortgage-Backed Securities. SMBS are usually structured with two different classes: one that receives substantially all of the interest payments and the other that receives substantially all of the principal payments from a pool of mortgage loans. The market value of SMBS consisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on SMBS that receive all or most of the interest from mortgage loans are generally higher than prevailing market yields on other

APPENDIX A

Mortgage-Backed Securities because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped.

Asset-Backed Securities. Each Fund may invest in asset-backed securities. Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset-backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of 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, a Fund’s ability to maintain positions in such securities will be affected by reductions in the principal amount of such securities resulting from prepayments, and its ability to reinvest the returns of principal at comparable yields is subject to generally prevailing interest rates at that time. Asset-backed securities present credit risks that are not presented by Mortgage-Backed Securities. This is because asset-backed securities generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. If the issuer of an asset-backed security defaults on its payment obligations, there is the possibility that, in some cases, a Fund will be unable to possess and sell the underlying collateral and that a Fund’s recoveries on repossessed collateral may not be available to support payments on the securities. In the event of a default, a Fund may suffer a loss if it cannot sell collateral quickly and receive the amount it is owed.

Municipal Securities. Certain Funds may invest in securities and instruments issued by state and local government issuers. Municipal Securities in which a Fund may invest consist of bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of the states, territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agencies or instrumentalities.

Municipal Securities include both “general” and “revenue” bonds and may be issued to obtain funds for various purposes. General obligations are secured by the issuer’s pledge of its full faith, credit and taxing power. Revenue obligations are payable only from the revenues derived from a particular facility or class of facilities.

Municipal Securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Municipal Securities include private activity bonds, pre-refunded municipal securities and auction rate securities.

The obligations of the issuer to pay the principal of and interest on a Municipal Security are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other conditions, the power or ability of the issuer to pay when due the principal of or interest on a Municipal Security may be materially affected.

In addition, Municipal Securities include municipal leases, certificates of participation and “moral obligation” bonds. A municipal lease is an obligation issued by a state or local government to acquire equipment or facilities. Certificates of participation represent interests in municipal leases or other instruments, such as installment purchase agreements. Moral obligation bonds are supported by a moral commitment but not a legal obligation of a state or local government. Municipal leases, certificates of participation and moral obligation bonds frequently involve special risks not normally associated with general obligation or revenue bonds. In particular, these instruments permit governmental issuers to acquire property and equipment without meeting constitutional and statutory requirements for the issuance of debt. If, however, the governmental issuer does not periodically appropriate money to enable it to meet its payment obligations under these instruments, it cannot be legally compelled to do so. If a default occurs, it is likely that a Fund would be unable to obtain another acceptable source of payment. Some municipal leases, certificates of participation and moral obligation bonds may be illiquid.

Municipal Securities may also be in the form of a tender option bond, which 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. After payment of a fee to the financial institution that provides this option, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. An institution may not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrading in the credit rating assigned to the issuer of the bond. The tender option will be taken into account in determining the maturity of the tender option bonds and a Fund’s duration. Certain tender option bonds may be illiquid.

APPENDIX A

Municipal Securities may be backed by letters of credit or other forms of credit enhancement issued by domestic or foreign banks or by other financial institutions. The credit quality of these banks and financial institutions could, therefore, cause a loss to a Fund that invests in Municipal Securities. Letters of credit and other obligations of foreign banks and financial institutions may involve risks in addition to those of domestic obligations because of less publicly available financial and other information, less securities regulation, potential imposition of foreign withholding and other taxes, war, expropriation or other adverse governmental actions. Foreign banks and their foreign branches are not regulated by U.S. banking authorities, and are generally not bound by the accounting, auditing and financial reporting standards applicable to U.S. banks.

Certain Funds may invest 25% or more of the value of their respective 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 Security. For example, a Fund may invest all of its assets in (a) Municipal Securities the interest on which is paid solely from revenues from similar projects such as hospitals, electric utility systems, multi-family housing, nursing homes, commercial facilities (including hotels), steel companies or life care facilities; (b) Municipal Securities whose issuers are in the same state; or (c) industrial development obligations. Concentration of a Fund’s investments in these Municipal Securities will subject the Fund, to a greater extent than if such investment was not so concentrated, to the risks of adverse economic, business or political developments affecting the particular state, industry or other area of concentration.

Brady Bonds and Similar Instruments. Certain Funds may invest in debt obligations commonly referred to as “Brady Bonds.” 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 involve various risk factors including the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds. There can be no assurance that Brady Bonds in which the Fund may invest will not be subject to restructuring arrangements or to requests for new credit, which may cause the Fund to suffer a loss of interest or principal on its holdings.

In addition, the Fund may invest in other interests issued by entities organized and operated for the purpose of restructuring the investment characteristics of instruments issued by Emerging Country issuers. These types of restructuring involve the deposit with or purchase by an entity of specific instruments and the

issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying instruments. Certain issuers of such structured securities may be deemed to be “investment companies” as defined in the Investment Company Act of 1940. As a result, the Fund’s investment in such securities may be limited by certain investment restrictions contained in the Investment Company Act of 1940.

Corporate Debt Obligations; Trust Preferred Securities; Convertible Securities. Certain Funds may invest in corporate debt obligations, trust preferred securities and convertible securities. Corporate debt obligations include bonds, notes, debentures, commercial paper and other obligations of corporations to pay interest and repay principal. A trust preferred 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. The securities are generally senior in claim to standard preferred stock but junior to other bondholders. Certain Funds may also invest in other short-term obligations issued or guaranteed by U.S. corporations, non-U.S. corporations or other entities.

Convertible securities are preferred stock or debt obligations that are convertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. Convertible securities in which a Fund invests are subject to the same rating criteria as its other investments in fixed-income securities. Convertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible security, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

Bank Obligations. Certain Funds may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank obligations, including without limitation, time deposits, bankers’ acceptances and certificates of deposit, may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government regulations. Banks are subject to extensive but different governmental regulations which may limit both the amount and types of loans which may be made and interest rates which may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and

APPENDIX A

cost of funds for the purpose of financing lending operations under prevailing money market conditions. General economic conditions as well as exposure to credit losses arising from possible financial difficulties of borrowers play an important part in the operation of this industry.

Foreign Currency Transactions. Certain Funds may, to the extent consistent with their investment policies, purchase or sell foreign currencies on a cash basis or through forward contracts. A forward contract involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract.

Certain Funds may engage in foreign currency transactions for hedging purposes and to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, certain Funds may enter into foreign currency transactions to seek a closer correlation between the Fund’s overall currency exposures and the currency exposures of the Fund’s performance benchmark. Certain Funds may also enter into such transactions to seek to increase total return, which is considered a speculative practice.

Some Funds may also engage in cross-hedging by using forward contracts in a currency different from that in which the hedged security is denominated or quoted. A Fund may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the Investment Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date (e.g., the Investment Adviser may anticipate the foreign currency to appreciate against the U.S. dollar).

Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, a Fund’s NAV to fluctuate (when the Fund’s NAV fluctuates, the value of your shares may go up or down). Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad.

The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments offers less protection against defaults by the other party to such instruments than is available for currency instruments traded on an exchange. Such contracts are subject to the risk that the counterparty to the contract will default on its obligations. Since these contracts are not guaranteed by an exchange or clearinghouse, a default on a contract would deprive a Fund of unrealized profits, transaction costs or the benefits of a currency hedge or could force the Fund to cover its purchase or sale commitments, if any, at the current market price.

Structured Securities and Inverse Floaters. Certain Funds may invest in structured securities. Structured securities are securities whose value is determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the “Reference”) or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. Structured securities may be positively or negatively indexed, so that appreciation of the Reference may produce an increase or decrease in the interest rate or value of the security at maturity. In addition, changes in the interest rates or the value of the security at maturity may be a multiple of changes in the value of the Reference. Consequently, structured securities may present a greater degree of market risk than many types of securities, and may be more volatile, less liquid and more difficult to price accurately than less complex securities.

Structured securities include, but are not limited to, inverse floating rate debt securities (“inverse floaters”). The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.

Floating and Variable Rate Obligations. Each Fund may purchase floating and variable rate obligations. The value of these obligations is generally more stable than that of a fixed rate obligation in response to changes in interest rate levels. The issuers or financial intermediaries providing demand features may support their ability to purchase the obligations by obtaining credit with liquidity supports. These may include lines of credit, which are conditional commitments to lend, and letters of credit, which will ordinarily be irrevocable both of which may be issued by domestic banks or foreign banks. A Fund may purchase variable or floating rate obligations from the issuers or may purchase certificates of participation, a type of floating or variable rate obligation, which are interests in a pool of debt obligations held by a bank or other financial institutions.

Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds. Each Fund may invest in zero coupon bonds, deferred interest, pay-in-kind and capital appreciation bonds. These bonds are issued at a discount from their face value because interest payments are typically postponed until maturity. Pay-in-kind securities are securities that have interest payable by the delivery of additional securities. The market prices of these securities generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a greater

APPENDIX A

degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality.

Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A mortgage dollar roll involves the sale by a Fund of securities for delivery in the current month. The Fund simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal and interest paid on the securities sold. However, the Fund benefits to the extent of any difference between (a) the price received for the securities sold and (b) the lower forward price for the future purchase and/or fee income plus the interest earned on the cash proceeds of the securities sold. Unless the benefits of a mortgage dollar roll exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the roll, the use of this technique will diminish the Fund’s performance.

Successful use of mortgage dollar rolls depends upon the Investment Adviser’s ability to predict correctly interest rates and mortgage prepayments. If the Investment Adviser is incorrect in its prediction, a Fund may experience a loss. The Funds do not currently intend to enter into mortgage dollar rolls for financing and do not treat them as borrowings.

Options on Securities, Securities Indices and Foreign Currencies. A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instrument during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obligation to sell, the underlying instrument during the option period. Each Fund may write (sell) covered call and put options and purchase put and call options on any securities in which the Fund may invest or on any securities index consisting of securities in which it may invest. Certain Funds may also, to the extent consistent with its investment policies, purchase and sell (write) put and call options on foreign currencies.

The writing and purchase of options is a highly specialized activity which involves special investment risks. Options may be used for either hedging or cross-hedging purposes, or to seek to increase total return (which is considered a speculative activity). The successful use of options depends in part on the ability of the Investment Adviser to manage future price fluctuations and the degree of correlation between the options and securities (or currency) markets. If the Investment Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in a Fund’s investment

portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase a Fund’s transaction costs. Options written or purchased by the Funds may be traded on either U.S. or foreign exchanges or over-the-counter. Foreign and over-the-counter options will present greater possibility of loss because of their greater illiquidity and credit risks.

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.

The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, 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.

Futures Contracts and Options on Futures Contracts. Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument or currency at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A futures contract may be based on particular securities, foreign currencies, securities indices and other financial instruments and indices. The Funds may engage in futures transactions on U.S. and (in the case of certain Funds) foreign exchanges.

Each Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices or, to the extent a Fund invests in foreign securities, 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.

APPENDIX A

Futures contracts and related options present the following risks:

n While a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.

n Because perfect correlation between a futures position and a portfolio position that is intended to be protected is impossible to achieve, the desired protection may not be obtained and a Fund may be exposed to additional risk of loss.

n The loss incurred by a Fund in entering into futures contracts and in writing call options on futures is potentially unlimited and may exceed the amount of the premium received.

n Futures markets are highly volatile and the use of futures may increase the volatility of a Fund’s NAV.

n As a result of the low margin deposits normally required in futures trading, a relatively small price movement in a futures contract may result in substantial losses to a Fund.

n Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.

n Foreign exchanges may not provide the same protection as U.S. exchanges.

When-Issued Securities and Forward Commitments. Each Fund may purchase when-issued securities and make contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time. When-issued securities are securities that have been authorized, but not yet issued. When-issued securities are purchased in order to secure what is considered to be an advantageous price or yield to the Fund at the time of entering into the transaction. A forward commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settlement period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, the sale of securities on a forward commitment basis involves the risk that the value of the securities sold may increase before the settlement date. Although a Fund will generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate.

Lending of Portfolio Securities. Each Fund may engage in securities lending. Securities lending involves the lending of securities owned by a Fund to financial institutions such as certain broker-dealers, including, as permitted by the SEC, Goldman Sachs. The borrowers are required to secure their loans continuously with

cash, cash equivalents, U.S. Government Securities or letters of credit in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested by a Fund in short-term investments, including unregistered investment pools managed by the Investment Adviser or its affiliates and from which the Investment Adviser or its affiliates may receive fees. To the extent that cash collateral is so invested, such collateral will be subject to market depreciation or appreciation, and a Fund will be responsible for any loss that might result from its investment of the borrowers’ collateral. If the Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 33 1/3% of the value of the total assets of a Fund (including the loan collateral). Loan collateral (including any investment of that collateral) is not subject to the percentage limitations described elsewhere in this Prospectus regarding investments in particular types of fixed-income and other securities.

A Fund may lend its securities to increase its income. A Fund may, however, experience delay in the recovery of its securities or incur a loss if the institution with which it has engaged in a portfolio loan transaction breaches its agreement with the Fund or becomes insolvent.

Repurchase Agreements. Repurchase agreements involve the purchase of securities subject to the seller’s agreement to repurchase them at a mutually agreed upon date and price. Each Fund may enter into repurchase agreements with securities dealers and banks which furnish collateral at least equal in value or market price to the amount of their repurchase obligation. Some Funds may also enter into repurchase agreements involving certain foreign government securities.

If the other party or “seller” defaults, a Fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund are less than the repurchase price and the Fund’s costs associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer additional losses if a court determines that the Fund’s interest in the collateral is not enforceable.

Certain Funds, together with other registered investment companies having advisory agreements with the Investment Adviser or any of its affiliates, may transfer uninvested cash balances into a single joint account, the daily aggregate balance of which will be invested in one or more repurchase agreements.

Borrowings and Reverse Repurchase Agreements. Each Fund can borrow money from banks and other financial institutions, and certain Funds may enter into reverse repurchase agreements in amounts not exceeding one-third of its total assets. A Fund may not make additional investments if borrowings exceed 5% of its total assets. Reverse repurchase agreements involve the sale of securities held by

APPENDIX A

a Fund (excluding the Enhanced Income Fund) subject to the Fund’s agreement to repurchase them at a mutually agreed upon date and price (including interest). These transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agreements may also be entered into when the Investment Adviser expects that the interest income to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Borrowings and reverse repurchase agreements involve leveraging. If the securities held by a Fund decline in value while these transactions are outstanding, the NAV of the Fund’s outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the investment return earned by a Fund (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by a Fund will decline below the price the Fund is obligated to pay to repurchase the securities, and that the securities may not be returned to the Fund.

Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps, Total Return Swaps, Options on Swaps and Interest Rate Caps, Floors and Collars. 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. Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses on an underlying security. Credit swaps give one party to a transaction the right to dispose of or acquire an asset (or group of assets), or the right to receive a payment from the other party, upon the occurrence of specified credit events. Currency swaps involve the exchange of the parties’ respective rights to make or receive payments in specified currencies. Total return swaps give a Fund the right to receive the appreciation in the value of a specified security, index or other instrument in return for a fee paid to the counterparty, which will typically be an agreed upon interest rate. If the underlying asset in a total return swap declines in value over the term of the swap, the Fund may also be required to pay the dollar value of that decline to the counterparty. The Funds may also purchase and write (sell) options contracts on swaps, commonly referred to as swaptions. 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.

Each Fund may enter into swap transactions for hedging purposes or to seek to increase total return. The use of interest rate, mortgage, credit, currency and total return swaps, options on swaps, and interest rate caps, floors and collars, is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Investment Adviser is incorrect in its forecasts of market values, interest rates and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if these investment techniques were not used.

Other Investment Companies. Each Fund may invest in securities of other investment companies subject to statutory limitations prescribed by the Investment Company Act of 1940. These limitations include a prohibition on any Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of a Fund’s total assets in securities of any one investment company or more than 10% of its total assets in securities of all investment companies. A Fund will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies. 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. Pursuant to an exemptive order obtained from the SEC, other investment companies in which a Fund may invest include money market funds for which the Investment Adviser or any of its affiliates serves as investment adviser, administrator or distributor.

Non-Investment Grade Fixed-Income Securities. Non-investment grade fixed-income securities and unrated securities of comparable credit quality (commonly known as “junk bonds”) are considered predominantly speculative by traditional investment standards. In some cases, these obligations may be highly speculative and have poor prospects for reaching investment grade standing. Non-investment grade fixed-income securities are subject to the increased risk of an issuer’s inability to meet principal and interest obligations. These securities, also referred to as high yield securities, may be subject to greater price volatility due to such

APPENDIX A

factors as specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.

Non-investment grade fixed-income securities are often issued in connection with a corporate reorganization or restructuring or as part of a merger, acquisition, takeover or similar event. They are also issued by less established companies seeking to expand. Such issuers are often highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and interest in the event of adverse developments or business conditions. Non-investment grade securities are also issued by governmental bodies that may have difficulty in making all scheduled interest and principal payments.

The market value of non-investment grade fixed-income securities tends to reflect individual corporate or municipal developments to a greater extent than that of higher rated securities which react primarily to fluctuations in the general level of interest rates. As a result, a Fund’s ability to achieve its investment objectives may depend to a greater extent on the Investment Adviser’s judgment concerning the creditworthiness of issuers than funds which invest in higher-rated securities. Issuers of non-investment grade fixed-income securities may not be able to make use of more traditional methods of financing and their ability to service debt obligations may be affected more adversely than issuers of higher-rated securities by economic downturns, specific corporate or financial developments or the issuer’s inability to meet specific projected business forecasts. Negative publicity about the junk bond market and investor perceptions regarding lower rated securities, whether or not based on fundamental analysis, may depress the prices for such securities.

A holder’s risk of loss from default is significantly greater for non-investment grade fixed-income securities than is the case for holders of other debt securities because such non-investment grade securities are generally unsecured and are often subordinated to the rights of other creditors of the issuers of such securities. Investment by a Fund in defaulted securities poses 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.

The secondary market for non-investment grade fixed-income securities is concentrated in relatively few market makers and is dominated by institutional investors, including mutual funds, insurance companies and other financial institutions. Accordingly, the secondary market for such securities is not as liquid as, and is more volatile than, the secondary market for higher-rated securities. In addition, market trading volume for high yield fixed-income securities is generally lower and the secondary market for such securities could shrink or disappear

suddenly and without warning as a result of adverse market or economic conditions, independent of any specific adverse changes in the condition of a particular issuer. Because of the lack of sufficient market liquidity, a Fund may incur losses because it will be required to effect sales at a disadvantageous time and then only at a substantial drop in price. These factors may have an adverse effect on the market price and a Fund’s ability to dispose of particular portfolio investments. A less liquid secondary market also may make it more difficult for a Fund to obtain precise valuations of the high yield securities in its portfolio.

Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of non-investment grade securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality.

Loan Participations. Certain Funds may invest in 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. A Fund may only invest in loans to issuers in whose obligations it may otherwise invest. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an assignment of an interest in the loan by a co-lender or another participant, or a participation in the seller’s share of the loan. When a Fund acts as co-lender in connection with a participation interest or when it acquires certain participation interests, the Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Fund lacks direct recourse, it will look to an agent for the lenders (the “agent lender”) to enforce appropriate credit remedies against the borrower. In these cases, the 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. Moreover, under the terms of the loan participation, the Fund may be regarded as a creditor of the agent lender (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the agent lender may become insolvent.

Preferred Stock, Warrants and Rights. Certain Funds may invest in preferred stock, warrants and rights. Preferred stocks are securities that represent an ownership interest providing the holder with claims on the issuer’s earnings and assets before common stock owners but after bond 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

APPENDIX A

preferred stock on the occurrence of an event of default or other non-compliance by the issuer of the preferred stock.

Warrants and other rights are options to buy a stated number of shares of common stock at a specified price at any time during the life of the warrant or right. 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.


	Appendix B Financial Highlights


	The financial highlights tables are intended to help you understand a Fund’s financial performance for the past five years (or less if the Fund has been in operation for less than five years). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in a Fund (assuming reinvestment of all dividends and distributions). The information for the period ended October 31, 2000 and thereafter has been audited by Ernst & Young LLP, whose report, along with the Funds’ financial statements, is included in the Funds’ annual report (available upon request without charge). The information for all periods prior to the period ended October 31, 2000 has been audited by the Funds’ previous independent auditors who have ceased operations. The U.S. Mortgages and Investment Grade Credit Funds had not yet commenced operations on October 31, 2003. Therefore no financial highlights are included for these Funds in this Appendix.

	ENHANCED INCOME FUND



		Enhanced Income Fund—Institutional Shares

											For the
											Period Ended
		Years Ended October 31,									October 31, 2000
											(commenced
		2003			2002			2001			August 2, 2000)






Net asset value, beginning of period		$	10.12		$	10.26		$	10.00		$	10.00

Income (loss) from investment operations




Net investment income^c			0.37			0.42			0.55			0.16




Net realized and unrealized gain (loss)			(0.15	)		(0.14	)		0.28			0.01

	Total from investment operations		0.22			0.28			0.83			0.17

Distributions to shareholders




From net investment income			(0.36	)		0.42			(0.57	)		(0.17	)

Net asset value, end of period		$	9.98		$	10.12		$	10.26		$	10.00

Total return^a			2.18	%		2.79	%		8.53	%		1.76	%




Net assets at end of period (in 000s)		$	1,106,956		$	2,071,378		$	807,871		$	156,525




Ratio of net expenses to average net assets			0.25	%		0.25	%		0.25	%		0.25	%^b




Ratio of net investment income to average net assets			3.65	%		4.17	%		5.40	%		6.49	%^b




Ratios assuming no expense reductions




Ratio of expenses to average net assets			0.31	%		0.32	%		0.40	%		1.37	%^b




Ratio of net investment income to average net assets			3.59	%		4.10	%		5.25	%		5.37	%^b




Portfolio turnover rate			41	%		65	%		127	%		31	%

See page 98 for all footnotes.

APPENDIX B

ULTRA-SHORT DURATION GOVERNMENT FUND



		Ultra-Short Duration Government Fund—Institutional Shares


		Years Ended October 31,

		2003			2002			2001			2000			1999






Net asset value, beginning of year		$	9.68		$	9.81		$	9.58		$	9.64		$	9.70

Income (loss) from investment operations




Net investment income			0.28	^c		0.35	^c,e		0.56	^c		0.58	^c		0.53




Net realized and unrealized gain (loss)			(0.12	)		(0.06	)^e		0.24			(0.05	)		(0.05	)

	Total from investment operations		0.16			0.29			0.80			0.53			0.48

Distributions to shareholders




From net investment income			(0.36	)		0.42			(0.57	)		(0.59	)		(0.48	)




From capital			—			—			—			—			(0.06	)

	Total distributions		(0.36	)		(0.42	)		(0.57	)		(0.59	)		(0.54	)

Net asset value, end of year		$	9.48		$	9.68		$	9.81		$	9.58		$	(9.64	)

Total return^a			1.69	%		2.98	%		8.62	%		5.65	%		5.06	%




Net assets at end of year (in 000s)		$	1,967,845		$	2,646,847		$	278,316		$	176,881			315,024




Ratio of net expenses to average net assets			0.46	%		0.48	%		0.49	%		0.49	%		0.49	%




Ratio of net investment income to average net assets			2.95	%		3.65	%^e		5.79	%		6.01	%		5.49	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets			0.46	%		0.48	%		0.57	%		0.56	%		0.53	%




Ratio of net investment income to average net assets			2.95	%		3.65	%^e		5.71	%		5.94	%		5.45	%




Portfolio turnover rate^d			102	%		144	%		87	%		11	%		39	%

See page 98 for all footnotes.

SHORT DURATION GOVERNMENT FUND



		Short Duration Government Fund—Institutional Shares


		Years Ended October 31,

		2003			2002			2001			2000			1999






Net asset value, beginning of year		$	10.10		$	10.02		$	9.47		$	9.57		$	9.90

Income (loss) from investment operations




Net investment income			0.39	^c		0.42	^c,e		0.57	^c		0.63	^c		0.59




Net realized and unrealized gain (loss)			(0.15	)		0.13	^e		0.58			(0.09	)		(0.35	)

	Total from investment operations		0.24			0.55			1.15			0.54			0.24

Distributions to shareholders




From net investment income			(0.38	)		(0.47	)		(0.60	)		(0.64	)		(0.57	)

Net asset value, end of year		$	9.96		$	10.10		$	10.02		$	9.47		$	9.57

Total return^a			2.43	%		5.69	%		12.47	%		5.85	%		2.49	%




Net assets at end of year (in 000s)		$	415,210		$	280,452		$	206,129		$	131,462		$	146,062




Ratio of net expenses to average net assets			0.55	%		0.54	%		0.54	%		0.54	%		0.54	%




Ratio of net investment income to average net assets			3.86	%		4.20	%^e		5.89	%		6.64	%		6.03	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets			0.61	%		0.64	%		0.71	%		0.73	%		0.67	%




Ratio of net investment income to average net assets			3.80	%		4.10	%^e		5.72	%		6.45	%		5.90	%




Portfolio turnover rate^d			184	%		194	%		243	%		130	%		173	%

See page 98 for all footnotes.

APPENDIX B

GOVERNMENT INCOME FUND



		Government Income Fund—Institutional Shares


		For The Years Ended October 31,

		2003			2002			2001			2000			1999






Net asset value, beginning of year		$	14.93		$	14.94		$	13.82		$	13.69		$	14.90

Income (loss) from investment operations




Net investment income			0.47	^c		0.69	^c,e		0.83	^c		0.87			0.85




Net realized and unrealized gain (loss)			0.04			0.19	^e		1.14			0.14			(0.88	)

	Total from investment operations		0.51			0.88			1.97			1.01			(0.03	)

Distributions to shareholders




From net investment income			(0.57	)		(0.73	)		(0.85	)		(0.88	)		(0.83	)




From net realized gains			(0.02	)		(0.16	)		—			—			(0.35	)

	Total distributions		(0.59	)		(0.89	)		(0.85	)		(0.88	)		(1.18	)

Net asset value, end of year		$	14.85		$	14.93		$	14.94		$	13.82		$	13.69

Total return^a			3.60	%		6.13	%		14.67	%		7.68	%		(0.23	)%




Net assets at end of year (in 000s)		$	151,111		$	82,523		$	34,997		$	7,514		$	5,899




Ratio of net expenses to average net assets			0.59	%		0.58	%		0.58	%		0.58	%		0.58	%




Ratio of net investment income to average net assets			3.16	%		4.74	% ^e		5.80	%		6.41	%		6.07	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets			0.78	%		0.84	%		0.91	%		0.99	%		0.93	%




Ratio of net investment income to average net assets			2.97	%		4.48	% ^e		5.47	%		6.00	%		5.72	%




Portfolio turnover rate^d			520	%		226	%		473	%		341	%		278	%

See page 98 for all footnotes.

CORE FIXED INCOME FUND



		Core Fixed Income Fund—Institutional Shares


		Years Ended October 31,

		2003			2002			2001			2000			1999






Net asset value, beginning of year		$	10.09		$	10.28		$	9.54		$	9.52		$	10.28

Income (loss) from investment operations




Net investment income			0.45	^c		0.55	^c		0.60	^c		0.61	^c		0.58




Net realized and unrealized gain (loss)			0.29			(0.15	)		0.76			0.02			(0.62	)

	Total from investment operations		0.74			0.40			1.36			0.63			(0.04	)

Distributions to shareholders




From net investment income			(0.44	)		(0.56	)		(0.62	)		(0.62	)		(0.57	)




From net realized gains			(0.04	)		(0.03	)		—			—			(0.15	)

	Total distributions		(0.48	)		(0.59	)		(0.62	)		(0.62	)		(0.72	)

Net asset value, end of year		$	10.35		$	10.09		$	10.29		$	9.53		$	9.52

Total return^a			7.54	%		3.99	%		14.69	%		6.90	%		(0.37	)%




Net assets at end of year (in 000s)		$	695,181		$	733,996		$	440,836		$	268,465		$	216,973




Ratio of net expenses to average net assets			0.49	%		0.50	%		0.54	%		0.54	%		0.54	%




Ratio of net investment income to average net assets			4.39	%		5.51	%		6.05	%		6.46	%		5.97	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets			0.49	%		0.50	%		0.54	%		0.57	%		0.58	%




Ratio of net investment income to average net assets			4.39	%		5.51	%		6.05	%		6.43	%		5.93	%




Portfolio turnover rate^d			489	%		437	%		315	%		272	%		280	%

See page 98 for all footnotes.

APPENDIX B

GLOBAL INCOME FUND



		Global Income Fund—Institutional Shares


		Years Ended October 31,

		2003			2002			2001			2000			1999






Net asset value, beginning of year		$	14.33		$	14.70		$	14.67		$	14.48		$	15.64

Income (loss) from investment operations




Net investment income			0.56	^c		0.58	^c,e		0.65	^c		0.68	^c		0.71




Net realized and unrealized gain (loss)			0.30			(0.33	) ^e		0.84			0.21			(0.77	)

	Total from investment operations		0.86			0.25			1.49			0.89			(0.06	)

Distributions to shareholders




From net investment income			(0.82	)		(0.62	)		(1.46	)		(0.70	)		(0.71	)




From capital			—			—			—			—			(0.03	)




From net realized gains			—			—			—			—			(0.36	)

	Total distributions		(0.82	)		(0.62	)		(1.46	)		(0.70	)		(1.10	)




Net asset value, end of year		$	14.37		$	14.33		$	14.70		$	14.67		$	14.48

Total return^a			6.07	%		1.82	%		10.73	%		6.27	%		(0.49	)%




Net assets at end of year (in 000s)		$	90,368		$	143,127		$	181,869		$	287,145		$	279,621




Ratio of net expenses to average net assets			0.70	%		0.69	%		0.69	%		0.69	%		0.69	%




Ratio of net investment income to average net assets			3.82	%		4.00	% ^e		4.47	%		4.69	%		4.75	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets			1.09	%		1.07	%		1.05	%		1.05	%		1.07	%




Ratio of net investment income to average net assets			3.43	%		3.62	% ^e		4.11	%		4.33	%		4.37	%




Portfolio turnover rate			106	%		146	%		222	%		185	%		158	%

See page 98 for all footnotes.

HIGH YIELD FUND



		High Yield Fund—Institutional Shares


		Years Ended October 31,

		2003			2002			2001			2000			1999






Net asset value, beginning of year		$	6.39		$	7.25		$	8.19		$	9.08		$	9.17

Income (loss) from investment operations




Net investment income			0.68	^c		0.70	^c		0.86	^c		0.88	^c		0.90	^c




Net realized and unrealized loss			1.41			(0.85	)		(0.93	)		(0.79	)		(0.12	)

	Total from investment operations		2.09			(0.15	)		(0.07	)		0.09			0.78

Distributions to shareholders




From net investment income			(0.67	)		(0.71	)		(0.87	)		(0.98	)		(0.87	)

Net asset value, end of year		$	7.81		$	6.39		$	7.25		$	8.19		$	9.08

Total return^a			33.98	%		(2.59	)%		(1.14	)%		0.77	%		8.49	%




Net assets, end of year (in 000s)		$	1,119,417		$	726,140		$	460,253		$	420,284		$	257,498




Ratio of net expenses to average net assets			0.77	%		0.76	%		0.76	%		0.76	%		0.76




Ratio of net investment income to average net assets			9.42	%		9.95	%		10.96	%		9.99	%		9.50	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets			0.79	%		0.79	%		0.82	%		0.81	%		0.82	%




Ratio of net investment income to average net assets			9.40	%		9.92	%		10.90	%		9.94	%		9.44	%




Portfolio turnover rate			54	%		36	%		57	%		55	%		59	%

See page 98 for all footnotes.

APPENDIX B

EMERGING MARKETS DEBT FUND


		Emerging Markets Debt
		Fund—Institutional Shares

		For the Period Ended October 31, 2003

		(Commenced August 29, 2003)






Net asset value, beginning of period		$	10.00

Income (loss) from investment operations




Net investment income^c			0.11




Net realized and unrealized gain			0.24

	Total from investment operations		0.35

Distributions to shareholders




From net investment income			(0.12	)

Net asset value, end of period		$	10.23

Total return^a			3.52	%




Net assets, end of period (in 000s)		$	11,688




Ratio of net expenses to average net assets^b			0.88	%




Ratio of net investment income to average net assets^b			5.96	%




Ratios assuming no expense reductions




Ratio of expenses to average net assets^b			4.88	%




Ratio of net investment income to average net assets^b			1.96	%




Portfolio turnover rate			49	%

See page 98 for all footnotes.

Footnotes:


a		Assumes investment at the net asset value at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the net asset value at the end of period and no sales or redemption charges. Total return would be reduced if a sales or redemption charges were taken into account, if applicable. Total returns for periods less than one full year are not annualized. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of Fund shares.
b		Annualized.
c		Calculated based on the average shares outstanding methodology.
d		Includes the effect of mortgage dollar roll transactions.
e		As required, effective November 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing all premiums and discounts on debt securities. The effect of this change for the year ended October 31, 2002 was as follows:


					Decrease the Ratio of Net
					Investment Income to
	Decrease Net		Increase Net Realized		Average Net Asset With
	Investment		and Unrealized Gains		and Without Expense
Fund	Income Per Share		and Losses Per Share		Reduction


Ultra-Short Duration Government	$	0.05	$	0.05		0.48	%
Short Duration Government	$	0.06	$	0.06		0.63	%
Government Income	$	0.06	$	0.06		0.44	%
Global Income	$	0.06	$	0.06		0.43	%


		Per share ratios and supplemental data for periods prior to November 1, 2001 have not been restated to reflect this change in presentation.

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	Appendix C Prior Performance of Similarly Advised Accounts of the Investment Adviser

U.S. MORTGAGES FUND

The Investment Adviser has a number of discretionary private accounts that have investment objectives, policies and strategies substantially similar to the U.S. Mortgages Fund. The following table sets forth the performance data relating to the historical performance of those accounts. The information is provided to illustrate the past performance of the Investment Adviser in managing substantially similar accounts as measured against the Lehman Brothers MBS Fixed Rate Index and does not represent the performance of the U.S. Mortgages Fund. Investors should not consider this performance data as a substitute for the performance of the U.S. Mortgages Fund nor should investors consider this data as an indication of the future performance of the U.S. Mortgages Fund or of the Investment Adviser. The Lehman Brothers MBS Fixed Rate Index is unmanaged, and investors cannot invest directly in the index. The Lehman Brothers MBS Fixed Rate Index is used as the private accounts’ performance benchmark rather than the Fund’s performance benchmark, the Lehman Brothers Securitized Index, because the Lehman Brothers MBS Fixed Rate Index has a longer performance history which covers the entire private accounts’ performance history. The two indices have been substantially similar except that the Lehman Brothers Securitized Index includes a small component which is invested in asset-backed and commercial mortgage-backed securities.


			Lehman
			Brothers MBS
	Private Accounts		Fixed Rate
Calendar Years	Performance		Index


1993		6.40%		6.85%
1994		-1.94%		-1.61%
1995		16.19%		16.80%
1996		5.16%		5.36%
1997		9.08%		9.48%
1998		6.64%		6.97%
1999		1.14%		1.85%
2000		11.58%		11.17%
2001		8.58%		8.21%
2002		8.85%		8.75%
2003		3.45%		3.07%

100

APPENDIX C

AVERAGE ANNUAL TOTAL RETURNS

for the periods ended 12/31/03



									Since
									Inception
									November 1,
	1 Year		3 Year		5 Year		10 Year		1991


Private Accounts Performance		4.18%		7.68%		7.40%		7.50%		7.79%
Lehman Brothers MBS Fixed Rate Index		3.07%		6.65%		6.55%		0.11%		7.03%

The performance information with respect to the private discretionary accounts has been adjusted to reflect the estimated annual fund operating expenses (before waivers and expense limitations) of the Institutional Shares of the Goldman Sachs U.S. Mortgages Fund, which total 0.70% of the Fund’s average daily net assets. These expenses are higher than the highest actual annual expenses of the discretionary accounts. All returns reflect the reinvestment of dividends and other earnings. The accounts are not subject to the same diversification requirements, specific tax restrictions and investment limitations imposed on the Fund by the Investment Company Act of 1940 and Subchapter M of the Internal Revenue Code of 1986, as amended. Consequently, the performance results of the accounts could have been adversely affected if the accounts had been regulated as an investment company under the federal securities laws. In addition, the securities held by the Fund will not be identical to the securities held by the accounts. Accordingly, the future performance of the Fund will differ from the performance of the accounts.

101


	Appendix D Prior Performance of Similarly Advised Non-U.S. Fund of the Investment Adviser

EMERGING MARKETS DEBT FUND

Goldman Sachs Asset Management International (GSAMI), an affiliate of GSAM, and GSAM have served as investment adviser and sub-adviser, respectively, for a non-U.S. Fund that has investment objectives, policies and strategies substantially similar to the Fund. The following table sets forth the performance data relating to the historical performance of that non-U.S. Fund. The information is provided to illustrate the past performance of the Investment Adviser in managing a substantially similar non-U.S. Fund as measured against the JP Morgan EMBI Global Diversified Index and does not represent the performance of the Fund. Investors should not consider this performance data as a substitute for the performance of the Fund nor should investors consider this data as an indication of the future performance of the Fund or of the Investment Adviser. The JP Morgan EMBI Global Diversified Index is an unmanaged index of debt instruments of 31 Emerging Countries, including Argentina, Brazil, Bulgaria, Chile, China, Colombia, Cote d’Ivoire, Croatia, Dominican Republic, Ecuador, Egypt, El Salvador, Hungary, Lebanon, Malaysia, Mexico, Morocco, Nigeria, Panama, Peru, The Philippines, Poland, Russia, South Africa, South Korea, Thailand, Tunisia, Turkey, Ukraine, Uruguay, and Venezuela.


			JP Morgan
	Non-U.S. Fund		EMBI
Calendar Years	Performance		Index


2001		12.63%		10.03%
2002		12.63%		13.03%
2003		22.06%		22.73%




	Average Annual Total
	Return
	for the Period ended
	12/31/03

			Since
			Inception
	1 Year		6/1/2000


Non-U.S. Fund Performance		22.06%		16.02%
JP Morgan EMBI Index		22.73%		16.24%

102

APPENDIX D

The performance information with respect to the non-U.S. Fund has been adjusted to reflect the estimated annual fund operating expenses (before waivers and expense limitations) of the Institutional shares of the Goldman Sachs Emerging Markets Debt Fund which total 2.70% of the Fund’s average daily net assets. These expenses are higher than the actual average annual expenses of the Institutional shares of the non-U.S. Fund. All returns reflect the reinvestment of dividends and other earnings. The non-U.S. Fund is not subject to the same diversification requirements, specific tax restrictions and investment limitations imposed on the Fund by the Investment Company Act of 1940 and Subchapter M of the Internal Revenue Code of 1986, as amended. Consequently, the performance results of the non-U.S. Fund could have been adversely affected if the non-U.S. Fund had been regulated as an investment company under the federal securities laws. In addition, the securities held by the Fund will not be identical to the securities held by the non-U.S. Fund. Accordingly, the future performance of the Fund will differ from the performance of the non-U.S. Fund.

103

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	Index


		1 General Investment Management Approach

		4 Fund Investment Objectives and Strategies
		4		Goldman Sachs Enhanced Income Fund
		5		Goldman Sachs Ultra-Short Duration Government Fund
		6		Goldman Sachs Short Duration Government Fund
		7		Goldman Sachs Government Income Fund
		8		Goldman Sachs U.S. Mortgages Fund
		9		Goldman Sachs Core Fixed Income Fund
		10		Goldman Sachs Investment Grade Credit Fund
		11		Goldman Sachs Global Income Fund
		13		Goldman Sachs High Yield Fund
		15		Goldman Sachs Emerging Markets Debt Fund

		18 Other Investment Practices and Securities

		22 Principal Risks of the Funds

		28 Fund Performance

		36 Fund Fees and Expenses

		40 Service Providers

		48 Dividends

		50 Shareholder Guide
		50		How to Buy Shares
		56		How to Sell Shares

		61 Taxation

		64 Appendix A Additional Information on Portfolio Risks, Securities and Techniques

		90 Appendix B Financial Highlights

		100 Appendix C Prior Performance of Similarly Advised Accounts of the Investment Adviser

		102 Appendix D Prior Performance of Similarly Advised Non-U.S. Fund of the Investment Adviser


	Fixed Income Funds Prospectus (Institutional Shares)

FOR MORE INFORMATION

Annual/Semi-annual Report

Additional information about the Funds’ investments is available in the Funds’ annual and semi-annual reports to shareholders. In the Funds’ annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds’ performance during the last fiscal year. The U.S. Mortgages and Investment Grade Credit Funds commenced operations on November 3, 2003. The annual report for these Funds for the fiscal period ended October 31, 2004 will become available to shareholders in December 2004. The semi-annual report for these Funds for the fiscal period ended April 30, 2004 will become available to shareholders in June 2004.

Statement of Additional Information

Additional information about the Funds and their policies is also available in the Funds’ Additional Statement. The Additional Statement is incorporated by reference into this Prospectus (is legally considered part of this Prospectus).

The Funds’ annual and semi-annual reports, and the Additional Statement, are available free upon request by calling Goldman Sachs at 1-800-621-2550.

To obtain other information and for shareholder inquiries:






n By telephone:		1-800-621-2550




n By mail:		Goldman, Sachs & Co., 4900 Sears Tower, 51^stFloor Chicago, Illinois 60606-6372




n By e-mail:		gs-funds@gs.com




n On the Internet (text- only versions):		SEC EDGAR database – http://www.sec.gov

You may review and obtain copies of Fund documents by visiting the SEC’s public reference room in Washington, D.C. You may also obtain copies of Fund documents, after paying a duplicating fee, by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-0102 or by electronic request to: publicinfo@sec.gov. Information on the operation of the public reference room may be obtained by calling the SEC at (202) 942-8090.

The Funds’ investment company registration number is 811-5349.

GSAM® is a registered service mark of Goldman, Sachs & Co.


FIPROTAKINST


	Goldman Sachs’ Fixed Income Investing Philosophy:
	The Fixed Income investment philosophy focuses on consistently striving to add value through a disciplined investment approach. The globally integrated team actively seeks to generate multiple sources of return through a process based on four beliefs:


	n	multiple investment strategies are key to achieving optimal risk-adjusted returns;
	n	global integration is essential;
	n	short-term, tactical opportunities and long-term, investment views are equally important; and
	n	consistent, long-term returns can best be achieved through a risk aware approach.


	The investment process revolves around four groups: the Investment Strategy Group (ISG), the Top-down Strategy Teams, the Bottom-up Sector Teams, and the Portfolio Teams. Cross-membership of portfolio managers across these groups enables them to fully capitalize on the expertise of the entire investment team.

	*1. Investment Strategy Group establishes overall macro-economic view*— This view serves as the backdrop for the sector allocation, security selection, duration and yield curve strategies.


	*2. Top-down Strategy Teams formulate decisions across all GSAM portfolios*— Using the ISG outlook as a backdrop, these four teams are responsible, to the extent applicable for a particular Fund, for Cross-Sector, Duration, Country and Currency decisions.

	*3. Bottom-up Sector Teams formulate subsector allocation and security selection decisions*— Concurrently, these teams formulate subsector allocation and security selection decisions.

	*4. Portfolio Teams assess the risk for each Fund*— Ultimately accountable for the aggregate result, these teams calibrate the “Best Ideas” generated by the Top-down Strategy and Bottom-up Sector Teams, carefully incorporating Fund guidelines and objectives.

	The Investment Adviser de-emphasizes interest rate predictions as a means of generating incremental return. Instead, the Investment Adviser seeks to add value through the selection of particular securities and investment sector allocation as described above.


	Each of the Funds described in this Prospectus has a target duration. A Fund’s duration approximates its price sensitivity to changes in interest rates. Maturity measures the time until final payment is due; it takes no account of the pattern of a security’s cash flows over time. In computing portfolio duration, a Fund will estimate the duration of obligations that are subject to prepayment or redemption by the issuer, taking into account the influence of interest rates on prepayments and coupon flows. This method of computing duration is known as “option-adjusted” duration. The Investment Adviser may use futures contracts and options on futures contracts to manage the Funds’ target duration in accordance with their benchmark or benchmarks. A Fund will not be limited as to its maximum weighted average portfolio maturity or the maximum stated maturity with respect to individual securities unless otherwise noted.

	Each Fund also has credit rating requirements for the securities it buys. A Fund will deem a security to have met its minimum credit rating requirement if the security has the required rating at the time of purchase from at least one nationally recognized statistical rating organization (“NRSRO”) even though it has been rated below the minimum rating by one or more other NRSROs. Unrated securities may be purchased by the Funds if they are determined by the Investment Adviser to be of comparable quality. A security satisfies a Fund’s minimum rating requirement regardless of its relative ranking (for example, plus or minus) within a designated major rating category (for example, BBB or Baa). If a security satisfies a Fund’s minimum rating requirement at the time of purchase and is subsequently downgraded below such rating, the Fund will not be required to dispose of such security. This is so even if the downgrade causes the average credit quality of the Fund to be lower than that stated in the Prospectus. Furthermore, during this period, the Investment Adviser will only buy securities at or above the Fund’s average rating requirement. If a downgrade occurs, the Investment Adviser will consider what action, including the sale of such security, is in the best interests of a Fund and its shareholders.

	References in the Prospectus to a Fund’s benchmark are for informational purposes only, and unless otherwise noted are not necessarily an indication of how the Fund is managed.


	The Fund seeks to generate return in excess of traditional money market products while maintaining an emphasis on preservation of capital and liquidity.


	n	Have at least 30% of its Net Assets, after considering the effect of currency positions, denominated in U.S. dollars
	n	Invest in securities of issuers in at least three countries
	n	Seek to meet its investment objective by pursuing investment opportunities in foreign and domestic fixed-income securities markets and by engaging in currency transactions to seek to enhance returns and to seek to hedge its portfolio against currency exchange rate fluctuations


	The Fund may invest more than 25% of its total assets in the securities of corporate and governmental issuers located in each of Canada, Germany, Japan and the United Kingdom as well as in the securities of U.S. issuers. Not more than 25% of the Fund’s total assets will be invested in securities of issuers in any other single foreign country. The Fund may also invest up to 10% of its total assets in issuers in emerging countries.

	The fixed-income securities in which the Fund may invest include:


	n	U.S. Government Securities and custodial receipts therefor
	n	Securities issued or guaranteed by a foreign government or any of its political subdivisions, authorities, agencies, instrumentalities or by supranational entities
	n	Corporate debt securities
	n	Certificates of deposit and bankers’ acceptances issued or guaranteed by, or time deposits maintained at, U.S. or foreign banks (and their branches wherever located) having total assets of more than $1 billion
	n	Commercial paper
	n	Mortgage-Backed Securities and asset-backed securities


	n	Senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper)
	n	Convertible and non-convertible corporate debt obligations
	n	Loan participations
	n	Custodial receipts
	n	Municipal Securities
	n	Preferred stock


	The Fund may invest up to 25% of its total assets in obligations of domestic and foreign issuers which are denominated in currencies other than the U.S. dollar and in securities of issuers located in emerging countries denominated in any currency. However, to the extent that the Investment Adviser has entered into transactions that are intended to hedge the Fund’s position in a non-U.S. dollar denominated obligation against currency risk, such obligation will not be counted when calculating compliance with the 25% limitation on obligations in non-U.S. currency.

	Under normal market conditions, the Fund may invest up to 20% of its Net Assets in investment grade fixed-income securities, including U.S. Government Securities. The Fund may also invest in common stocks, warrants, rights and other equity securities, but will generally hold such equity investments only when debt or preferred stock of the issuer of such equity securities is held by the Fund or when the equity securities are received by the Fund in connection with a corporate restructuring of an issuer.

	Non-investment grade fixed-income securities (commonly known as “junk bonds”) tend to offer higher yields than higher rated securities with similar maturities. Non-investment grade fixed-income securities are, however, considered speculative and generally involve greater price volatility and greater risk of loss of principal and interest than higher rated securities. The Fund may purchase the securities of issuers that are in default.


	n	Brady bonds and other debt issued by governments, their agencies and instrumentalities, or by their central banks,
	n	interests issued by entities organized and operated for the purpose of restructuring the investment characteristics of instruments issued by emerging country issuers,
	n	fixed and floating rate, senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper),
	n	loan participations, and
	n	repurchase agreements with respect to the foregoing.


n	*NAV Risk*—The risk that the net asset value (“NAV”) of the Fund and the value of your investment will fluctuate.
n	*Interest Rate Risk*—The risk that when interest rates increase, fixed-income securities held by a Fund will decline in value. Long-term fixed-income securities will normally have more price volatility because of this risk than short-term fixed-income securities.
n	*Credit/Default Risk*—The risk that an issuer or guarantor of fixed-income securities held by a Fund (which may have low credit ratings) may default on its obligation to pay interest and repay principal.
n	*Call Risk*—The risk that an issuer will exercise its right to pay principal on an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than expected. This may happen when there is a decline in interest rates. Under these circumstances, a Fund may be unable to recoup all of its initial investment and will also suffer from having to reinvest in lower yielding securities.
n	*Extension Risk*—The risk that an issuer will exercise its right to pay principal on an obligation held by a Fund (such as a Mortgage-Backed Security) later than expected. This may happen when there is a rise in interest rates. Under these circumstances, the value of the obligation will decrease, and a Fund will also suffer from the inability to invest in higher yielding securities.
n	*Derivatives Risk*—The risk that loss may result from a Fund’s investments in options, futures, swaps, options on swaps, structured securities and other derivative investments. These instruments may be leveraged so that small changes may produce disproportionate losses to a Fund.
n	*U.S. Government Securities Risk*—The risk that the U.S. government will not provide financial support to U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law. Although many U.S. Government Securities purchased by the Funds, such as those issued by the Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal Home Loan Banks may be chartered or sponsored by Acts of Congress, their securities are neither issued nor guaranteed by the United States Treasury and, therefore, are not backed by the full faith and credit of the United States. The maximum potential liability of the issuers of some U.S. Government Securities held by a Fund may greatly exceed their current resources, including their 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.
n	*Market Risk*—The risk that the value of the securities in which a Fund invests may go up or down in response to the prospects of individual companies, particular industry sectors or governments and/or general economic conditions. Price changes may be temporary or last for extended periods. A Fund’s investments may be overweighted from time to time in one or more industry sectors, which will


	increase a Fund’s exposure to risk of loss from adverse developments affecting those sectors.
n	*Management Risk*—The risk that a strategy used by the Investment Adviser may fail to produce the intended results.
n	*Liquidity Risk*—The risk that a Fund will not be able to pay redemption proceeds within the time period stated in this Prospectus because of unusual market conditions, an unusually high volume of redemption requests, or other reasons. Funds that invest in non-investment grade fixed-income securities or emerging country issuers will be especially subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities within these investment categories, will shrink or disappear suddenly and without warning as a result of adverse economic, market or political events, or adverse investor perceptions whether or not accurate. The Goldman Sachs Asset Allocation Portfolios (the “Asset Allocation Portfolios”) expect to invest a significant percentage of their assets in the Funds and other funds for which GSAM or an affiliate now or in the future acts as investment adviser or underwriter. Redemptions by an Asset Allocation Portfolio of its position in a Fund may further increase liquidity risk and may impact a Fund’s NAV.


n	*Non-Diversification Risk*—The Global Income Fund is non-diversified, meaning that the Fund is permitted to invest more of its assets in fewer issuers than “diversified” mutual funds. Thus, the Fund may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments.
n	*Sovereign Risk*—The Enhanced Income, Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds will be subject to the risk that the issuer of the sovereign debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay the principal or interest when due.


	n	*Political Risk*—The risks associated with the general political and social environment of a country. These factors may include among other things government instability, poor socioeconomic conditions, corruption, lack of law and order, lack of democratic accountability, poor quality of the bureaucracy, internal and external conflict, and religious and ethnic tensions. High political risk can impede the economic welfare of a country.
	n	*Economic Risk*—The risks associated with the general economic environment of a country. These can encompass, among other things, low quality and growth rate of Gross Domestic Product (“GDP”), high inflation or deflation, high government deficits as a percentage of GDP, weak financial sector, overvalued exchange rate, and high current account deficits as a percentage of GDP.


	n	*Repayment Risk*—The risk associated with the inability of a country to pay its external debt obligations in the immediate future. Repayment risk factors may include but are not limited to high foreign debt as a percentage of GDP, high foreign debt service as a percentage of exports, low foreign exchange reserves as a percentage of short-term debt or exports, and an unsustainable exchange rate structure.


n	*Foreign Risk*—The Enhanced Income, Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds will be subject to risks of loss with respect to their foreign investments that are not typically associated with domestic issuers. Loss may result because of less foreign government regulation, less public information and less economic, political and social stability. Loss may also result from the imposition of exchange controls, confiscations and other government restrictions. The Funds will also be subject to the risk of negative foreign currency rate fluctuations. Foreign risks will normally be greatest when a Fund invests in issuers located in emerging countries.
n	*Emerging Countries Risk*—The Core Fixed Income, Investment Grade Credit, Global Income, High Yield and Emerging Markets Debt Funds may invest in emerging countries. The securities markets of Asian, Latin, Central and South American, Eastern European, Middle Eastern, African and other emerging countries are less liquid, are especially subject to greater price volatility, have smaller market capitalizations, have less government regulation and are not subject to as extensive and frequent accounting, financial and other reporting requirements as the securities markets of more developed countries. These risks are not normally associated with investments in more developed countries.
n	*“Junk Bond” Risk*—The High Yield and Emerging Markets Debt Funds will invest in non-investment grade fixed-income securities (commonly known as “junk bonds”) that are considered predominantly speculative by traditional investment standards. Non-investment grade fixed-income securities and unrated securities of comparable credit quality are subject to the increased risk of an issuer’s inability to meet principal and interest payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.
n	*Concentration Risk*—The risk that if the Global Income or Emerging Markets Debt Funds invest more than 25% of its total assets in issuers within the same country, state, region, currency, industry or economic sector, an adverse economic, business or political development may affect the value of the Fund’s investments more than if its investments were not so concentrated. In addition, the Global Income Fund may invest more than 25% of its total assets in the securities of corporate and governmental issuers located in each of Canada, Germany, Japan and the United Kingdom, as well as in the securities of U.S. issuers. Concentration of the Global


	These definitions apply to the after-tax returns.

	Average Annual Total Returns Before Taxes. These returns do not reflect taxes on distributions on a Fund’s Institutional Shares nor do they show how performance can be impacted by taxes when shares are redeemed (sold) by you.

	Average Annual Total Returns After Taxes on Distributions. These returns assume that taxes are paid on distributions on a Fund’s Institutional Shares (i.e., dividends and capital gains) but do not reflect taxes that may be incurred upon redemption (sale) of the Institutional Shares at the end of the performance period.

	Average Annual Total Returns After Taxes on Distributions and Sale of Shares. These returns reflect taxes paid on distributions on a Fund’s Institutional Shares and taxes applicable when the shares are redeemed (sold).

	Note on Tax Rates. The after-tax performance figures are calculated using the historically highest individual federal marginal income tax rates at the time of the distributions (as of the date of this Prospectus, 35% for ordinary income dividends and 15% for long-term capital gains distributions) and do not reflect state and local taxes. In calculating the federal income taxes due on redemptions, capital gains taxes resulting from a redemption are subtracted from the redemption proceeds and the tax benefits from capital losses resulting from the redemption are added to the redemption proceeds. Under certain circumstances, the addition of the tax benefits from capital losses resulting from redemptions may cause the Returns After Taxes on Distributions and Sale of Fund Shares to be greater than the Returns After Taxes on Distributions or even the Returns Before Taxes.


	*	As a result of current waivers and expense limitations, “Other Expenses” and “Total Fund Operating Expenses” of the Funds are as set forth below. The waivers and expense limitations may be terminated at any time at the option of the Investment Adviser or Transfer Agent, as applicable. If this occurs, “Other Expenses” and “Total Fund Operating Expenses” may increase without shareholder approval.


¹		The Funds’ annual operating expenses are based on actual expenses for the fiscal year ended October 31, 2003, except for the U.S. Mortgages, Investment Grade Credit and Emerging Markets Debt Funds which have been estimated for the current fiscal year.
²		The Investment Adviser has voluntarily agreed not to impose a portion of the management fee on the Enhanced Income, Government Income, U.S. Mortgages, Investment Grade Credit and Global Income Funds equal to 0.05%, 0.11%, 0.07%, 0.07% and 0.25%, respectively of such Fund’s average daily net assets. As a result of fee waivers, the current management fees of the Enhanced Income, Government Income, U.S. Mortgages, Investment Grade Credit and Global Income Funds are 0.20%, 0.54%, 0.33%, 0.33% and 0.65%, respectively, of such Funds’ average daily net assets. The waivers may be terminated at any time at the option of the Investment Adviser.
³		“Other Expenses” include transfer agency fees and expenses equal on an annualized basis to 0.04% of the average daily net assets of each Fund’s Institutional Shares, plus all other ordinary expenses not detailed above. The Transfer Agent has voluntarily agreed to reduce or limit a portion of the transfer agency fee on the Institutional Shares of the U.S. Mortgages and Investment Grade Credit Funds equal to 0.02% of the Funds’ Institutional Shares average daily net assets. The waiver may be terminated at any time at the option of the Investment Adviser or Transfer Agent, as applicable. The Investment Adviser has voluntarily agreed to reduce or limit “Other Expenses” of each Fund (excluding management fees, transfer agency fees and expenses, taxes, interest, brokerage fees and litigation, indemnification, shareholder meetings and other extraordinary expenses) to the following percentages (rounded) of each Fund’s average daily net assets:


	GSAM has been registered as an investment adviser with the Securities and Exchange Commission (“SEC”) since 1990 and is an affiliate of Goldman Sachs. GSAMI, a member of the Investment Management Regulatory Organization Limited since 1990 and a registered investment adviser since 1991, is an affiliate of Goldman Sachs. As of December 31, 2003, GSAM and GSAMI, along with other units of the Investment Management Division of Goldman Sachs, had assets under management of $375.7 billion.

	The Investment Adviser provides day-to-day advice regarding the Funds’ portfolio transactions. The Investment Adviser makes the investment decisions for the Funds and places purchase and sale orders for the Funds’ portfolio transactions in U.S. and foreign markets. As permitted by applicable law, these orders may be directed to any brokers, including Goldman Sachs and its affiliates. While the Investment Adviser is ultimately responsible for the management of the Funds, it is able to draw upon the research and expertise of its asset management affiliates for portfolio decisions and management with respect to certain portfolio securities. In addition, the Investment Adviser has access to the research and certain proprietary technical models developed by Goldman Sachs, and will apply quantitative and qualitative analysis in determining the appropriate allocations among categories of issuers and types of securities.


	n	Supervises all non-advisory operations of the Funds
	n	Provides personnel to perform necessary executive, administrative and clerical services to the Funds
	n	Arranges for the preparation of all required tax returns, reports to shareholders, prospectuses and statements of additional information and other reports filed with the SEC and other regulatory authorities
	n	Maintains the records of each Fund
	n	Provides office space and all necessary office equipment and services


	*	The U.S. Mortgages Fund and Investment Grade Credit Fund commenced operations after October 31, 2003.


	Jonathan Beinner, a Managing Director of Goldman Sachs, is the Chief Investment Officer and a Co-Head of the U.S. and Global Fixed Income portfolio management teams. Mr. Beinner joined the Investment Adviser in 1990, and became a portfolio manager in 1992. Prior to being named Chief Investment Officer, Mr. Beinner was Co-Head of the U.S. Fixed Income portfolio management team.

	Tom Kenny, a Managing Director of Goldman Sachs, is a Co-Head of the U.S. and Global Fixed Income portfolio management teams. Mr. Kenny joined the Investment Adviser in 1999 as a senior portfolio manager. Prior to joining the Investment Adviser, he spent 13 years at Franklin Templeton where he was a portfolio manager of high yield municipal and municipal funds, Director of Municipal Research and Director of the Municipal Bond Department.

	Fixed Income Portfolio Management Team


	n	The investment process revolves around four groups: the Investment Strategy Group, the Top-down Strategy Teams, the Bottom-up Sector Teams and the Portfolio Teams.
	n	These teams strive to maximize risk-adjusted returns by de-emphasizing interest rate anticipation and focusing on security selection and sector allocation
	n	The team manages approximately $105.6 billion in fixed-income assets for retail, institutional and high net worth clients


	Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the exclusive distributor (the “Distributor”) of each Fund’s shares. Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as each Fund’s transfer agent (the “Transfer Agent”) and, as such, performs various shareholder servicing functions.

	From time to time, Goldman Sachs or any of its affiliates may purchase and hold shares of the Funds. Goldman Sachs reserves the right to redeem at any time some or all of the shares acquired for its own account.


	The involvement of the Investment Adviser, Goldman Sachs and their affiliates in the management of, or their interest in, other accounts and other activities of Goldman Sachs may present conflicts of interest with respect to a Fund or limit a Fund’s investment activities. Goldman Sachs and its affiliates engage in proprietary trading and advise accounts and funds which have investment objectives similar to those of the Funds and/or which engage in and compete for transactions in the same types of securities, currencies and instruments as the Funds. Goldman Sachs and its affiliates will not have any obligation to make available any information regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them, for the benefit of the management of the Funds. The results of a Fund’s investment activities, therefore, may differ from those of Goldman Sachs and its affiliates, and it is possible that a Fund could sustain losses during periods in which Goldman Sachs and its affiliates and other accounts achieve significant profits on their trading for proprietary or other accounts. In addition, the Funds may, from time to time, enter into transactions in which Goldman Sachs or its other clients have an adverse interest. A Fund’s activities may be limited because of regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or their internal policies designed to comply with such restrictions. As a global financial services firm, Goldman Sachs also provides a wide range of investment banking and financial services to issuers of securities and investors in securities. Goldman Sachs, its affiliates and others associated with it may create markets or specialize in, have positions in and affect transactions in, securities of issuers held by the Funds, and may also perform or seek to perform investment banking and financial services for those issuers.

	Under a securities lending program approved by the Funds’ Board of Trustees, the Funds have retained an affiliate of the Investment Adviser to serve as the securities lending agent for each Fund to the extent that the Funds engage in the securities lending program. For these services, the lending agent may receive a fee from the Funds, including a fee based on the returns earned on the Funds’ investment of the cash received as collateral for the loaned securities. In addition, the Funds may make brokerage and other payments to Goldman Sachs and its affiliates in connection with the Funds’ portfolio investment transactions.


	You may indicate your election on your Account Application. Any changes may be submitted in writing to Goldman Sachs at any time before the record date for a particular dividend or distribution. If you do not indicate any choice, your dividends and distributions will be reinvested automatically in the applicable Fund. If cash dividends are elected with respect to the Fund’s monthly net investment income dividends, then cash dividends must also be elected with respect to the non-long-term capital gains component, if any, of the Fund’s annual dividend.

	The election to reinvest dividends and distributions in additional shares will not affect the tax treatment of such dividends and distributions, which will be treated as received by you and then used to purchase the shares.

	Dividends from investment company taxable income and distributions from net capital gains are declared and paid as follows:


	From time to time a portion of a Fund’s dividends may constitute a return of capital.

	When you purchase shares of a Fund, part of the NAV per share may be represented by undistributed income or undistributed realized gains that have previously been earned by the Fund. Therefore, subsequent distributions on such shares from such income or realized gains may be taxable to you even if the NAV of the shares is, as a result of the distributions, reduced below the cost of such shares and the distributions (or portions thereof) represent a return of a portion of the purchase price.