Prospectus
July 29, 2022
July 29, 2022
GOLDMAN
SACHS SINGLE SECTOR FIXED INCOME FUNDS
THE SECURITIES AND
EXCHANGE COMMISSION AND COMMODITY FUTURES TRADING COMMISSION HAVE 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. |
◼
Goldman Sachs
Emerging Markets Debt Fund
◼
Class P
Shares: GAIPX
◼
Goldman Sachs
High Yield Fund
◼
Class P
Shares: GGMPX
◼
Goldman Sachs
High Yield Floating Rate Fund
◼
Class P
Shares: GGNPX
◼
Goldman Sachs
Investment Grade Credit Fund
◼
Class P
Shares: GGBPX
◼
Goldman Sachs
Local Emerging Markets Debt Fund
◼
Class P
Shares: GMWPX
◼
Goldman Sachs
U.S. Mortgages Fund
◼
Class P
Shares: GSBPX
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|
|
|
|
|
Class
P |
|
Management
Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Expense
Limitation1
|
( |
|
Total
Annual Fund Operating Expenses After Expense
Limitation |
|
1
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Class
P Shares |
$ |
$ |
$ |
$ |
|
|
|
|
1
|
|
2
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Class
P Shares |
|
|
|
|
Returns
Before Taxes |
- |
|
|
|
Returns
After Taxes on Distributions |
- |
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
- |
|
|
|
J.P.Morgan
Emerging Markets Bond Index (EMBI™) Global Diversified Index (Gross, USD,
Unhedged) (reflects no
deduction
for fees, expenses or taxes) |
- |
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Managers: Samuel Finkelstein, Managing Director, Global Head of Macro
Strategies, has managed the Fund since 2003; Kay Haigh, Managing Director,
Global Co-Head of Emerging Markets, has managed the Fund since 2020; and Ricardo
Penfold, Managing Director, has managed the Fund since 2003.
|
Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 30 of the
Prospectus.
4
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 30 of
the Prospectus.
5
|
|
|
|
|
|
Class
P |
|
Management
Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses1
|
|
|
Fee
Waiver and Expense Limitation2
|
( |
|
Total
Annual Fund Operating Expenses After Fee Waiver and Expense
Limitation1
|
|
1
2
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Class
P Shares |
$ |
$ |
$ |
$ |
|
|
6
|
|
|
|
7
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Class
P Shares |
|
|
|
|
Returns
Before Taxes |
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
Bloomberg
U.S. High-Yield 2% Issuer Capped Bond Index (reflects no deduction for
fees or expenses) |
|
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio Managers: Robert Magnuson, Managing Director, Head of High Yield Strategies, has managed the Fund since 2014; Lori Pomerantz, Vice President, has managed the Fund since 2021; and Ashish Shah, Managing Director, Co-Chief Investment Officer of Global Fixed Income, has managed the Fund since 2021.
Portfolio Managers: Robert Magnuson, Managing Director, Head of High Yield Strategies, has managed the Fund since 2014; Lori Pomerantz, Vice President, has managed the Fund since 2021; and Ashish Shah, Managing Director, Co-Chief Investment Officer of Global Fixed Income, has managed the Fund since 2021.
|
Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 30 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 30 of
the Prospectus.
10
|
|
|
|
|
|
Class
P |
|
Management
Fees |
|
|
Other
Expenses |
|
|
Acquired
Fund Fees and Expenses |
|
|
Total
Annual Fund Operating Expenses1
|
|
|
Expense
Limitation2
|
( |
|
Total
Annual Fund Operating Expenses After Expense
Limitation |
|
1
2
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Class
P Shares |
$ |
$ |
$ |
$ |
|
|
|
|
11
|
|
12
13
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Class
P Shares |
|
|
|
|
Returns
Before Taxes |
|
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
Credit
Suisse Leveraged Loan Index (reflects no deduction for fees or
expenses) |
|
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Peter
Campo, Managing Director, Head of Bank Loans Strategies on the High Yield and
Bank Loans team, has managed the Fund since March, 2018; Lori Pomerantz, Vice
President, has managed the Fund since 2021; and Ashish Shah, Managing Director,
Co-Chief Investment Officer of Global Fixed Income, has managed the Fund since
2021.
|
Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 30 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 30 of
the Prospectus.
15
|
|
|
|
|
|
Class
P |
|
Management
Fees |
|
|
Other
Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Expense
Limitation1
|
( |
|
Total
Annual Fund Operating Expenses After Expense
Limitation |
|
1
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Class
P Shares |
$ |
$ |
$ |
$ |
|
|
|
|
16
|
|
17
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Class
P Shares |
|
|
|
|
Returns
Before Taxes |
- |
|
|
|
Returns
After Taxes on Distributions |
|
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
|
|
|
|
Bloomberg
U.S. Credit Index (reflects no deduction for fees or
expenses) |
- |
|
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Manager: Benjamin
Johnson, CFA, Managing Director, Head of Investment Grade Credit team, has
managed the Fund since 2003.
|
Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 30 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 30 of
the Prospectus.
19
|
|
|
|
|
|
Class
P |
|
Management
Fees |
|
|
Other
Expenses |
|
|
Acquired
Fund Fees and Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Fee
Waiver and Expense Limitation1
|
( |
|
Total
Annual Fund Operating Expenses After Fee Waiver and Expense
Limitation |
|
1
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Class
P Shares |
$ |
$ |
$ |
$ |
|
|
|
|
20
|
|
21
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Class
P Shares |
|
|
|
|
Returns
Before Taxes |
- |
- |
|
|
Returns
After Taxes on Distributions |
- |
- |
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
- |
- |
|
|
J.P.
Morgan Government Bond Index—Emerging Markets (GBI-EMSM) Global
Diversified Index (Gross, USD,
Unhedged)
(reflects no deduction for fees, expenses or taxes) |
- |
- |
|
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Managers: Samuel Finkelstein, Managing Director, Global Head of Macro
Strategies, has managed the Fund since 2008; Kay Haigh, Managing Director,
Global Co-Head of Emerging Markets, has managed the Fund since 2020; and Ricardo
Penfold, Managing Director, has managed the Fund since 2008.
|
Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 30 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 30 of
the Prospectus.
24
|
|
|
|
|
|
Class
P |
|
Management
Fees |
|
|
Other
Expenses |
|
|
Acquired
Fund Fees and Expenses |
|
|
Total
Annual Fund Operating Expenses |
|
|
Fee
Waiver and Expense Limitation1
|
( |
|
Total
Annual Fund Operating Expenses After Fee Waiver and Expense
Limitation |
|
1
|
|
|
|
1
Year |
3
Years |
5
Years |
10
Years |
|
Class
P Shares |
$ |
$ |
$ |
$ |
|
|
|
|
25
|
|
26
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Year |
Since
Inception |
Inception
Date | |
|
Class
P Shares |
|
|
|
|
Returns
Before Taxes |
- |
|
|
|
Returns
After Taxes on Distributions |
- |
|
|
|
Returns
After Taxes on Distributions and Sale of Fund Shares |
- |
|
|
|
Bloomberg
U.S. Securitized Bond Index (reflects no deduction for fees or
expenses) |
- |
|
|
28
|
Portfolio
Management |
Goldman
Sachs Asset Management, L.P. is the investment adviser for the Fund (the
“Investment Adviser” or “GSAM”).
Portfolio
Managers:
Christopher J. Hogan, CFA, Managing Director, has managed the Fund since 2009;
Jon Calluzzo, Vice President, has managed the Fund since 2022, and Rob Pyne,
Vice President, has managed the Fund since 2022.
|
Buying
and Selling Fund Shares |
The Fund
does not impose minimum purchase requirements for initial or subsequent
investments in Class P Shares.
You may
purchase and redeem (sell) Class P Shares of the Fund on any business day
through the Goldman Sachs Private Wealth Management business unit, The Goldman
Sachs Trust Company, N.A., The Goldman Sachs Trust Company of Delaware, The Ayco
Company, L.P. or with certain intermediaries that are authorized to offer Class
P Shares.
|
Tax
Information |
For
important tax information, please see “Tax Information” on page 30 of the
Prospectus.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
For
important information about financial intermediary compensation, please see
“Payments to Broker-Dealers and Other Financial Intermediaries” on page 30 of
the Prospectus.
29
Single
Sector Fixed Income Funds –
Additional Summary Information
Additional Summary Information
|
Tax
Information |
The Fund's
distributions are taxable, and will be taxed as ordinary income or capital
gains, unless you are investing through a tax-deferred arrangement, such as a
401(k) plan or an individual retirement account. Investments made through
tax-deferred arrangements may become taxable upon withdrawal from such
arrangements.
|
Payments
to Broker-Dealers and
Other
Financial Intermediaries |
If you
purchase the Fund through an intermediary that is authorized to offer Class P
Shares, the Fund and/or its related companies may pay the intermediary for the
sale of Fund shares and related services. These payments may create a conflict
of interest by influencing the intermediary and your salesperson to recommend
the Fund over another investment. Ask your salesperson or visit your
intermediary’s website for more information.
30
Investment
Management Approach
|
INVESTMENT
OBJECTIVEs |
The
Emerging Markets Debt Fund, Local Emerging Markets Debt Fund and U.S. Mortgages
Fund each seek a high level of total return consisting of income and capital
appreciation. The High Yield Fund seeks a high level of current income and may
also consider the potential for capital appreciation. The High Yield Floating
Rate Fund seeks a high level of current income. The Investment Grade Credit Fund
seeks a high level of total return consisting of capital appreciation and
income. Each Fund’s investment objective may be changed without shareholder
approval upon 60 days’ notice.
|
PRINCIPAL
INVESTMENT STRATEGIES |
Emerging Markets Debt
Fund
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in sovereign
and corporate debt securities and other instruments of issuers in emerging
market countries. Such instruments may include credit linked notes and other
investments with similar economic exposures.
The Fund’s
portfolio managers seek to build a portfolio across the emerging markets debt
market consistent with the Fund’s overall risk budget and the views of the
Investment Adviser’s Global Fixed Income top-down teams.
The Fund
may invest in all types of foreign and emerging country fixed income securities,
including the following:
◼
Debt issued
by governments, their agencies and instrumentalities, or by their central banks,
including Brady Bonds;
◼
Interests
in structured securities;
◼
Fixed and
floating rate, senior and subordinated corporate debt obligations (such as
bonds, debentures, notes and commercial paper);
◼
Loan
participations; and
◼
Repurchase
agreements with respect to the foregoing.
Foreign
securities include securities of issuers located outside the U.S. or securities
quoted or denominated in a currency other than the U.S. Dollar.
The Fund
intends to use structured securities or derivatives, including but not limited
to credit linked notes, financial future contracts, forward contracts and swap
contracts to gain exposure to certain countries or currencies.
The Fund
may also seek to obtain exposure to fixed income investments through investments
in affiliated or unaffiliated investment companies, including ETFs.
The Fund
may invest in securities of any credit rating. The countries in which the Fund
invests may 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. Securities of these issuers may be rated below
investment grade (so-called “high yield” or “junk” bonds) or unrated. 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.
For
purposes of the Fund’s policy to invest at least 80% of its Net Assets in
securities and instruments of issuers in “emerging market countries”, the
Investment Adviser generally expects a country to be an “emerging market
country” if the country is identified as an “emerging market country” in the
Fund’s benchmark index. Such countries are likely to be located in Africa, Asia,
the Middle East, Eastern and Central Europe and Central and South America.
Sovereign debt consists of debt securities issued by governments or any of their
agencies, political subdivisions or instrumentalities. Sovereign debt may also
include nominal and real inflation-linked securities.
An emerging
market country issuer is an issuer economically tied to an emerging market
country. In determining whether an issuer is economically tied to a particular
country, the Investment Adviser will consider whether the issuer:
◼
Has a class
of securities whose principal securities market is in that
country;
◼
Has its
principal office in that country;
◼
Derives 50%
or more of its total revenue or profit from goods produced, sales made or
services provided in that country;
◼
Maintains
50% or more of its assets in that country; or
◼
Is
otherwise determined to be economically tied to that country by the Investment
Adviser in its discretion. For example, the Investment Adviser may use the
classifications assigned by third parties, including an issuer’s “country of
risk” as determined by Bloomberg or the classifications assigned to an issuer by
the Fund’s benchmark index provider. These classifications are generally
31
based on a
number of criteria, including an issuer’s country of domicile, the primary stock
exchange on which an issuer’s securities trade, the location from which the
majority of an issuer’s revenue is derived, and an issuer’s reporting currency.
Although the Investment Adviser may rely on these classifications, it is not
required to do so.
Shareholders
will be provided with sixty days notice in the manner prescribed by the SEC
before any change in the Fund’s policy to invest at least 80% of its Net Assets
in the particular type of investment suggested by its name.
The Fund’s
target duration range under normal interest rate conditions is expected to
approximate that of the J.P. Morgan Emerging Markets Bond Index
(EMBISM) Global
Diversified Index (Gross, USD, Unhedged) plus or minus 2 years, and over the
last five years ended June 30, 2022, the duration of this Index has ranged
between 6.39 and 8.26 years.
The Fund’s
benchmark index is the J.P. Morgan Emerging Markets Bond Index (EMBISM) Global
Diversified Index (Gross, USD, Unhedged). The J.P. Morgan Emerging Markets Bond
Index (EMBISM) Global
Diversified Index (Gross, USD, Unhedged) is an unmanaged index of debt
instruments of emerging countries.
High Yield
Fund
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in
high-yield, fixed income securities that, at the time of purchase, are
non-investment grade securities. Shareholders will be provided with sixty days
notice in the manner prescribed by the SEC before any change in the Fund’s
policy to invest at least 80% of its Net Assets in the particular type of
investment suggested by its name. Non-investment grade securities are securities
rated BB+, Ba1 or below by an NRSRO, or, if unrated, determined by the
Investment Adviser to be of comparable credit quality, and are commonly referred
to as “junk bonds.” The Fund may invest in all types of fixed income securities,
including:
◼
Senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper)
◼
Convertible
and non-convertible corporate debt obligations
◼
Loan
participations
◼
Custodial
receipts
◼
Municipal
securities
◼
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-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.
The Fund
may invest in derivatives, including (i) credit default swap indices (or CDX)
and total return swaps for hedging purposes or to seek to increase total return,
and (ii) interest rate futures, forwards and swaps to manage the portfolio’s
duration.
The Fund
may also seek to obtain exposure to fixed income investments through investments
in affiliated or unaffiliated investment companies, including ETFs.
The Fund’s
target duration range under normal interest rate conditions is expected to
approximate that of the Bloomberg U.S. High-Yield 2% Issuer Capped Bond Index
plus or minus 2.5 years, and over the last five years ended June 30, 2022, the
duration of this Index has ranged between 3.12 and 4.45 years. The Fund may
invest in all types of fixed income securities.
The Fund’s
investments are selected using a bottom-up analysis that incorporates
fundamental research, a focus on market conditions and pricing trends,
quantitative research, and news or market events. The selection of individual
investments is based on the overall risk and return profile of the investment
taking into account liquidity, structural complexity, cash flow uncertainty and
downside potential. Research analyst and portfolio managers systematically
assess portfolio positions, taking into consideration, among other factors,
broader macroeconomic conditions and industry and company-specific financial
performance and outlook. Based upon this analysis, the Investment Adviser will
sell positions determined to be overvalued and reposition the portfolio in more
attractive investment opportunities on a relative basis given the current
climate.
The Fund’s
benchmark index is the Bloomberg U.S. High-Yield 2% Issuer Capped Bond Index.
The Bloomberg U.S. High-Yield 2% Issuer Capped Bond Index covers the universe of
U.S. dollar denominated, non-convertible, fixed rate, non-investment grade debt.
Index holdings must have at least one year to final maturity, at least $150
million par amount outstanding, and be publicly issued with a rating of Ba1 or
lower.
32
Investment
Management Approach
High Yield Floating
Rate Fund
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in domestic
or foreign floating rate loans and other floating or variable rate obligations
rated below investment grade. Non-investment grade obligations are those rated
BB+, Ba1 or below by an NRSRO, or, if unrated, determined by the Investment
Adviser to be of comparable credit quality, and are commonly referred to as
“junk bonds”. Shareholders will be provided with sixty days notice in the manner
prescribed by the SEC before any change in the Fund’s policy to invest at least
80% of its Net Assets in the particular type of investment suggested by its
name.
The Fund’s
investments in floating and variable rate obligations may include, without
limitation, senior secured loans (including assignments and participations),
second lien loans, senior unsecured and subordinated loans, senior and
subordinated corporate debt obligations (such as bonds, debentures, notes and
commercial paper), debt issued by governments, their agencies and
instrumentalities, and debt issued by central banks. The Fund may invest
indirectly in loans by purchasing participations or sub-participations from
financial institutions. Participations and sub-participations represent the
right to receive a portion of the principal of, and all of the interest relating
to such portion of, the applicable loan. The Fund expects to invest principally
in the U.S. loan market and, to a lesser extent, in the European loan market.
The Fund may also invest in other loan markets, although it does not currently
intend to do so.
Under
normal conditions, the Fund may invest up to 20% of its Net Assets in fixed
income instruments, of any credit rating, including fixed rate corporate bonds,
government bonds, convertible debt obligations, and mezzanine fixed income
instruments. The Fund may also invest in floating or variable rate instruments
that are rated investment grade and in preferred stock, repurchase agreements
and cash securities.
The Fund
may also invest in derivative instruments. Derivatives are instruments that have
a value based on another instrument, exchange rate or index. The Fund’s
investments in derivatives may include credit default swaps on credit and loan
indices, forward contracts and total return swaps, among others. The Fund may
use currency management techniques, such as forward foreign currency contracts,
for hedging or non-hedging purposes. The Fund may invest in interest rate
futures and swaps to manage the portfolio’s duration. Derivatives that provide
exposure to floating or variable rate loans or obligations rated below
investment grade are counted towards the Fund’s 80% policy.
The Fund
may also seek to obtain exposure to fixed income investments through investments
in affiliated or unaffiliated investment companies, including ETFs.
The Fund’s
target duration range under normal interest rate conditions is expected to
approximate that of the Credit Suisse Leveraged Loan Index, plus or minus one
year, and over the last five years ended June 30, 2022, the duration of the
Index has ranged between 0.03 and 0.19 years. The Fund’s investments in floating
rate obligations will generally have short to intermediate maturities
(approximately 4-7 years).
The Fund’s
investments are selected using a bottom-up analysis that incorporates
fundamental research, a focus on market conditions and pricing trends,
quantitative research, and news or market events. The selection of individual
investments is based on the overall risk and return profile of the investment
taking into account liquidity, structural complexity, cash flow uncertainty and
downside potential. Research analyst and portfolio managers systematically
assess portfolio positions, taking into consideration, among other factors,
broader macroeconomic conditions and industry and company-specific financial
performance and outlook. Based upon this analysis, the Investment Adviser will
sell positions determined to be overvalued and reposition the portfolio in more
attractive investment opportunities on a relative basis given the current
climate.
The Fund’s
benchmark index is the Credit Suisse Leveraged Loan Index. The Credit Suisse
Leveraged Loan Index is an index designed to mirror the investable universe of
the United States dollar-denominated leveraged loan market. This Index is
unmanaged and is not available for direct investment.
Investment Grade
Credit Fund
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in
investment grade fixed income securities. Shareholders will be provided with
sixty days notice in the manner prescribed by the SEC before any change in the
Fund’s policy to invest at least 80% of its Net Assets in the particular type of
investment suggested by its name. Investment grade securities are securities
that are rated at the time of purchase at least BBB– by Standard & Poor’s,
at least Baa3 by Moody’s, or have a comparable credit rating by another NRSRO
or, if unrated, are determined by the Investment Adviser to be of comparable
credit quality. The Fund may invest in corporate securities, U.S. Government
Securities, Mortgage-Backed Securities, asset-backed securities, and Municipal
Securities. The Fund also intends to invest in derivatives, including (but not
limited to) interest rate futures, interest rate swaps and credit default swaps,
which are used primarily to hedge the Fund’s portfolio risks, manage the Fund’s
duration and/or gain exposure to certain fixed income securities or indices.
Although the Fund may invest without limit in foreign securities, the Fund’s
investments in non-U.S. dollar denominated obligations (hedged or unhedged
against currency risk) 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. Additionally, exposure to non-U.S. currencies (unhedged
against currency risk) will not exceed 25% of the Fund’s total
assets.
33
The Fund
may also seek to obtain exposure to fixed income investments through investments
in affiliated or unaffiliated investment companies, including ETFs.
The Fund’s
target duration range under normal interest rate conditions is expected to
approximate that of the Bloomberg U.S. Credit Index, plus or minus one year, and
over the last five years ended June 30, 2022, the duration of this Index has
ranged between 6.81 and 8.56 years.
The Fund’s
portfolio management team seeks to build a portfolio that reflects their
investment views across the investment grade credit market consistent with the
Fund’s overall risk budget and the views of the Investment Adviser’s Global
Fixed Income top-down teams.
The
Bloomberg U.S. Credit Index is an unmanaged index that is unbundled into pure
corporates (industrial, utility, and finance, including both U.S. and Non-U.S.
corporations) and noncorporates (sovereign, supranational, foreign agencies, and
foreign local governments).
Local Emerging
Markets Debt Fund
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in sovereign
and corporate debt securities of issuers in emerging market countries,
denominated in the local currency of such emerging countries, and other
instruments, including credit linked notes and other investments, with similar
economic exposures.
The Fund’s
portfolio managers seek to build a portfolio across the emerging markets debt
market consistent with the Fund’s overall risk budget and the views of the
Investment Adviser’s Global Fixed Income top-down teams.
The Fund
may invest in all types of foreign and emerging country fixed income securities,
including the following:
◼
Debt issued
by governments, their agencies and instrumentalities, or by their central banks,
including Brady Bonds;
◼
Interests
in structured securities;
◼
Fixed and
floating rate, senior and subordinated corporate debt obligations (such as
bonds, debentures, notes and commercial paper);
◼
Loan
participations; and
◼
Repurchase
agreements with respect to the foregoing.
Foreign
securities include securities of issuers located outside the U.S. or securities
quoted or denominated in a currency other than the U.S. Dollar.
The Fund
may also make currency investments, particularly longer-dated forward contracts,
that provide the Fund with economic exposure similar to investments in sovereign
and corporate debt with respect to currency and interest rate exposure. The
Investment Adviser intends to use structured securities and derivative
instruments to attempt to improve the performance of the Fund or to gain
exposure to certain countries or currencies in the Fund’s investment portfolio
in accordance with its investment objective. These instruments include credit
linked notes, financial futures contracts, forward contracts and swap
transactions, as well as other types of derivatives or structured securities.
The Fund’s investments in these instruments may be significant. These
transactions may result in substantial realized and unrealized capital gains and
losses relative to the gains and losses from the Fund’s investments in bonds and
other securities.
The Fund
may also seek to obtain exposure to fixed income investments through investments
in affiliated or unaffiliated investment companies, including ETFs.
The Fund
may invest in securities of any credit rating. The countries in which the Fund
invests may 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. Securities of these issuers may be rated below
investment grade (so-called “high yield” or “junk” bonds) or unrated. Although a
majority of the Fund’s assets will be denominated in non-U.S. Dollars, the Fund
may invest in securities denominated in the U.S. Dollar.
For
purposes of the Fund’s policy to invest at least 80% of its Net Assets in
securities and instruments of “emerging market country” issuers, the Investment
Adviser generally expects a country to be an “emerging market country” if the
country is identified as an “emerging market country” in the Fund’s benchmark
index. Such countries are likely to be located in Africa, Asia, the Middle East,
Eastern and Central Europe and Central and South America. Sovereign debt
consists of debt securities issued by governments or any of their agencies,
political subdivisions or instrumentalities, denominated in the local currency.
Sovereign debt may also include nominal and real inflation-linked
securities.
An emerging
market country issuer is an issuer economically tied to an emerging market
country. In determining whether an issuer is economically tied to a particular
country, the Investment Adviser will consider whether the issuer:
◼
Has a class
of securities whose principal securities market is in that
country;
34
Investment
Management Approach
◼
Has its
principal office in that country;
◼
Derives 50%
or more of its total revenue or profit from goods produced, sales made or
services provided in that country;
◼
Maintains
50% or more of its assets in that country; or
◼
Is
otherwise determined to be economically tied to that country by the Investment
Adviser in its discretion. For example, the Investment Adviser may use the
classifications assigned by third parties, including an issuer’s “country of
risk” as determined by Bloomberg or the classifications assigned to an issuer by
the Fund’s benchmark index provider. These classifications are generally based
on a number of criteria, including an issuer’s country of domicile, the primary
stock exchange on which an issuer’s securities trade, the location from which
the majority of an issuer’s revenue is derived, and an issuer’s reporting
currency. Although the Investment Adviser may rely on these classifications, it
is not required to do so.
Shareholders
will be provided with sixty days notice in the manner prescribed by the SEC
before any change in the Fund’s policy to invest at least 80% of its Net Assets
in the particular type of investment suggested by its name.
The Fund’s
target duration range under normal interest rate conditions is expected to
approximate that of the J.P. Morgan Government Bond Index—Emerging Markets
(GBI-EMSM) Global
Diversified Index (Gross, USD, Unhedged) plus or minus 2 years, and over the
last five years ended June 30, 2022, the duration of this Index has ranged
between 4.84 and 5.51 years.
Portfolio
Construction. Currently,
the Investment Adviser’s emerging markets debt strategy invests significantly in
emerging market sovereign issues. As such, country selection is believed to be
the most important factor in the portfolio construction process. The Investment
Adviser evaluates macro developments and assesses the net flows within
countries. The next most important factor is security selection.
Analysis of
emerging market debt involves an understanding of the finances, political
events, and macroeconomic condition of a country. The Investment Adviser’s
research analysts analyze the “balance sheets” of the countries they follow.
This may include evaluating factors such as balance of payments, tax revenues,
and external and domestic debt. They also assess macroeconomic measures, which
may include inflation, interest rates, growth prospects and monetary policy. For
some emerging market debt countries, politics is the key driver of performance.
As a result, the Investment Adviser’s research analysts may spend a significant
portion of their time following the political developments of the countries they
cover.
Fundamental
analysis is combined with valuation techniques to determine relative values of
securities. Although the Investment Adviser may believe a security is attractive
from a fundamental point of view, the Investment Adviser may not believe the
price is attractive relative to other credits. As a result, even if the
Investment Adviser likes a country’s fundamentals, the Investment Adviser may
not invest in it due to its valuation. Likewise, the Investment Adviser may
believe that a certain country’s fundamentals are less positive but may invest
in the country because the Investment Adviser believes the yield offers
significant compensation for the additional risk.
Other. The Fund
may invest in the aggregate up to 20% of its Net Assets in investments other
than emerging country fixed income securities and other instruments with similar
economic exposures, including (without limitation) equity securities and fixed
income securities, such as government, corporate and bank debt obligations, of
developed country issuers.
The Fund’s
benchmark index is the J.P. Morgan Government Bond Index—Emerging Markets
(GBI-EMSM) Global
Diversified Index (Gross, USD, Unhedged). The J.P. Morgan Government Bond
Index—Emerging Markets (GBI-EMSM) Global
Diversified Index (Gross, USD, Unhedged) is an index of debt instruments of
emerging countries.
THE FUND IS
NON-DIVERSIFIED UNDER THE INVESTMENT COMPANY ACT, AND MAY INVEST A LARGER
PERCENTAGE OF ITS ASSETS IN FEWER ISSUERS THAN DIVERSIFIED MUTUAL
FUNDS.
U.S. Mortgages
Fund
The Fund
invests, under normal circumstances, at least 80% of its Net Assets in
Mortgage-Backed Securities of U.S. issuers, including Agency Mortgage-Backed
Securities. Shareholders will be provided with sixty days notice in the manner
prescribed by the SEC before any change in the Fund’s policy to invest at least
80% of its Net Assets in the particular type of investment suggested by its
name. The Fund may also invest in mortgage dollar rolls, U.S. Government
Securities, asset-backed securities (including CLOs) and foreign securities. The
Fund also intends to invest in derivatives, including (but not limited to)
interest rate futures, interest rate swaps and credit default swaps, primarily
to manage the Fund’s duration, hedge the Fund’s portfolio risks, and/or gain
exposure to certain fixed income securities. For example, where the Fund invests
in an obligation that has a duration outside the Fund’s target duration range
(as discussed further below), the Fund may invest in derivatives as a way to
mitigate the impact of that obligation on the overall duration of the Fund’s
portfolio.
The Fund
may gain exposure to Agency Mortgage-Backed Securities through several methods,
including by utilizing TBA agreements in Agency Mortgage-Backed Securities or
through the use of reverse repurchase agreements. TBA agreements for Agency
Mortgage-Backed Securities are standardized contracts for future delivery of
fixed-rate mortgage pass-through securities in which the exact mortgage pools to
be delivered are not specified until shortly before settlement. In TBA
agreements for Agency
35
Mortgage-Backed
Securities, the buyer and seller agree upon general trade parameters such as the
issuer, maturity, coupon, face value, price and settlement date. The actual
pools of mortgages to be delivered typically are announced two days prior to the
settlement date; however, in most instances, the Fund will not take delivery of
the pools of mortgages, but will instead participate in rolling TBA agreements,
in which it exchanges a near settlement TBA agreement for a TBA agreement with a
later settlement date. Reverse repurchase agreements involve the sale of
securities held by the Fund subject to an agreement to repurchase them at a
mutually agreed upon date and price (including interest). These transactions
enable the Fund to gain exposure to specified pools of Agency Mortgage-Backed
Securities by purchasing them on a forward settling basis and using the proceeds
of the reverse repurchase agreement to settle the trade. The Fund may enter into
reverse repurchase agreements when the Investment Adviser expects that the
return to be earned from the investment of the transaction proceeds to be
greater than the interest expense of the transaction. Reverse repurchase
agreements may also be entered into as a temporary measure for emergency
purposes or to meet redemption requests.
The Fund
may also seek to obtain exposure to fixed income investments through investments
in affiliated or unaffiliated investment companies, including ETFs.
The Fund’s
investments must be rated, at the time of purchase, at least BBB– by Standard
& Poor’s, at least Baa3 by Moody’s, or have a comparable credit rating by
another NRSRO or, if unrated, must be determined by the Investment Adviser to be
of comparable credit quality. The Fund’s target duration range under normal
interest rate conditions is expected to approximate that of the Bloomberg U.S.
Securitized Bond Index plus or minus 0.5 years, over the last five years ended
June 30, 2022, the duration of this Index has ranged between 2.00 and 5.79
years.
A U.S.
issuer is an issuer economically tied to the United States. In determining
whether an issuer is economically tied to a particular country, including the
United States, the Investment Adviser will consider whether the
issuer:
◼
Has a class
of securities whose principal securities market is in that
country;
◼
Has its
principal office in that country;
◼
Derives 50%
or more of its total revenue or profit from goods produced, sales made or
services provided in that country;
◼
Maintains
50% or more of its assets in that country; or
◼
Is
otherwise determined to be economically tied to that country by the Investment
Adviser in its discretion. For example, the Investment Adviser may use the
classifications assigned by third parties, including an issuer’s “country of
risk” as determined by Bloomberg or the classifications assigned to an issuer by
the Fund’s benchmark index provider. These classifications are generally based
on a number of criteria, including an issuer’s country of domicile, the primary
stock exchange on which an issuer’s securities trade, the location from which
the majority of an issuer’s revenue is derived, and an issuer’s reporting
currency. Although the Investment Adviser may rely on these classifications, it
is not required to do so.
The Fund
may implement short positions and may do so by using swaps, options or futures,
TBA agreements in Agency Mortgage-Backed Securities, or through short sales of
any instrument that the Fund may purchase for investment. For example, the Fund
may enter into a futures contract pursuant to which it agrees to sell an asset
(that it does not currently own) at a specified price at a specified point in
the future. This gives the Fund a short position with respect to that asset. The
Fund may utilize short positions to implement macro views on securities
valuations, long term views on relative value or short term views on security
mispricings, as well as any other views the Investment Adviser deems
appropriate. For example, the Fund may enter into a TBA agreement to sell an
Agency TBA Mortgage-Backed Security that it believes will underperform. The Fund
will benefit from a short position to the extent the asset decreases in value
(and will be harmed to the extent the asset increases in value) between the time
it enters into the futures contract and the agreed date of sale. Alternatively,
the Fund may sell an instrument (e.g., a bond, or a futures contract) it does
not own in anticipation of a decline in the market value of the instrument, and
then borrow the instrument to make delivery to the buyer. In these transactions,
the Fund is obligated to replace the instrument borrowed by purchasing it at the
market price at the time of replacement.
The Fund’s
portfolio managers seek to build a portfolio that reflects their investment
views across the U.S. mortgages market consistent with the Fund’s overall risk
budget and the views of the Investment Adviser’s Global Fixed Income top-down
teams.
The Fund’s
benchmark index is the Bloomberg U.S. Securitized Bond Index. The Bloomberg U.S.
Securitized Bond Index is a composite of asset-backed securities, collateralized
mortgage-backed securities (ERISA-eligible) and fixed rate mortgage-backed
securities.
ALL
FUNDS
“Duration”
is a measure of a debt security’s price sensitivity to changes in interest
rates. The longer the duration of the Fund (or an individual debt security), the
more sensitive its market price to changes in interest rates. For example, if
market interest rates increase by 1%, the market price of a debt security with a
positive duration of 3 years will generally decrease by approximately 3%.
Conversely, a 1% decline in market interest rates will generally result in an
increase of approximately 3% of that security’s market price.
36
Investment
Management Approach
The Funds
may, from time to time, take temporary defensive positions that are inconsistent
with the Funds’ principal investment strategies in attempting to respond to
adverse market, political or other conditions. For temporary defensive purposes
(and to the extent that it is permitted to invest in the following), the Fund
may invest up to 100% of its total assets in U.S. Government Securities,
commercial paper rated at least A-2 by Standard & Poor’s, P-2 by Moody’s, or
having a comparable credit rating by another NRSRO (or if unrated, determined by
the Investment Adviser to be of comparable credit quality), certificates of
deposit, bankers’ acceptances, repurchase agreements, non-convertible preferred
stocks and non-convertible corporate bonds with a remaining maturity of less
than one year, ETFs and other investment companies and cash items. When
the Fund’s assets are invested in such instruments, the Fund may not be
achieving its investment objective.
References
in the Prospectus to the Fund’s benchmark are for informational purposes only,
and unless otherwise noted, are not an indication of how a particular Fund is
managed.
Fixed Income
Investment Philosophy—Emerging Markets Debt Fund, Investment Grade Credit Fund,
Local Emerging Markets Debt Fund and U.S. Mortgages Fund:
Our
process:
◼
Combines
diversified sources of return by employing multiple
strategies
◼
Takes
a global perspective to seek relative value opportunities
◼
Considers
a wide range of factors as part of the fundamental investment process, which may
include environmental, social and governance (“ESG”) factors
◼
Employs
focused specialist teams to seek to identify short-term mis-pricings and
incorporate long-term views
◼
Emphasizes
a risk-aware approach as we view management as both an offensive and defensive
tool
The Fixed
Income Portfolio Management Team implements this overall philosophy through an
investment process that seeks to maximize risk-adjusted total returns by using a
diverse set of investment strategies and revolves around four key
elements:
1.
Developing a long-term risk budget—Lead
portfolio managers (the “Portfolio Team”) set the strategic direction of a Fund
by establishing a “risk budget.” The “risk budget” for the Funds is the range
the portfolio managers will allow the Funds to deviate from their respective
benchmarks with respect to sector allocations, country allocations, securities
selection and, to a lesser extent, duration. Following analysis of risk and
return objectives, they allocate the overall risk budget to each component
strategy to seek to optimize potential return.
2.
Fundamental investment process—As part of
its fundamental investment process, the Fixed Income Portfolio Management Team
may integrate ESG factors alongside traditional fundamental factors to seek to:
(i) determine whether a particular fixed income security and/or sector is
suitable and attractively priced for investment and (ii) assess their potential
impact on the credit quality and spreads of a particular fixed income security.
Traditional fundamental factors that the Fixed Income Portfolio Management Team
may consider include, but are not limited to, leverage, earnings, enterprise
value, industry trends and macroeconomic factors. ESG factors that the Fixed
Income Portfolio Management Team may consider include, but are not limited to,
physical risk (e.g., wildfires, floods, droughts and rising sea levels), carbon
intensity and emissions profiles, workplace health and safety, cyber risk,
social unrest and equity, governance practices and stakeholder relations,
employee relations, board structure and management incentives. The
identification of a risk related to an ESG factor will not necessarily exclude a
particular fixed income security and/or sector that, in the Fixed Income
Portfolio Management Team’s view, is otherwise suitable and attractively priced
for investment, and the Fixed Income Portfolio Management Team may invest in a
security or sector without integrating ESG factors or considerations into its
fundamental investment process. The relevance of specific traditional
fundamental factors and ESG factors to the fundamental investment process varies
across asset classes, sectors and strategies. The Fixed Income Portfolio
Management Team may utilize data sources provided by third-party vendors and/or
engage directly with issuers when assessing the above factors.
3.
Generating investment views and strategies—Our
Top-down and Bottom-up Strategy Teams (collectively, “Strategy Teams”) generate
investment ideas within their areas of specialization. The Top-down Strategy
Teams are responsible for Cross-Sector, Duration, Country and Currency
decisions. Concurrently, Bottom-up Strategy Teams, comprised of sector
specialists, formulate sub-sector allocation and security selection
decisions.
4.
Constructing the portfolios—The
Portfolio and Strategy Teams construct the Fund’s portfolio through a
collaborative process in which the Portfolio Team oversees the overall portfolio
while the Strategy Teams actively manage the securities and strategies within
their areas of specialization. This process enables the Portfolio Team to build
a portfolio consisting of the ideas of the individual Strategy Teams’ consistent
with the Fund’s overall risk and return objectives.
The Fixed
Income Portfolio Management Team employs a fundamental investment process that
considers a wide range of factors, and no one factor or consideration is
determinative.
Fixed Income
Investment Philosophy—High Yield Fund and High Yield Floating Rate
Fund:
The Fixed
Income Portfolio Management Team investment process revolves around four key
elements:
37
1.
Research and evaluate prospective investments—Investment
idea generation begins with the Investment Adviser’s portfolio managers, credit
analysts and traders through a combination of the following:
◼
Fundamental
research;
◼
Consideration
of a wide range of factors as part of the fundamental investment process, which
may include environmental, social and governance (“ESG”)
factors
◼
A
focus on market conditions and pricing trends; and
◼
Quantitative
research, and/or news and market events.
As part of
its fundamental investment process, the Fixed Income Portfolio Management Team
may integrate ESG factors alongside traditional fundamental factors to seek to:
(i) determine whether a particular fixed income security and/or sector is
suitable and attractively priced for investment and (ii) assess their potential
impact on the credit quality and spreads of a particular fixed income security.
Traditional fundamental factors that the Fixed Income Portfolio Management Team
may consider include, but are not limited to, leverage, earnings, enterprise
value, industry trends and macroeconomic factors. ESG factors that the Fixed
Income Portfolio Management Team may consider include, but are not limited to,
physical risk (e.g., wildfires, floods, droughts and rising sea levels), carbon
intensity and emissions profiles, workplace health and safety, cyber risk,
social unrest and equity, governance practices and stakeholder relations,
employee relations, board structure and management incentives. The
identification of a risk related to an ESG factor will not necessarily exclude a
particular fixed income security and/or sector that, in the Fixed Income
Portfolio Management Team’s view, is otherwise suitable and attractively priced
for investment, and the Fixed Income Portfolio Management Team may invest in a
security or sector without integrating ESG factors or considerations into its
fundamental investment process. The relevance of specific traditional
fundamental factors and ESG factors to the fundamental investment process varies
across asset classes, sectors and strategies. The Fixed Income Portfolio
Management Team may utilize data sources provided by third-party vendors and/or
engage directly with issuers when assessing the above factors.
2.
Identify investment ideas and formulate strategy—The Global
Corporate Investment Team—a group of the Investment Adviser’s senior credit
experts—meets weekly to discuss and evaluate individual credit ideas and
existing risk exposures. The Team formulates broad strategic themes based on
sector views, market developments and trends.
3.
Construct portfolio—The
portfolio managers construct the portfolio based on a combination of the
following:
◼
Relative
value analysis of security selection recommendations;
◼
Top-down
scenario analysis to incorporate macroeconomic views and market technicals into
the investment selection process; and
◼
Diversification
across market segments, industry sectors and instrument types to mitigate risk
and account for the likelihood that investments will “pay-off” at different
times.
Positions
are sized based upon the risk and return profiles of the investments, accounting
for:
◼
Liquidity
of underlying instruments,
◼
Structural
complexity that is difficult to model,
◼
Cash
flow uncertainty, and/or
◼
Significant
downside potential.
4.
Monitor risk and manage the portfolio on an ongoing basis
◼
Conduct
regular performance, operational and risk reviews.
◼
Evaluate
exit opportunities.
◼
Risk
(both before and after an investment is made) and returns will be monitored by
both the portfolio managers and the independent risk oversight
team.
The Fixed
Income Portfolio Management Team employs a fundamental investment process that
considers a wide range of factors, and no one factor or consideration is
determinative.
|
ADDITIONAL
FEES AND EXPENSES INFORMATION |
“Acquired
Fund Fees and Expenses” reflect the expenses (including the management fees)
borne by the Fund through its ownership of shares in other investment
companies.
|
ADDITIONAL
PERFORMANCE INFORMATION |
The below
is additional information that relates to the “Performance” section of the
Fund’s Summary section.
Note that
the “Best Quarter” and “Worst Quarter” figures shown in the “Performance”
section of the Fund’s Summary section are applicable only to the time period
covered by the bar chart.
The
definitions below apply to the after-tax returns shown in the “Performance”
section of the Fund’s Summary section.
38
Investment
Management Approach
Average
Annual Total Returns Before Taxes. These
returns do not reflect taxes on distributions on the Fund’s 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 the Fund’s Class P Shares
(i.e., dividends and capital gains) but do not reflect taxes that may be
incurred upon redemption (sale) of the Class P Shares at the end of the
performance period.
Average
Annual Total Returns After Taxes on Distributions and Sale of Fund
Shares. These
returns reflect taxes paid on distributions on the Fund’s Class P 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
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.
|
OTHER
INVESTMENT PRACTICES AND
SECURITIES |
Although
the Fund’s principal investment strategies are described in the Fund’s
Summary—Principal Strategy section of the Prospectus, the following tables
identify some of the investment techniques that may (but are not required to) be
used by the Fund in seeking to achieve their investment objectives. The tables
also highlight the differences and similarities among the Fund in their use of
these techniques and other investment practices and investment securities.
Numbers in these tables show allowable usage only; for actual usage, consult the
Fund’s annual/semi-annual reports. For more information about these and other
investment practices and securities, see Appendix A.
The Fund
publishes on its website (http://www.gsamfunds.com) complete portfolio holdings
for the Fund as of the end of each fiscal quarter subject to a thirty day lag
between the date of the information and the date on which the information is
disclosed. In addition, the Fund publishes on its website selected portfolio
holdings information as of the end of each month subject to a fifteen day lag
between the date of the information and the date on which the information is
disclosed. In addition, a description of the Fund’s policies and procedures with
respect to the disclosure of the Fund’s portfolio holdings is available in the
Fund’s SAI.
39
|
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 on usage; limited only by the objectives
and strategies of the Fund
—
Not permitted |
Emerging
Markets
Debt
Fund |
High
Yield
Fund |
High
Yield
Floating
Rate |
Investment
Grade
Credit
Fund |
Local
Emerging
Markets
Debt
Fund |
U.S.
Mortgages
Fund |
|
Investment
Practices |
|
|
|
|
|
|
|
Borrowings |
33 1∕3 |
33 1∕3 |
33
1⁄2 |
33 1∕3 |
33 1∕3 |
33 1∕3 |
|
Credit,
Interest Rate and Total Return Swaps |
• |
• |
• |
• |
• |
• |
|
Cross
Hedging of Currencies
|
• |
• |
• |
• |
• |
— |
|
Currency
Swaps |
• |
• |
• |
• |
• |
— |
|
Custodial
Receipts and Trust Certificates
|
• |
• |
• |
• |
• |
• |
|
Foreign
Currency Transactions
|
• |
• |
• |
•5
|
• |
• |
|
Futures
Contracts
|
• |
• |
• |
• |
• |
• |
|
Illiquid
Investments* |
15 |
15 |
15 |
15 |
15 |
15 |
|
Interest
Rate Caps, Floors and Collars |
• |
• |
• |
• |
• |
• |
|
Investment
Company Securities (including ETFs)1
|
10 |
10 |
10 |
10 |
10 |
10 |
|
Mortgage
Dollar Rolls |
— |
— |
— |
• |
— |
• |
|
Mortgage
Swaps |
— |
• |
• |
• |
— |
• |
|
Options2
|
• |
• |
• |
• |
• |
• |
|
Options
on Foreign Currencies3
|
• |
• |
• |
• |
• |
— |
|
Repurchase
Agreements
|
• |
• |
• |
• |
• |
• |
|
Reverse
Repurchase Agreements |
• |
• |
• |
• |
• |
• |
|
Short
Sales4
|
— |
— |
— |
— |
— |
• |
|
Securities
Lending
|
— |
33 1∕3 |
33 1∕3 |
— |
— |
— |
|
When-Issued
Securities and Forward Commitments
|
• |
• |
• |
• |
• |
• |
*
Illiquid
investments are any investments that the Fund reasonably expects cannot be sold
or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment.
1
This
percentage limitation does not apply to the Fund’s investments in investment
companies (including ETFs) where a higher percentage limitation is permitted
under the Investment Company Act or rules, regulations or exemptive relief
thereunder.
2
The
Fund may sell call and put options and purchase call and put options on
securities and other instruments in which the Fund may invest or any index
consisting of securities or other instruments in which they may
invest.
3
The
applicable Fund may purchase and sell call and put options on foreign
currencies.
4
The
U.S. Mortgages Fund may engage in short selling of physical securities that it
does not own. However, each Fund may (i) engage in short sales against the box,
and (ii) obtain certain forms of short investment exposure through the use of
derivatives.
5
The
Investment Grade Credit Fund’s exposure to non-U.S. currencies (unhedged against
currency risk) will not exceed 25% of its total assets.
40
Investment
Management Approach
|
10 Percent
of total assets (excluding securities lending collateral) (italic
type)
10 Percent
of Net Assets (including borrowings for investment purposes) (roman
type)
• No
specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
— Not
permitted* |
Emerging
Markets
Debt
Fund |
High
Yield
Fund |
High
Yield
Floating
Rate
Fund |
Investment
Grade
Credit
Fund |
Local
Emerging
Markets
Debt
Fund |
U.S.
Mortgages
Fund |
|
Investment
Securities |
|
|
|
|
|
|
|
Asset-Backed
Securities |
• |
• |
— |
• |
• |
• |
|
Bank
Obligations |
• |
• |
• |
• |
• |
• |
|
Collateralized
Loan Obligations |
• |
• |
• |
• |
• |
• |
|
Convertible
Securities |
• |
• |
• |
• |
• |
— |
|
Corporate
Debt Obligations
and
Trust Preferred Securities |
• |
• |
• |
• |
• |
• |
|
Emerging
Country Securities |
• |
253 |
• |
103 |
• |
— |
|
Floating
and Variable Rate Obligations |
• |
• |
80+8 |
• |
• |
• |
|
Foreign
Securities1 |
• |
•4 |
• |
•4 |
• |
•4 |
|
Loans
and Loan Participations |
• |
• |
• |
• |
• |
— |
|
Mortgage-Related
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 |
— |
• |
— |
• |
— |
• |
|
Non-Investment
Grade Fixed Income Securities |
• |
80+5
|
• |
—6
|
• |
—6
|
|
Preferred
Stock, Warrants and Rights |
• |
• |
• |
• |
• |
— |
|
Second
Lien Loans |
• |
• |
• |
• |
• |
— |
|
Senior
Loans |
• |
• |
• |
• |
• |
— |
|
Structured
Securities (which may include credit linked notes)2
|
• |
• |
• |
• |
• |
• |
|
Taxable
Municipal Securities |
• |
• |
— |
• |
• |
• |
|
Tax-Free
Municipal Securities |
• |
• |
— |
• |
• |
• |
|
Temporary
Investments |
•7 |
•7 |
• |
• |
•7 |
• |
|
U.S.
Government Securities |
• |
• |
• |
• |
• |
• |
*
The
High Yield and High Yield Floating Rate Funds may, however, invest securities
lending collateral (if applicable) in registered or unregistered funds that
invest in such instruments.
1
Includes
issuers domiciled in one country and issuing securities denominated in the
currency of another.
2
Structured
securities are not subject to the same minimum credit quality requirement as the
Fund’s investment in fixed income securities.
3
Of
each of the High Yield Fund’s and Investment Grade Credit Fund’s foreign
securities investments, 25% and 10%, respectively, of the Fund’s total assets in
the aggregate may be invested in emerging country securities.
4
The
High Yield Fund may invest up to 25% of its total assets in securities not
denominated in U.S. dollars and in emerging country securities denominated in
any currency. If the High Yield Fund’s position is hedged against currency risk,
such position is not counted when calculating compliance with this 25%
limitation. The Investment Grade Credit Fund may invest up to 25% of its total
assets in securities not denominated in U.S. dollars (hedged or unhedged against
currency risk). The U.S. Mortgages Fund currently intends to invest not more
than 5% of its total assets in foreign securities (including securities not
denominated in U.S. dollars), and will seek to hedge such investments against
currency risk.
5
The
High Yield Fund will invest at least 80% of its Net Assets in lower grade
securities under normal circumstances.
6
The
Investment Grade Credit and U.S. Mortgages Funds may not purchase securities
that are rated below BBB– or Baa3 but may own such a security, if the security
is downgraded after purchase.
7
The
Emerging Markets Debt, High Yield and the Local Emerging Markets Debt Funds may
for this purpose invest in investment grade and high grade securities without
limit.
8
The
High Yield Floating Rate Fund will invest, under normal circumstances, at least
80% of its Net Assets in floating rate loans and other floating or variable rate
obligations rated below investment grade.
41
Risks of
the Funds
Loss of
money is a risk of investing in the Fund (which, for the remainder of this
Prospectus, refers to one or more of the Funds offered in this Prospectus). An
investment in the Fund is not a bank deposit and is not insured or guaranteed by
the FDIC or any other governmental agency. The principal risks of the Fund are
discussed in the Summary section of the Prospectus. The following section
provides additional information on the risks that apply to the Fund, which may
result in a loss of your investment. The risks applicable to the Fund are
presented below in alphabetical order, and not in the order of importance or
potential exposure. The Fund should not be relied upon as a complete investment
program. There can be no assurance that the Fund will achieve its investment
objective.
|
✓ Principal
Risk
• Additional
Risk |
Emerging
Markets
Debt
Fund |
High
Yield
Fund |
High
Yield
Floating
Rate
Fund |
Investment
Grade
Credit
Fund |
Local
Emerging
Markets
Debt
Fund |
U.S.
Mortgages
Fund |
|
Call/Prepayment |
• |
• |
• |
• |
• |
• |
|
Collateralized
Loan Obligations and Other Collateralized Debt
Obligations |
• |
• |
• |
• |
• |
✓ |
|
Conflict
of Interest |
|
|
✓ |
|
|
|
|
Counterparty |
✓ |
|
|
|
✓ |
|
|
Credit/Default |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Currency |
|
|
|
|
• |
|
|
Cybersecurity |
• |
• |
• |
• |
• |
• |
|
Derivatives |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Distressed
Debt |
• |
• |
• |
|
• |
|
|
Emerging
Countries |
✓ |
• |
• |
• |
✓ |
|
|
ESG
Integration |
• |
• |
• |
• |
• |
• |
|
Extension |
• |
• |
• |
• |
• |
• |
|
Floating
and Variable Rate Obligations |
• |
• |
✓ |
• |
• |
• |
|
Foreign |
✓ |
✓ |
✓ |
✓ |
✓ |
• |
|
Geographic |
• |
|
|
|
• |
|
|
Interest
Rate |
✓ |
✓ |
• |
✓ |
✓ |
✓ |
|
Large
Shareholder Transactions |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Leverage |
• |
• |
• |
• |
• |
• |
|
Liquidity |
✓ |
✓ |
✓ |
• |
✓ |
• |
|
Loan-Related
Investments |
• |
✓ |
✓ |
• |
• |
|
|
Management |
• |
• |
• |
• |
• |
• |
|
Market |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Mortgage-Backed
and Other Asset-Backed Securities |
|
• |
• |
• |
|
✓ |
|
Municipal
Securities |
• |
• |
|
✓ |
• |
• |
|
NAV |
• |
• |
• |
• |
• |
• |
|
Non-Diversification |
|
|
|
|
✓ |
|
|
Non-Hedging
Foreign Currency Trading |
• |
• |
• |
• |
✓ |
|
|
Non-Investment
Grade Fixed Income Securities |
✓ |
✓ |
✓ |
• |
✓ |
|
|
Other
Investment Companies |
✓ |
✓ |
✓ |
✓ |
✓ |
✓ |
|
Portfolio
Turnover Rate |
|
|
|
|
|
✓ |
|
Reverse
Repurchase Agreements |
• |
• |
• |
• |
• |
✓ |
|
Sector |
• |
|
|
|
• |
|
|
Short
Position |
|
|
|
|
|
✓ |
|
Sovereign
Default |
|
|
|
|
|
|
|
Economic |
✓ |
• |
• |
• |
✓ |
|
|
Political |
✓ |
• |
• |
• |
✓ |
|
|
Repayment |
✓ |
• |
• |
• |
✓ |
|
|
U.S.
Government Securities |
• |
• |
• |
• |
• |
✓ |
◼
Call/Prepayment
Risk—An issuer
could exercise its right to pay principal on an obligation held by the
Fund (such as a mortgage-backed security) earlier than expected. This may
happen when there is a decline in interest rates, when credit spreads change, or
when an issuer’s credit quality improves. Under these circumstances, the Fund
may be unable to recoup all of its initial investment and will also suffer from
having to reinvest in lower-yielding securities.
42
Risks
of the Funds
◼
Collateralized
Loan Obligations and Other Collateralized Debt Obligations Risk—The Funds
may invest in collateralized loan obligations (“CLOs”) and other similarly
structured investments. A CLO is an asset-backed security whose underlying
collateral is a pool of loans, which may include, among others, domestic and
foreign floating rate and fixed rate senior secured loans, senior unsecured
loans, and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. In addition to the normal risks
associated with loan- and credit-related securities discussed elsewhere in the
Prospectus (e.g., loan-related investments risk, interest rate risk and
default risk), investments in CLOs carry additional risks including, but not
limited to, the risk that: (i) distributions from the collateral may not be
adequate to make interest or other payments; (ii) the quality of the collateral
may decline in value or default; (iii) the Fund may invest in tranches of CLOs
that are subordinate to other tranches; (iv) the structure and complexity of the
transaction and the legal documents could lead to disputes among investors
regarding the characterization of proceeds; and (v) the CLO’s manager may
perform poorly. CLOs may charge management and other administrative fees, which
are in addition to those of the Fund.
CLOs issue
classes or “tranches” that offer various maturity, risk and yield
characteristics. Losses caused by defaults on underlying assets are borne first
by the holders of subordinate tranches. Tranches are categorized as senior,
mezzanine and subordinated/ equity, according to their degree of risk. If there
are defaults or the CLO’s collateral otherwise underperforms, scheduled payments
to senior tranches take precedence over those of mezzanine tranches, and
scheduled payments to mezzanine tranches take precedence over those of
subordinated/equity tranches. The riskiest portion is the “equity” tranche which
bears the bulk of defaults from the collateral and serves to protect the other,
more senior tranches from default in all but the most severe circumstances.
Because it is partially protected from defaults, a senior tranche from a CLO
trust typically has higher ratings and lower yields than its underlying
collateral and may be rated investment grade. Despite the protection from the
equity and mezzanine tranches, more senior tranches of CLOs can experience
losses due to actual defaults, increased sensitivity to defaults due to
collateral default and disappearance of more subordinate tranches, market
anticipation of defaults, as well as aversion to CLO securities as a class. The
Fund’s investments in CLOs primarily consist of investment grade
tranches.
Typically,
CLOs are privately offered and sold, and thus, are not registered under the
securities laws. As a result, investments in CLOs may be characterized by the
Fund as illiquid investments and may have limited independent pricing
transparency. However, an active dealer market may exist for CLOs that qualify
under the Rule 144A “safe harbor” from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers, and such CLOs may be characterized by the Fund as liquid
investments.
The Fund
may also invest in collateralized debt obligations (“CDOs”), which are
structured similarly to CLOs, but are backed by pools of assets that are debt
securities (rather than being limited only to loans), typically including bonds,
other structured finance securities (including other asset-backed securities and
other CDOs) and/or synthetic instruments. Like CLOs, the risks of an investment
in a CDO depend largely on the type and quality of the collateral securities and
the tranche of the CDO in which the Fund invests. CDOs collateralized by pools
of asset-backed securities carry the same risks as investments in asset-backed
securities directly, including losses with respect to the collateral underlying
those asset-backed securities. In addition, certain CDOs may not hold their
underlying collateral directly, but rather, use derivatives such as swaps to
create “synthetic” exposure to the collateral pool. Such CDOs entail the risks
associated with derivative instruments.
◼
Conflict
of Interest Risk—Affiliates
of the Investment Adviser may participate in the primary and secondary market
for loan obligations. Because of limitations imposed by applicable law, the
presence of the Investment Adviser’s affiliates in the loan obligations market
may restrict the High Yield Floating Rate Fund’s ability to acquire some loan
obligations or affect the timing or price of such acquisitions. Also, because
the Investment Adviser may wish to invest in the publicly traded securities of a
borrower, it may not have access to material non-public information
regarding the borrower to which other lenders have access.
◼
Counterparty
Risk—Many of the
protections afforded to cleared transactions, such as the security afforded by
transacting through a clearing house, might not be available in connection with
certain over-the-counter ("OTC") transactions. Therefore, in those instances in
which the Fund enters into certain OTC transactions, the Fund will be subject to
the risk that its direct counterparty will not perform its obligations under the
transactions and that the Fund will sustain losses. However, recent regulatory
developments require margin on certain uncleared OTC transactions which may
reduce, but not eliminate, this risk.
◼
Credit/Default
Risk—An issuer
or guarantor of fixed income securities or instruments held by the Fund (which
may have low credit ratings) may default on its obligation to pay interest and
repay principal or default on any other obligation. The credit quality of the
Fund’s portfolio securities or instruments may meet the Fund’s credit quality
requirements at the time of purchase but then deteriorate thereafter, and such a
deterioration can occur rapidly. In certain instances, the downgrading or
default of a single holding or guarantor of the Fund’s holdings may impair the
Fund’s liquidity and have the potential to cause significant NAV deterioration.
These risks are heightened in market environments where interest rates are
rising as well as in connection with the Fund’s investments in
non-investment grade fixed income securities.
◼
Currency
Risk—Changes in
currency exchange rates may adversely affect the value of the Fund’s securities
denominated in foreign currencies. Currency exchange rates can be volatile and
affected by, among other factors, the general economic conditions of a
43
country,
the actions of the U.S. and non-U.S. governments or central banks, the
imposition of currency controls, and speculation. A security may be denominated
in a currency that is different from the currency of the country where the
issuer is domiciled. If a foreign currency grows weaker relative to the U.S.
dollar, the value of securities denominated in that foreign currency generally
decreases in terms of U.S. dollars. If the Fund does not correctly
anticipate changes in exchange rates, its share price could decline as a result.
The Fund may from time to time attempt to hedge all or a portion of its currency
risk using a variety of techniques, including currency futures, forwards and
options. However, these instruments may not always work as intended, and in
certain cases the Fund may be worse off than if it had not used a hedging
instrument. For certain emerging market currencies, suitable hedging instruments
may not be available.
◼
Cybersecurity
Risk—The Fund
may be susceptible to operational and information security risks resulting from
cyber-attacks. Cyber-attacks include, among others, stealing or corrupting
confidential information and other data that is maintained online or digitally
for financial gain, denial-of-service attacks on websites causing operational
disruption, and the unauthorized release of confidential information and other
data. Cyber-attacks have the ability to cause significant disruptions and impact
business operations; to result in financial losses; to prevent shareholders from
transacting business; to interfere with the Fund’s calculation of NAV; and to
lead to violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs and/or
additional compliance costs. Cyber-attacks affecting the Fund or its Investment
Adviser, custodian, Transfer Agent, or other third-party service providers may
adversely impact the Fund and its shareholders.
◼
Derivatives
Risk—The Fund’s
use of options, futures, forwards, swaps, options on swaps, structured
securities and other derivative instruments may result in losses. These
instruments, which may pose risks in addition to and greater than those
associated with investing directly in securities, currencies or other
instruments, may be illiquid or less liquid, volatile, difficult to price and
leveraged so that small changes in the value of the underlying instruments may
produce disproportionate losses to the Fund. Certain derivatives are also
subject to counterparty risk, which is the risk that the other party in the
transaction will not fulfill its contractual obligations, liquidity risk and
risks arising from margin requirements, which include the risk that the Fund
will be required to pay additional margin or set aside additional collateral to
maintain open derivative positions. Derivatives may be used for both hedging and
non-hedging purposes.
The use of
derivatives is a highly specialized activity that involves investment techniques
and risks different from those associated with investments in more traditional
securities and instruments, and there is no guarantee that the use of
derivatives will achieve their intended result. If the Investment Adviser is
incorrect in its expectation of the timing or level of fluctuation in securities
prices, interest rates, currency prices or other variables, the use of
derivatives could result in losses, which in some cases may be significant. A
lack of correlation between changes in the value of derivatives and the value of
the portfolio assets (if any) being hedged could also result in losses. In
addition, there is a risk that the performance of the derivatives or other
instruments used by the Investment Adviser to replicate the performance of a
particular asset class may not accurately track the performance of that asset
class.
As an
investment company registered with the SEC, the Fund must identify on
its books (often referred to as “asset segregation”) liquid assets, or
engage in other SEC- or SEC staff-approved or other appropriate measures, to
“cover” open positions with respect to certain kinds of derivative instruments.
For more information about these practices, see Appendix A. As discussed in more
detail in Appendix A and the SAI, the SEC adopted a final rule related to the
use of derivatives, short sales, reverse repurchase agreements and certain other
transactions by registered investment companies. In connection with the final
rule, the SEC and its staff will rescind and withdraw applicable guidance and
relief regarding asset segregation and coverage transactions reflected in the
Fund’s asset segregation and cover practices discussed therein.
◼
Distressed
Debt Risk—When the
Fund invests in obligations of financially troubled companies (sometimes known
as “distressed” securities), there exists the risk that the transaction
involving such debt obligations will be unsuccessful, take considerable time or
will result in a distribution of cash or a new security or obligation in
exchange for the stressed and distressed debt obligations, the value of which
may be less than the Fund’s purchase price of such debt obligations.
Furthermore, if an anticipated transaction does not occur, the Fund may be
required to sell its investment at a loss or hold its investment pending
bankruptcy proceedings in the event the issuer files for
bankruptcy.
◼
Emerging
Countries Risk—Investments
in securities of issuers located in, or otherwise economically tied to, emerging
countries are subject to the risks associated with investments in foreign
securities. The securities markets of most emerging countries are less liquid,
developed and efficient, are subject to greater price volatility, and have
smaller market capitalizations. In addition, emerging markets and frontier
countries may have more or less government regulation and generally do not
impose as extensive and frequent accounting, auditing, financial and other
reporting requirements as the securities markets of more developed countries. As
a result, there could be less information available about issuers in emerging
and frontier market countries, which could negatively affect the Investment
Adviser’s ability to evaluate local companies or their potential impact on the
Fund’s performance. Further, investments in securities of issuers located
in certain emerging countries involve the risk of loss resulting from
problems in share registration, settlement or custody, substantial economic,
political and social disruptions and the imposition of sanctions or exchange
controls
44
Risks
of the Funds
(including
repatriation restrictions). The legal remedies for investors in emerging and
frontier markets may be more limited than the remedies available in the U.S.,
and the ability of U.S. authorities (e.g., SEC and
the U.S. Department of Justice) to bring actions against bad actors may be
limited. These risks are not normally associated with investments in more
developed countries. For more information about these risks, see Appendix
A.
◼
ESG
Integration Risk—The
Investment Adviser employs a fundamental investment process that may integrate
ESG factors with traditional fundamental factors. The relevance and
weightings of specific ESG factors to or within the fundamental investment
process varies across asset classes, sectors and strategies and no one factor or
consideration is determinative. When integrating ESG factors into the
investment process, the Investment Adviser may rely on third-party data that it
believes to be reliable, but it does not guarantee the accuracy of such
third-party data. ESG information from third-party data providers may be
incomplete, inaccurate or unavailable, which may adversely impact the investment
process. Moreover, ESG information, whether from an external and/or
internal source, is, by nature and in many instances, based on a qualitative and
subjective assessment. An element of subjectivity and discretion is
therefore inherent to the interpretation and use of ESG data. While the
Investment Adviser believes that the integration of material ESG factors into
the Fund’s investment process has the potential to identify financial risks and
contribute to the Fund’s long-term performance, ESG factors may not be
considered for each and every investment decision, and there is no guarantee
that the integration of ESG factors will result in better
performance. Investors can differ in their views of what constitutes
positive or negative ESG characteristics. Moreover, the current lack of
common standards may result in different approaches to integrating ESG
factors. As a result, the Fund may invest in companies that do not reflect
the beliefs and values of any particular investor. The Investment Adviser’s
approach to ESG integration may evolve and develop over time, both due to a
refinement of investment decision-making processes to address ESG factors and
risks, and because of legal and regulatory developments.
◼
Extension
Risk—An issuer
could exercise its right to pay principal on an obligation held by the 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 the Fund will also suffer from the inability to
reinvest in higher yielding securities.
◼
Floating
and Variable Rate Obligations Risk—Floating
rate and variable rate obligations are debt instruments issued by companies or
other entities with interest rates that reset periodically (typically, daily,
monthly, quarterly, or semi-annually) in response to changes in the market rate
of interest on which the interest rate is based. For floating and variable rate
obligations, there may be a lag between an actual change in the underlying
interest rate benchmark and the reset time for an interest payment of such an
obligation, which could harm or benefit the Fund, depending on the interest rate
environment or other circumstances. In a rising interest rate environment, for
example, a floating or variable rate obligation that does not reset immediately
would prevent the Fund from taking full advantage of rising interest rates in a
timely manner. However, in a declining interest rate environment, the Fund may
benefit from a lag due to an obligation’s interest rate payment not being
immediately impacted by a decline in interest rates.
Certain
floating and variable rate obligations have an interest rate floor feature,
which prevents the interest rate payable by the security from dropping below a
specified level as compared to a reference interest rate (the “reference rate”),
such as LIBOR or SOFR. Such a floor protects the Fund from losses resulting from
a decrease in the reference rate below the specified level. However, if the
reference rate is below the floor, there will be a lag between a rise in the
reference rate and a rise in the interest rate payable by the obligation, and
the Fund may not benefit from increasing interest rates for a significant amount
of time.
At the end
of 2021, certain LIBORs were discontinued, but the most widely used LIBORs may
continue to be provided on a representative basis until June 30, 2023. The
unavailability or replacement of LIBOR may affect the value, liquidity or
return on certain Fund investments and may result in costs incurred in
connection with closing out positions and entering into new trades. Any pricing
adjustments to the Fund’s investments resulting from a substitute reference rate
may adversely affect the Fund’s performance and/or NAV.
SOFR is a
measure of the cost of borrowing cash overnight, collateralized by the U.S.
Treasury securities, and is based on directly observable U.S. Treasury-backed
repurchase transactions.
◼
Foreign
Risk—When the
Fund invests in foreign securities, it may be subject to risk of loss not
typically associated with U.S. issuers. Loss may result because of more or less
foreign government regulation; less public information; less stringent investor
protections; less stringent accounting, corporate governance, financial
reporting and disclosure standards; less liquid, developed or efficient trading
markets; greater volatility; and less economic, political and social stability
in the countries in which the Fund invests. Loss may also result from, among
other things, deteriorating economic and business conditions in other countries,
including the United States, regional and global conflicts, the imposition of
sanctions, exchange controls (including repatriation restrictions), foreign
taxes, confiscation of assets and property, trade restrictions (including
tariffs), expropriations and other government restrictions by the United States
and other governments, higher transaction costs, difficulty enforcing
contractual obligations or from problems in share registration, settlement or
custody. The type and severity of sanctions and other similar measures,
including counter sanctions and other retaliatory actions, that may be imposed
could vary broadly in scope, and their impact is impossible to predict. These
types of measures may include, but are not limited to, banning a sanctioned
country from global payment systems that facilitate cross-border payments,
restricting the settlement of securities transactions by certain
45
investors,
and freezing the assets of particular countries, entities, or persons. The
imposition of sanctions and other similar measures could, among other things,
cause a decline in the value and/or liquidity of securities issued by the
sanctioned country or companies located in or economically tied to the
sanctioned country, downgrades in the credit ratings of the sanctioned country
or companies located in or economically tied to the sanctioned country,
devaluation of the sanctioned country’s currency, and increased market
volatility and disruption in the sanctioned country and throughout the world.
Sanctions and other similar measures could limit or prevent the Fund from buying
and selling securities (in the sanctioned country and other markets),
significantly delay or prevent the settlement of securities transactions, and
significantly impact the Fund’s liquidity and performance. For example, the
United Kingdom (“UK”) withdrew from the European Union (“EU”) on January 31,
2020 (commonly known as “Brexit”), which has resulted in ongoing market
volatility and caused additional market disruption on a global basis. The UK and
the EU signed the EU-UK Trade and Cooperation Agreement (“TCA”), which is an
agreement on the terms governing certain aspects of the EU’s and UK’s
relationship post Brexit. However, under the TCA, many aspects of the EU-UK
relationship remain subject to further negotiation. Although the full effects of
Brexit are unknown at this time, Brexit may continue to result in fluctuations
of exchange rates, increased illiquidity, inflation, and changes in legal and
regulatory regimes to which certain of the Fund’s assets are subject. These and
other geopolitical developments, including ongoing regional armed conflict in
Europe, could negatively impact the value of the Fund’s
investments.
The Fund's
investments in foreign securities may also be subject to foreign currency risk,
the risk of negative foreign currency rate fluctuations, which may cause the
value of securities denominated in such foreign currency (or other instruments
through which the Fund may have exposure to foreign currencies) to decline in
value. Currency exchange rates may fluctuate significantly over short periods of
time. Foreign risks will normally be greatest when the Fund invests in
securities of issuers located in emerging countries. For more information about
these risks, see Appendix A.
◼
Geographic
Risk—If the Fund
focuses its investments in securities of issuers located in a particular country
or geographic region, the Fund may be subjected, to a greater extent than
if its investments were less focused, to the risks of volatile economic cycles
and/or conditions and developments that may be particular to that country or
region, such as: adverse securities markets; adverse exchange rates; adverse
social, political, regulatory, economic, business, environmental or other
developments; or natural disasters.
◼
Interest
Rate Risk—When
interest rates increase, fixed income securities or instruments held by the Fund
(which may include inflation protected securities) will generally decline in
value. Long-term fixed income securities or instruments will normally have more
price volatility because of this risk than short-term fixed income securities or
instruments. A wide variety of market factors can cause interest rates to rise,
including central bank monetary policy, rising inflation and changes in general
economic conditions. The risks associated with changing interest rates may have
unpredictable effects on the markets and the Fund’s investments, and funds with
longer average portfolio durations will generally be more sensitive to changes
in interest rates than funds with a shorter average portfolio duration. In
addition, changes in monetary policy may exacerbate the risks associated with
changing interest rates. Fluctuations in interest rates may also affect the
liquidity of fixed income securities and instruments held by the
Fund.
Although
interest rates in the United States remain at relatively low levels, they are
expected to increase in the future. Certain countries have experienced negative
interest rates on certain fixed-income instruments. Changing interest rates may
result in heightened market volatility and may detract from Fund performance to
the extent the Fund is exposed to such interest rates and/or
volatility.
◼
Large
Shareholder Transactions Risk—The Fund
may experience adverse effects when certain large shareholders, such as other
funds, institutional investors (including those trading by use of
non-discretionary mathematical formulas), financial intermediaries (who may make
investment decisions on behalf of underlying clients and/or include the Fund in
their investment model), individuals, accounts and Goldman Sachs affiliates,
purchase or redeem large amounts of shares of the Fund. Such large shareholder
redemptions, which may occur rapidly or unexpectedly, may cause the Fund to sell
portfolio securities at times when it would not otherwise do so, which may
negatively impact the Fund’s NAV and liquidity. Similarly, large Fund share
purchases may adversely affect the Fund’s performance to the extent that the
Fund is delayed in investing new cash or otherwise maintains a larger cash
position than it ordinarily would. These transactions may also accelerate the
realization of taxable income to shareholders if such sales of investments
resulted in gains, and may also increase transaction costs. In addition, a large
redemption could result in the Fund’s current expenses being allocated over a
smaller asset base, leading to an increase in the Fund’s expense
ratio.
◼
Leverage
Risk—Leverage
creates exposure to potential gains and losses in excess of the initial amount
invested. Borrowing and the use of derivatives may result in leverage and may
make the Fund more volatile. When the Fund uses leverage, the sum of the Fund's
investment exposures may significantly exceed the amount of assets invested in
the Fund, although these exposures may vary over time. Relatively small market
movements may result in large changes in the value of a leveraged investment.
The Fund will identify liquid assets on its books or otherwise cover
transactions that may give rise to such risk, to the extent required by
applicable law. The use of leverage may cause the Fund to liquidate portfolio
positions to satisfy its obligations or to meet segregation requirements when it
may not be advantageous to do so. The use of leverage by the Fund can
substantially increase the adverse impact to which the Fund's investment
portfolio may be subject.
46
Risks
of the Funds
◼
Liquidity
Risk—The Fund
may invest in securities or instruments that trade in lower volumes, that are
less liquid than other investments and/or that may become illiquid or less
liquid in response to market developments or adverse investor perceptions.
Investments that are illiquid or that trade in lower volumes may be more
difficult to value. When there is no willing buyer and investments cannot be
readily sold at the desired time or price, the Fund may have to accept a lower
price or may not be able to sell the security or instrument at all. An inability
to sell one or more portfolio positions can adversely affect the Fund's
value or prevent the Fund from being able to take advantage of other investment
opportunities.
Illiquidity
can be caused by a drop in overall market trading volume, an inability to find a
willing buyer, or legal restrictions on the securities’ resale. To the extent
that the traditional dealer counterparties that engage in fixed income trading
do not maintain inventories of bonds (which provide an important indication
of their ability to “make markets”) that keep pace with the growth of the bond
markets over time, relatively low levels of dealer inventories could lead to
decreased liquidity and increased volatility in the fixed income markets.
Additionally, market participants other than the Fund may attempt to sell fixed
income holdings at the same time as the Fund, which could cause downward pricing
pressure and contribute to decreased liquidity.
Because the
Fund may invest in non-investment grade fixed income securities and/or emerging
country issuers, the Fund may be especially subject to the risk that during
certain periods, the liquidity of particular issuers or industries, or all
securities within a particular investment category, may shrink or disappear
suddenly and without warning as a result of adverse economic, market or
political events (including periods of rapid interest rate changes), or adverse
investor perceptions, whether or not accurate.
Liquidity
risk may also refer to the risk that the Fund will not be able to pay redemption
proceeds within the allowable time period stated in the Prospectus or without
significant dilution to remaining investors’ interests because of unusual market
conditions, declining prices of the securities sold, an unusually high volume of
redemption requests or other reasons. While the Fund reserves the right to meet
redemption requests through in-kind distributions, the Fund may instead choose
to raise cash to meet redemption requests through sales of portfolio securities
or permissible borrowings. If the Fund is forced to sell investments at an
unfavorable time and/or under unfavorable conditions, such sales may adversely
affect the Fund's NAV and dilute remaining investors’
interests.
Certain
shareholders, including clients or affiliates of the Investment Adviser and/or
other funds managed by the Investment Adviser, may from time to time own or
control a significant percentage of the Fund's shares. Redemptions by these
shareholders of their shares of the Fund may further increase the Fund's
liquidity risk and may impact the Fund's NAV. These shareholders may
include, for example, institutional investors, funds of funds,
discretionary advisory clients, certain participating insurance companies,
accounts or Goldman Sachs affiliates and other shareholders, whose buy-sell
decisions are controlled by a single decision-maker.
◼
Loan-Related
Investments Risk—In addition
to risks generally associated with debt investments (e.g., interest
rate risk and default risk), loan-related investments such as loan
participations and assignments are subject to other risks. Although a loan
obligation may be fully collateralized at the time of acquisition, the
collateral may decline in value, be or become illiquid or less liquid, or lose
all or substantially all of its value subsequent to investment. Many loan
investments are subject to legal or contractual restrictions on resale and
certain loan investments may be or become illiquid or less liquid and more
difficult to value, particularly in the event of a downgrade of the loan or the
borrower. There is less readily available, reliable information about most loan
investments than is the case for many other types of securities and the
Investment Adviser relies primarily on its own evaluation of a borrower’s credit
quality rather than on any available independent sources. The ability of the
Fund to realize full value in the event of the need to sell a loan investment
may be impaired by the lack of an active trading market for certain loans or
adverse market conditions limiting liquidity. Loan obligations are not traded on
an exchange, and purchasers and sellers rely on certain market makers, such as
the administrative agent for the particular loan obligation, to trade that loan
obligation. The market for loan obligations may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement periods. Because
transactions in many loans are subject to extended trade settlement periods, the
Fund may not receive the proceeds from the sale of a loan for a period after the
sale. As a result, sale proceeds related to the sale of loans may not be
available to make additional investments or to meet the Fund's redemption
obligations for a period after the sale of the loans, and, as a result, the Fund
may have to sell other investments or engage in borrowing transactions, such as
borrowing from a credit facility, if necessary to raise cash to meet its
obligations. During periods of heightened redemption activity or distressed
market conditions, the Fund may seek to obtain expedited trade settlement, which
will generally incur additional costs (although expedited trade settlement will
not always be available). The Fund may also hold a larger position in cash and
cash items to limit the impact of extended trade settlement periods, which may
adversely impact the Fund's performance. In addition, substantial increases in
interest rates may cause an increase in loan obligation defaults.
Affiliates
of the Investment Adviser may participate in the primary and secondary market
for loans. Because of limitations imposed by applicable law, the presence of
such affiliates in the loan markets may restrict the Fund's ability to acquire
certain loans, affect the timing of such acquisition, or affect the price at
which the loan is acquired.
47
With
respect to loan participations, the Fund may not always have direct recourse
against a borrower if the borrower fails to pay scheduled principal and/or
interest; may be subject to greater delays, expenses and risks than if the Fund
had purchased a direct obligation of the borrower; and may be regarded as the
creditor of the agent lender (rather than the borrower), subjecting the Fund to
the creditworthiness of that lender as well and the ability of the lender to
enforce appropriate credit remedies against the borrower. Investors in loans,
such as the Fund, may not be entitled to rely on the anti-fraud protections of
the federal securities laws, although they may be entitled to certain
contractual remedies.
Senior
loans hold the most senior position in the capital structure of a business
entity, and are typically secured with specific collateral and have a claim on
the assets and/or instrument of the borrower that is senior to that held by
subordinated debt holders and stockholders of the borrower. Nevertheless, senior
loans are usually rated below investment grade. Because second lien loans are
subordinated or unsecured and thus lower in priority of payment to senior loans,
they are subject to the additional risk that the cash flow of the borrower and
property securing the loan or debt, if any, may be insufficient to meet
scheduled payments after giving effect to the senior secured obligations of the
borrower.This risk is generally higher for subordinated unsecured loans or debt,
which are not backed by a security interest in any specific collateral. Second
lien loans generally have greater price volatility than senior loans and may be
less liquid. Generally, loans have the benefit of restrictive covenants that
limit the ability of the borrower to further encumber its assets or impose other
obligations. To the extent a loan does not have certain covenants (or has less
restrictive covenants), an investment in the loan will be particularly sensitive
to the risks associated with loan investments.
◼
Management
Risk—A strategy
used by the Investment Adviser may fail to produce the intended
results.
◼
Market
Risk—The value
of the securities in which the Fund invests may go up or down in response
to the prospects of individual companies, particular sectors or governments
and/or general economic conditions throughout the world. Price changes may be
temporary or last for extended periods. The Fund's investments may be
overweighted from time to time in one or more sectors or countries, which will
increase the Fund's exposure to risk of loss from adverse developments affecting
those sectors or countries.
Global
economies and financial markets are becoming increasingly interconnected, and
conditions and events in one country, region or financial market may adversely
impact issuers in a different country, region or financial market. Furthermore,
local, regional and global events such as war, military conflict, acts of
terrorism, social unrest, natural disasters, recessions, inflation, rapid
interest rate changes, supply chain disruptions, sanctions, the spread of
infectious illness or other public health threats could also adversely impact
issuers, markets and economies, including in ways that cannot necessarily be
foreseen. The Fund could be negatively impacted if the value of a portfolio
holding were harmed by such political or economic conditions or events. In
addition, governmental and quasi-governmental organizations have taken a number
of unprecedented actions designed to support the markets. Such conditions,
events and actions may result in greater market risk.
◼
Mortgage-Backed
and Other Asset-Backed Securities Risk—Mortgage-related
and other asset-backed securities are subject to credit/default, interest rate
and certain additional risks. Generally, rising interest rates tend to extend
the duration of fixed rate mortgage-backed securities, making them more
sensitive to changes in interest rates. As a result, in a period of rising
interest rates, if the Fund holds mortgage-backed securities, it may exhibit
additional volatility. This is known as extension risk. In addition, adjustable
and fixed rate mortgage-backed securities are subject to prepayment risk. When
interest rates decline, borrowers may pay off their mortgages sooner than
expected. This can reduce the returns of the Fund because the Fund may have to
reinvest that money at the lower prevailing interest rates. Due to these risks,
asset-backed securities may become more volatile in certain interest rate
environments.
The Fund’s
investments in other asset-backed securities are subject to risks similar to
those associated with mortgage-backed securities, as well as additional risks
associated with the nature of the assets and the servicing of those assets.
Asset-backed securities may not have the benefit of a security interest in
collateral comparable to that of mortgage assets, resulting in additional credit
risk.
The Fund
may invest in mortgage-backed securities issued by the U.S. Government (see
“U.S. Government Securities Risk”). To the extent that the Fund invests in
mortgage-backed securities offered by non-governmental issuers, such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers, the Fund may be
subject to additional risks. Timely payment of interest and principal of
non-governmental issuers are supported by various forms of private insurance or
guarantees, including individual loan, title, pool and hazard insurance
purchased by the issuer. There can be no assurance that the private insurers can
meet their obligations under the policies. An unexpectedly high rate of defaults
on the mortgages held by a mortgage pool may adversely affect the value of a
mortgage-backed security and could result in losses to the Fund. The risk of
such defaults is generally higher in the case of mortgage pools that include
subprime mortgages or during periods of rising interest rates. Subprime
mortgages refer to loans made to borrowers with weakened credit histories or
with a lower capacity to make timely payments on their
mortgages.
48
Risks
of the Funds
The Fund
may gain exposure to Agency Mortgage-Backed Securities by utilizing TBA
agreements. TBA agreements involve the risk that the other party to the
transaction will not meet its obligation. If this occurs, the Fund could lose
the opportunity to obtain a price or yield that it considers advantageous. In
such circumstances, the Fund may not be able to secure an alternative investment
with comparable terms. TBA agreements may give rise to a form of leverage. The
Fund’s use of TBA agreements may also result in a higher portfolio turnover rate
and/or increased capital gains for the Fund.
◼
Municipal
Securities Risk—Municipal
securities are subject to call/prepayment risk, credit/default risk,
extension risk, interest rate risk and certain additional risks. The Fund may be
more sensitive to adverse economic, business, political, environmental or other
developments if it invests a substantial portion of its assets in the debt
securities of similar projects (such as those relating to education, health
care, housing, transportation, and utilities), industrial development bonds, or
in particular types of municipal securities (such as general obligation bonds,
private activity bonds and moral obligation bonds). While interest earned on
municipal securities is generally not subject to federal tax, any interest
earned on taxable municipal securities is fully taxable at the federal level and
may be subject to tax at the state level. Specific risks are associated with
different types of municipal securities. With respect to general obligation
bonds, the full faith, credit and taxing power of the municipality that issues a
general obligation bond secures payment of interest and repayment of principal.
Timely payments depend on the issuer’s credit quality, ability to raise tax
revenues and ability to maintain an adequate tax base. Certain of the
municipalities in which the Fund invests may experience significant financial
difficulties, which may lead to bankruptcy or default.
With
respect to revenue bonds, payments of interest and principal are made only from
the revenues generated by a particular facility, class of facilities or the
proceeds of a special tax, or other revenue source, and depends on the money
earned by that source. Private activity bonds are issued by municipalities and
other public authorities to finance development of industrial facilities for use
by a private enterprise. The private enterprise pays the principal and interest
on the bond, and the issuer does not pledge its full faith, credit and taxing
power for repayment. If the private enterprise defaults on its payments, the
Fund may not receive any income or get its money back from the investment. Moral
obligation bonds are generally issued by special purpose public authorities of a
state or municipality. If the issuer is unable to meet its obligations,
repayment of these bonds becomes a moral commitment, but not a legal obligation,
of the state or municipality. Municipal notes are shorter term municipal debt
obligations. They may provide interim financing in anticipation of, and are
secured by, tax collection, bond sales or revenue receipts. If there is a
shortfall in the anticipated proceeds, the notes may not be fully repaid and the
Fund may lose money. In a municipal lease obligation, the issuer agrees to make
payments when due on the lease obligation. The issuer will generally appropriate
municipal funds for that purpose, but is not obligated to do so. Although the
issuer does not pledge its unlimited taxing power for payment of the lease
obligation, the lease obligation is secured by the leased property. However, if
the issuer does not fulfill its payment obligation it may be difficult to sell
the property and the proceeds of a sale may not cover the Fund’s
loss.
◼
NAV
Risk—The net
asset value of the Fund and the value of your investment will
fluctuate.
◼
Non-Diversification
Risk—The Local
Emerging Markets Debt Fund is non-diversified, meaning that the Fund is
permitted to invest a larger percentage of its assets in one or more issuers or
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.
◼
Non-Hedging
Foreign Currency Trading Risk—The Fund
may engage in forward foreign currency transactions for both hedging and
non-hedging purposes. The Investment Adviser may purchase or sell foreign
currencies through the use of forward contracts based on the Investment
Adviser’s judgment regarding the direction of the market for a particular
foreign currency or currencies. In pursuing this strategy, the Investment
Adviser seeks to profit from anticipated movements in currency rates by
establishing “long” and/or “short” positions in forward contracts on various
foreign currencies. Foreign exchange rates can be extremely volatile and a
variance in the degree of volatility of the market or in the direction of the
market from the Investment Adviser’s expectations may produce significant losses
to the Fund. Some of the transactions may also be subject to interest rate
risk.
◼
Non-Investment
Grade Fixed Income Securities Risk—Non-investment
grade fixed income securities and unrated securities of comparable credit
quality (commonly known as “junk bonds”) are considered speculative and 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 issuer developments, interest rate
sensitivity, negative perceptions of the junk bond markets generally and less
liquidity.
◼
Other
Investment Companies Risk—By
investing in other investment companies (including ETFs) indirectly through the
Fund, investors will incur a proportionate share of the expenses of the other
investment companies held by the Fund (including operating costs and investment
management fees) in addition to the fees and expenses regularly borne by the
Fund. In addition, the Fund will be affected by the investment policies,
practices and performance of such investment companies in direct proportion to
the amount of assets the Fund invests therein.
49
◼
Portfolio
Turnover Rate Risk—The U.S.
Mortgages Fund may engage in active and frequent trading of portfolio
securities to pursue its principal investment strategies. A high rate of
portfolio turnover involves correspondingly greater expenses which must be borne
by the Fund and its shareholders, and is also likely to result in short-term
capital gains taxable to shareholders.
◼
Reverse
Repurchase Agreements Risk—Reverse
repurchase agreements involve the sale of securities held by the Fund subject to
an agreement to repurchase them at a mutually agreed upon date and price
(including interest). The Fund may enter these transactions when the Investment
Adviser expects that the return to be earned from the investment of the
transaction proceeds to be greater than the interest expense of the transaction.
Reverse repurchase agreements may also be entered into as a temporary measure
for emergency purposes or to meet redemption requests.
Reverse
repurchase agreements are a form of secured borrowing and subject the Fund to
the risks associated with leverage, including exposure to potential gains and
losses in excess of the amount invested. If the securities held by the Fund
decline in value while these transactions are outstanding, the NAV of the Fund’s
outstanding shares will decline in value by proportionately more than the
decline in value of the securities. In addition, reverse repurchase agreements
involve the risk that the investment return earned by the 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 the Fund will
decline below the price the Fund is obligated to pay to repurchase the
securities, and that the other party may fail to return the securities in a
timely manner or at all.
When the
Fund enters into a reverse repurchase agreement, it is subject to the risk that
the buyer under the agreement may file for bankruptcy, become insolvent or
otherwise default on its obligations to the Fund. In the event of a default by
the counterparty, there may be delays, costs and risks of loss involved in the
Fund’s exercising its rights under the agreement, or those rights may be limited
by other contractual agreements or obligations or by applicable law. Such an
insolvency may result in a loss equal to the amount by which the value of the
securities or other assets sold by the Fund exceeds the repurchase price payable
by the Fund; if the value of the purchased securities or other assets increases
during such a delay, that loss may also be increased. The Fund could lose money
if it is unable to recover the securities or if the value of investments made by
the Fund using the proceeds of the transaction is less than the value of
securities. When the Fund enters into a reverse repurchase agreement, it must
identify on its books cash or liquid assets that have a value equal to or
greater than the repurchase price.
◼
Sector
Risk—To the
extent the Fund focuses its investments in securities of issuers in one or more
sectors (such as the financial services or telecommunications sectors), the Fund
may be subjected, to a greater extent than if its investments were diversified
across different sectors, to the risks of volatile economic cycles and/or
conditions and developments that may be particular to that sector, such as:
adverse economic, business, political, environmental or other
developments.
◼
Short
Position Risk—The U.S.
Mortgages Fund may use derivatives, including futures and swaps, to implement
short positions, and may engage in short selling. Taking short positions and
short selling involve leverage of the Fund’s assets and present various risks.
If the value of the instrument or market in which the Fund has taken a short
derivative position on increases, then the Fund will incur a loss equal to the
increase in value from the time that the short position was entered into plus
any premium and interest paid to a third party. Therefore, taking short
derivative positions involves the risk that losses may be exaggerated,
potentially losing more money than the actual cost of the investment. Also,
there is the risk that the third party to the short derivative transaction may
fail to honor its contract terms, causing a loss to the Fund.
The U.S.
Mortgages Fund may make short sales of any instrument that the Fund may purchase
for investment. In such transactions, the Fund sells an instrument it does not
own (i.e., “naked”
short) in anticipation of a decline in the market value of the instrument.
Because selling instruments that the Fund does not own exposes the Fund to the
risks associated with those instruments, naked shorts involve speculative
exposure risk, and such transactions may increase the costs incurred by the
Fund.
In order to
sell an instrument short, the Fund must generally first borrow the instrument
from a lender, such as a broker or other institution. The Fund may not always be
able to borrow the instrument at a particular time or at an acceptable price.
Thus, there is risk that the Fund may be unable to implement its investment
strategy due to the lack of available instruments or for other
reasons.
After
selling a borrowed instrument, the Fund is then obligated to “cover” the short
sale by purchasing and returning the instrument to the lender on a later date.
The Fund cannot guarantee that the instrument necessary to cover a short
position will be available for purchase at the time the Fund wishes to close a
short position or, if available, that the instrument will be available at an
acceptable price. If the borrowed instrument has appreciated in value, the Fund
will be required to pay more for the replacement instrument than the amount it
received for selling the instrument short. Moreover, purchasing an instrument to
cover a short position can itself cause the price of the instrument to rise
further, thereby exacerbating the loss. Unlike purchasing an instrument, where
potential losses are limited to the purchase price and there is no upside limit
on potential gain, the potential loss on a short sale is unlimited because the
loss increases as the price of the instrument sold short increases and the price
may rise indefinitely. If the price of a borrowed instrument declines before the
short position is covered, the Fund may realize a gain. The Fund’s gain on a
short sale, before transaction and other costs, is generally limited to the
difference between the price at which it sold the borrowed instrument and the
price it paid to purchase the instrument to return to the
lender.
50
Risks
of the Funds
While the
Fund has an open short position, it is subject to the risk that the instrument’s
lender will terminate the loan at a time when the Fund is unable to borrow the
same instrument from another lender. If this happens, the Fund may be required
to buy the replacement instrument immediately at the instrument’s then current
market price or “buy in” by paying the lender an amount equal to the cost of
purchasing the instrument to close out the short position.
Short sales
also involve other costs. The Fund must normally repay to the lender an amount
equal to any dividends or interest that accrues while a loan is outstanding. In
addition, to borrow an instrument, the Fund may be required to pay a premium.
The Fund also will incur transaction costs in effecting short sales. The amount
of any ultimate gain for the Fund resulting from a short sale will be decreased,
and the amount of any ultimate loss will be increased, by the amount of
premiums, dividends, interest or expenses the Fund may be required to pay in
connection with the short sale.
Until the
Fund replaces a borrowed instrument, the Fund may be required to maintain short
sale proceeds with the lending broker as collateral. Moreover, the Fund will be
required to make margin payments to the lender during the term of the borrowing
if the value of the instrument it borrowed (and short sold) increases. Thus,
short sales involve credit exposure to the broker that executes the short sales.
In the event of the bankruptcy or other similar insolvency with respect to a
broker with whom the Fund has an open short position, the Fund may be unable to
recover, or delayed in recovering, any margin or other collateral held with or
for the lending broker. In addition, the Fund is required to identify on its
books liquid assets (less any additional collateral held by the broker) to cover
short sale obligations, marked-to-market daily. The requirement to identify
liquid assets limits the Fund’s leveraging of investments and the related risk
of losses from leveraging. However, such identification may also limit the
Fund’s investment flexibility, as well as its ability to meet redemption
requests or other current obligations.
Short
Sales of TBA Securities Risk. The U.S.
Mortgages Fund intends to make short sales of TBA securities. TBA transactions
are forward agreements for the purchase or sale of securities, including
Mortgage-Backed Securities, for a fixed price, with payment and delivery on an
agreed upon future settlement date. The specific securities to be delivered are
not identified at the trade date. However, delivered securities must meet
specified terms, including, for TBA Mortgage-Backed Securities, issuer, rate and
mortgage terms. Although most TBA short sale transactions are closed before the
Fund would be required to deliver the instrument, if the Fund does not close the
position, the Fund may have to purchase the securities required to be delivered
at a higher price than anticipated, causing a loss to the Fund. The Fund may not
always be able to purchase the securities required to settle a short at a
particular time or at an attractive price.
◼
Sovereign
Default Risk—The issuer
of non-U.S. sovereign debt held by the Fund or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay the
principal or interest when due. This may result from political or social
factors, the general economic environment of a country or levels of borrowing
rates, foreign debt or foreign currency exchange rates.
◼
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.
◼
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,
the imposition of international sanctions, and religious and ethnic tensions.
High political risk can impede the economic welfare of a
country.
◼
Repayment
Risk—A country
may be unable 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 borrowing rates (which may increase in market
environments where interest rates are rising), 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.
◼
U.S.
Government Securities Risk—The U.S.
government may not provide financial support to U.S. government agencies,
instrumentalities or sponsored enterprises if it is not obligated to do so by
law. U.S. Government Securities issued by those agencies,
instrumentalities and sponsored enterprises, including those issued
by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, are neither
issued nor guaranteed by the U.S. 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 the Fund may greatly
exceed their current resources, including any legal right to support from the
U.S. Treasury. It is possible that issuers of U.S. Government Securities will
not have the funds to meet their payment obligations in the future. Fannie Mae
and Freddie Mac have been operating under conservatorship, with the Federal
Housing Finance Agency (“FHFA”) acting as their conservator, since September
2008. The entities are dependent upon the continued support of the U.S.
Department of the Treasury and FHFA in order to continue their business
operations. These factors, among others, could affect the future status and role
of Fannie Mae and Freddie Mac and the value of their securities and the
securities which they guarantee. Additionally, the U.S. government and its
agencies and instrumentalities do not guarantee the market values of their
securities, which may fluctuate.
51
More
information about the Fund’s portfolio securities and investment techniques, and
its 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.
52
Service
Providers
|
INVESTMENT
ADVISER |
|
Investment
Adviser |
Fund |
|
Goldman
Sachs Asset Management, L.P.
200
West Street
New
York, NY 10282 |
Emerging
Markets Debt
High
Yield
High
Yield Floating Rate
Investment
Grade Credit
Local
Emerging Markets Debt
U.S.
Mortgages |
GSAM has
been registered as an investment adviser with the SEC since 1990 and is an
indirect, wholly-owned subsidiary of The Goldman Sachs Group, Inc. and an
affiliate of Goldman Sachs. Founded in 1869, The Goldman Sachs Group, Inc. is a
publicly-held financial holding company and a leading global investment banking,
securities and investment management firm. As of March 31, 2022, GSAM, including
its investment advisory affiliates, had assets under supervision of
approximately $2.13 trillion.
The
Investment Adviser provides day-to-day advice regarding the Fund’s portfolio
transactions. The Investment Adviser makes the investment decisions for the Fund
and places purchase and sale orders for the Fund’s portfolio transactions in
U.S. and foreign markets. As permitted by applicable law, these orders may be
directed to any executing brokers, dealers, futures commission
merchants (“FCMs”) or other counterparties, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Fund, it is able to draw upon the research and expertise of
its asset management affiliates for portfolio decisions and management with
respect to certain portfolio securities. In addition, the Investment Adviser has
access to the research and certain proprietary technical models developed by
Goldman Sachs (subject to legal, internal, regulatory and Chinese Wall
restrictions), and will apply quantitative and qualitative analysis in
determining the appropriate allocations among categories of issuers and types of
securities.
The
Investment Adviser also performs the following additional services for the Funds
(to the extent not performed by others pursuant to agreements with the
Funds):
◼
Supervises
all non-advisory operations of the Fund
◼
Provides
personnel to perform necessary executive, administrative and clerical services
to the Fund
◼
Arranges
for the preparation of all required tax returns, reports to shareholders,
prospectuses and statements of additional information and other reports filed
with the SEC and other regulatory authorities
◼
Maintains
the records of the Fund
◼
Provides
office space and all necessary office equipment and services
An
investment in the Fund may be negatively impacted because of the operational
risks arising from factors such as processing errors and human errors,
inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third-party service
providers or trading counterparties. The use of certain investment strategies
that involve manual or additional processing, such as over-the-counter
derivatives, increases these risks. Although the Fund attempts to minimize such
failures through controls and oversight, it is not possible to identify all of
the operational risks that may affect the Fund or to develop processes and
controls that completely eliminate or mitigate the occurrence of such failures.
The Fund and its shareholders could be negatively impacted as a
result.
From time
to time, Goldman Sachs or its affiliates may invest “seed” capital in the Fund.
These investments are generally intended to enable the Fund to commence
investment operations and achieve sufficient scale. Goldman Sachs and its
affiliates may hedge the exposure of the seed capital invested in the Fund by,
among other things, taking an offsetting position in the benchmark of the
Fund.
53
|
MANAGEMENT
FEES AND OTHER EXPENSES |
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):
|
Fund |
Contractual
Management
Fee
Annual
Rate |
Average
Daily
Net
Assets |
Actual
Rate
For
the Fiscal
Year
Ended
March
31, 2022* |
|
Emerging
Markets Debt |
0.80% |
First
$ 2 Billion |
0.80% |
|
|
0.72% |
Next
$3 Billion |
|
|
|
0.68% |
Next
$3 Billion |
|
|
|
0.67% |
Over
$8 Billion |
|
|
High
Yield |
0.70% |
First
$ 2 Billion |
0.70% |
|
|
0.63% |
Next
$3 Billion |
|
|
|
0.60% |
Next
$3 Billion |
|
|
|
0.59% |
Over
$8 Billion |
|
|
High
Yield Floating Rate |
0.60% |
First
$ 1 Billion |
0.55% |
|
|
0.54% |
Next
$1 Billion |
|
|
|
0.51% |
Next
$3 Billion |
|
|
|
0.50% |
Next
$3 Billion |
|
|
|
0.49% |
Over
$8 Billion |
|
|
Investment
Grade Credit |
0.34% |
First
$ 1 Billion |
0.34% |
|
|
0.31% |
Next
$1 Billion |
|
|
|
0.29% |
Next
$3 Billion |
|
|
|
0.28% |
Next
$3 Billion |
|
|
|
0.28% |
Over
$8 Billion |
|
|
Local
Emerging Markets Debt |
0.80% |
First
$ 2 Billion |
0.80% |
|
|
0.72% |
Next
$3 Billion |
|
|
|
0.68% |
Next
$3 Billion |
|
|
|
0.67% |
Over
$8 Billion |
|
|
U.S.
Mortgages |
0.34% |
First
$ 1 Billion |
0.34% |
|
|
0.31% |
Next
$1 Billion |
|
|
|
0.29% |
Next
$3 Billion |
|
|
|
0.28% |
Next
$3 Billion |
|
|
|
0.28% |
Over
$8 Billion |
|
*
The
Actual Rate may not correlate to the Contractual Management Fee Annual Rate as a
result of management fee waivers that may be in effect from time to
time.
With
respect to the High Yield Fund, the Investment Adviser has agreed to waive a
portion of its management fee in order to achieve an effective rate of 0.67% as
an annual percentage of the Fund's average daily net assets. In addition,
the Investment Adviser has agreed to waive a portion of its management fees
payable by the High Yield Floating Rate Fund, Local Emerging Markets Debt Fund
and U.S. Mortgages Fund in an amount equal to any management fees it earns as an
investment adviser to the affiliated funds in which the Funds invest, except
those management fees it earns from the High Yield Floating Rate Fund’s
investments of cash collateral received in connection with securities lending
transactions in affiliated funds. These arrangements will remain in effect
through at least July 29, 2023, and prior to such date, the Investment Adviser
may not terminate the arrangements without the approval of the Board of
Trustees. These management fee waivers may be modified or terminated by the
Investment Adviser at its discretion and without shareholder approval after such
date, although the Investment Adviser does not presently intend to do
so.
In addition
to the management fee waivers described above, the Investment Adviser may waive
an additional portion of its management fee, including fees earned as the
Investment Adviser to any of the affiliated funds in which the Funds invest,
from time to time and may discontinue or modify any such waivers in the future,
consistent with the terms of any fee waiver arrangements in place.
The
Investment Adviser has agreed to reduce or limit “Other Expenses” (excluding
acquired fund fees and expenses, transfer agency fees and expenses, taxes,
interest, brokerage fees, expenses of shareholder meetings, litigation and
indemnification, and extraordinary expenses) to 0.024%, 0.004%, 0.104%, 0.004%,
0.074% and 0.074% of the average daily net assets for the Emerging Markets Debt,
High Yield, High Yield Floating Rate, Investment Grade Credit, Local Emerging
Markets Debt and U.S. Mortgages Funds, respectively, through at least July 29,
2023, and prior to such date, the Investment Adviser may not terminate the
arrangements without
54
Service
Providers
the
approval of the Board of Trustees. The expense limitations may be modified or
terminated by the Investment Adviser at its discretion and without shareholder
approval after such date, although the Investment Adviser does not presently
intend to do so. The Fund’s “Other Expenses” may be further reduced by any
custody and transfer agency fee credits received by the Fund.
A
discussion regarding the basis for the Board of Trustees’ approval of the
Management Agreement for the Funds in 2021 is available in the Funds’
semi-annual report dated September 30, 2021. A discussion regarding the basis
for the Board of Trustees’ approval of the Management Agreement for the Funds in
2022 will be available in the Funds’ semi-annual report dated September 30,
2022.
|
FUND
MANAGERS |
Fixed Income
Portfolio Management Team
The
individuals jointly and primarily responsible for the day-to-day management of
the Funds are listed below. The Fund’s portfolio managers' individual
responsibilities may differ and may include, among other things, security
selection, asset allocation, risk budgeting and general oversight of the
management of the Fund’s portfolios.
|
Name
and Title |
Fund
Responsibility |
Years
Primarily
Responsible |
Five
Year Employment History |
|
Samuel
Finkelstein
Managing
Director,
Global
Head of Macro Strategies
Co-Chief
Investment Officer of
Fixed
Income
Co-Head
of Emerging Markets Debt |
Portfolio
Manager—
Emerging
Markets Debt
Local
Emerging Markets Debt |
Since
2003
2008 |
Mr.
Finkelstein is the Global Head of Macro Strategies, Co-Chief
Investment
Officer of Fixed Income, and Co-Head of Emerging
Markets
Debt, and a member of the Fixed Income Strategy Group
and
Cross-Sector Strategy team. |
|
Kay
Haigh
Managing
Director,
Global
Co-Head of Emerging
Markets |
Portfolio
Manager—
Emerging
Markets Debt
Local
Emerging Markets Debt |
Since
2020 |
Mr.
Haigh is the Global Co-Head of Emerging Markets. Prior to
joining
the Investment Adviser, he was an emerging markets
portfolio
manager at Stone Milliner Asset Management, and he was
global
head of emerging markets at Morgan Stanley Investment
Management. |
|
Christopher
J. Hogan, CFA
Managing
Director |
Portfolio
Manager—
U.S.
Mortgages |
Since
2009 |
Mr.
Hogan is co-head of the Global Securitized Investment team
and
head of the Agency MBS Investment team. He specializes in
agency
mortgage-backed securities. |
|
Benjamin
Johnson, CFA
Managing
Director |
Portfolio
Manager—
Investment
Grade Credit |
Since
2003 |
Mr.
Johnson is Head of the Global Investment Grade Credit team
and
Global Head of Corporate Credit. He joined the Investment
Adviser
in 1998 and specializes in credit research. |
|
Ricardo
Penfold
Managing
Director |
Portfolio
Manager—
Emerging
Markets Debt
Local
Emerging Markets Debt |
Since
2003
2008 |
Mr.
Penfold joined the Investment Adviser in 2000. |
|
Robert
Magnuson
Managing
Director,
Head
of High Yield Strategies |
Portfolio
Manager—
High
Yield |
Since
2014 |
Mr.
Magnuson is a member of the High Yield portfolio management
team
specializing in credit research. He joined the Investment
Adviser
in 2006. |
|
Peter
Campo
Managing
Director,
Head
of Bank Loans Strategies |
Portfolio
Manager—
High
Yield Floating Rate |
Since
2018 |
Mr.
Campo is a Head of Bank Loans Strategies on the High Yield
and
Bank Loans team. He joined the Investment Adviser in 2018.
Prior
to joining the Investment Adviser, he worked at Eaton Vance
from
2003 to 2018 as a portfolio manager and research
analyst. |
|
Lori
Pomerantz
Vice
President |
Portfolio
Manager—
High
Yield Fund
High
Yield Floating Rate Fund |
Since
2021
2021 |
Mrs.
Pomerantz is a Portfolio Manager on the High Yield and Bank
Loan
credit team within Fixed Income. She joined the Investment
Adviser
in 2015, initially in the Alternative Investments and
Manager
Selection (AIMS) business, where she spearheaded long
only
fixed income manager selection. |
|
Ashish
Shah
Managing
Director,
Co-Chief
Investment Officer,
Global
Fixed Income |
Portfolio
Manager—
High
Yield Fund
High
Yield Floating Rate Fund |
Since
2021
2021 |
Mr.
Shah is Co-Chief Investment Officer of Global Fixed Income, and
Head
of the Cross-Sector Strategy within Fixed Income. Mr. Shah
joined
the Investment Adviser in 2018. Mr. Shah was previously at
AllianceBernstein
from 2010 to 2018, where he was most recently
the
Head of Fixed Income and Chief Investment Officer of Global
Credit. |
|
Jon
Calluzzo
Vice
President |
Portfolio
Manager—
U.S.
Mortgages |
Since
2022 |
Mr. Calluzzo
is a portfolio manager on the Fixed Income team. He
joined
the Investment Adviser in 2016 as a Portfolio Manager on
the
Liquidity Solutions Short Duration team. |
|
Rob
Pyne
Vice
President |
Portfolio
Manager—
U.S.
Mortgages |
Since
2022 |
Mr. Pyne
is a portfolio manager on the Fixed Income team. He
joined
the Investment Adviser in
2009. |
55
For
information about the portfolio managers’ compensation, other accounts managed
by the portfolio managers and the portfolio managers’ ownership of securities in
the Fund, see the SAI.
|
DISTRIBUTOR
AND TRANSFER AGENT |
Goldman
Sachs, 200 West Street, New York, NY 10282, serves as the exclusive distributor
(the “Distributor”) of the Fund’s shares. Goldman Sachs, 71 S. Wacker Drive,
Chicago, IL 60606, also serves as the Fund’s transfer agent (the “Transfer
Agent”) and, as such, performs various shareholder servicing
functions.
For its
transfer agency services, Goldman Sachs is entitled to receive a transfer agency
fee equal, on an annualized basis, to 0.03% of average daily net assets with
respect to Class P Shares.
From time
to time, Goldman Sachs or any of its affiliates may purchase and hold shares of
the Funds. Goldman Sachs and its affiliates reserve the right to redeem at any
time some or all of the shares acquired for their own accounts.
|
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 will present conflicts of interest with respect to the Fund and
will, under certain circumstances, limit the Fund’s investment activities.
Goldman Sachs is a worldwide, full service investment banking, broker dealer,
asset management and financial services organization and a major participant in
global financial markets that provides a wide range of financial services to a
substantial and diversified client base that includes corporations, financial
institutions, governments and individuals. As such, it acts as a broker-dealer,
investment adviser, investment banker, underwriter, research provider,
administrator, financier, adviser, market maker, trader, prime broker,
derivatives dealer, clearing agent, lender, counterparty, agent, principal,
distributor, investor or in other commercial capacities for accounts or
companies or affiliated or unaffiliated investment funds (including pooled
investment vehicles and private funds) in which one or more accounts, including
the Fund, invest. In those and other capacities, Goldman Sachs and its
affiliates advise and deal with clients and third parties in all markets and
transactions and purchase, sell, hold and recommend a broad array of
investments, including securities, derivatives, loans, commodities, currencies,
credit default swaps, indices, baskets and other financial instruments and
products for their own accounts or for the accounts of their customers and have
other direct and indirect interests in the global fixed income, currency,
commodity, equities, bank loans and other markets and the securities and issuers
in which the Fund directly and indirectly invest. Thus, it is expected that the
Fund will have multiple business relationships with and will invest in, engage
in transactions with, make voting decisions with respect to, or obtain services
from entities for which Goldman Sachs and its affiliates perform or seek to
perform investment banking or other services. The Investment Adviser and/or
certain of its affiliates are the managers of the Goldman Sachs Funds. The
Investment Adviser and its affiliates earn fees from this and other
relationships with the Fund. Although management fees paid by the Fund to the
Investment Adviser and certain other fees paid to the Investment Adviser’s
affiliates are based on asset levels, the fees are not directly contingent on
Fund performance, and the Investment Adviser and its affiliates will still
receive significant compensation from the Fund even if shareholders lose money.
Goldman Sachs and its affiliates engage in proprietary trading and advise
accounts and funds which have investment objectives similar to those of the Fund
and/or which engage in and compete for transactions in the same types of
securities, currencies and instruments as the Fund. Goldman Sachs and its
affiliates will not have any obligation to make available any information
regarding their proprietary activities or strategies, or the activities or
strategies used for other accounts managed by them, for the benefit of the
management of the Fund. The results of the Fund’s investment activities,
therefore, will likely differ from those of Goldman Sachs, its affiliates, and
other accounts managed by Goldman Sachs, and it is possible that the 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 Fund may enter into transactions in which
Goldman Sachs and its affiliates or their other clients have an adverse
interest. For example, the Fund may take a long position in a security at the
same time that Goldman Sachs and its affiliates or other accounts managed by the
Investment Adviser or its affiliates take a short position in the same security
(or vice versa). These and other transactions undertaken by Goldman Sachs, its
affiliates or Goldman Sachs-advised clients may, individually or in the
aggregate, adversely impact the Fund. Transactions by one or more Goldman
Sachs-advised clients or the Investment Adviser may have the effect of diluting
or otherwise disadvantaging the values, prices or investment strategies of the
Fund. The Fund’s activities will, under certain circumstances, 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 and its
affiliates also provide 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 are expected to create markets or
specialize in, have positions in and/or effect transactions in, securities of
issuers held by the Fund, and will likely also perform or seek to perform
investment banking and financial services for one or more of those issuers.
Goldman Sachs and its affiliates are expected to have business relationships
with and purchase or distribute or sell services or products from or to
distributors, consultants or others who recommend the Fund or who engage in
transactions with or for the Fund. For more information about conflicts of
interest, see the section entitled “Potential Conflicts of Interest” in the
SAI.
56
Service
Providers
The Fund
will, from time to time, make brokerage and other payments to Goldman Sachs and
its affiliates in connection with the Fund’s portfolio investment transactions,
in accordance with applicable law. Under a securities lending program approved
by the Funds’ Board of Trustees, the High Yield and High Yield Floating Rate
Funds have retained an affiliate of the Investment Adviser to serve as a
securities lending agent for each such Fund to the extent that they engage in
the securities lending program. For these services, the lending agent is
entitled to receive a fee from the High Yield and High Yield Floating Rate
Funds, including a fee based on the returns earned on such Funds’ investment of
the cash received as collateral for the loaned securities. The Board of Trustees
periodically reviews reports on portfolio securities loan transactions for which
the affiliated lending agent has acted as lending agent.
57
Distributions
The Fund
pays distributions from its investment income and from net realized capital
gains. You may choose to have distributions paid in:
◼
Cash
◼
Additional
shares of the same class of the same Fund
◼
Shares of
the same or an equivalent class of another Goldman Sachs Fund. Special
restrictions may apply. See the SAI.
You may
indicate your election on your account application. Any changes may be submitted
in writing or via telephone, in some instances, to the Transfer Agent (either
directly or through your Intermediary) at any time before the record date for a
particular distribution. If you do not indicate any choice, your distributions
will be reinvested automatically in the applicable Fund. If cash
distributions are elected with respect to the Fund’s distributions from net
investment income, then cash distributions must also be elected with respect to
the net short-term capital gains component, if any, of the Fund’s
annual distributions.
The
election to reinvest distributions in additional shares will not affect the tax
treatment of such distributions, which will be treated as received by you and
then used to purchase the shares.
Distributions
from net investment income and distributions from net capital gains, if any, are
declared and paid as follows:
|
Fund |
Investment
Income
Dividends |
Capital
Gains
Distributions | |
|
Declared |
Paid |
Declared
and Paid | |
|
Emerging
Markets Debt |
Daily |
Monthly |
Annually |
|
High
Yield |
Daily |
Monthly |
Annually |
|
High
Yield Floating Rate |
Daily |
Monthly |
Annually |
|
Investment
Grade Credit |
Daily |
Monthly |
Annually |
|
Local
Emerging Markets Debt |
Daily |
Monthly |
Annually |
|
U.S.
Mortgages |
Daily |
Monthly |
Annually |
In addition
to the net investment income dividends normally declared daily and paid monthly,
a Fund may also earn additional net investment income throughout the year. Any
additional net investment income will be distributed annually as a declared
event and paid to shareholders of record for such events. In addition a Fund may
occasionally make a distribution at a time when it is not normally
made.
From time
to time a portion of the Fund’s distributions may constitute a return of capital
for tax purposes, and/or may include amounts in excess of the Fund’s net
investment income for the period calculated in accordance with generally
accepted accounting principles (“GAAP”).
When you
purchase shares of the Fund, part of the NAV per share may be represented by
undistributed income and/or realized gains that have previously been earned by
the Fund. Therefore, subsequent distributions on such shares from such income
and/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.
58
Shareholder
Guide
The
following section will provide you with answers to some of the most frequently
asked questions regarding buying and selling the Fund's shares.
|
Important
Notice: |
|
Class
P Shares generally are available to the following
investors: |
|
◼Clients
of the Goldman Sachs Private Wealth Management business unit (“GS PWM”)
that custody their positions at
Goldman
Sachs & Co. LLC (“Goldman Sachs”); |
|
◼Clients
of The Goldman Sachs Trust Company, N.A. or The Goldman Sachs Trust
Company of Delaware (collectively, the
“Trust
Companies”) that custody their positions at Goldman
Sachs; |
|
◼Clients
of The Ayco Company, L.P. (“Ayco”) that either custody their positions at
Goldman Sachs or with certain
intermediaries
that are authorized to offer Class P Shares (“Authorized Institutions”)
(such clients of GS PWM, the Trust
Companies,
and Ayco are collectively referred to herein as “GS Clients”);
or |
|
◼Other
investors at the discretion of Goldman Sachs Trust’s (the “Trust”)
officers. |
|
You
may only purchase Class P Shares in accordance with the eligibility
criteria described above. If you are a GS Client and
propose
to transfer your shares to another institution for any reason, or if you
are no longer a GS Client, you may be required to
redeem
your shares of the Fund, or at the discretion of the Trust’s officers, you
may be able hold Class P Shares through another
institution,
which must be an Authorized Institution and the basis on which you hold
such Class P Shares may be limited to hold
and
redeem only. If available in such circumstances, in the alternative you
may be able to choose to exchange your shares of the
Fund
for a different share class offered by the Fund or another Goldman Sachs
Fund, which may be offered in another
Prospectus.
There is no guarantee that a different share class offered by the Fund
will be available to clients of the institution to
which
you intend to transfer your shares or that an option to exchange will be
made available. Moreover, the shares you receive
in
any exchange are subject to different (and possibly higher) fees and
expenses (which affect performance). Information
regarding
these other share classes may be obtained from the institution to which
you intend to transfer your shares or from the
Transfer
Agent by calling the number on the back cover of the
Prospectus. |
|
A
redemption is a taxable transaction for federal income tax purposes, and
may also be subject to state and local taxes. You
should
consult your tax adviser concerning the potential tax consequences of
investing in Class P Shares. None of the Trust, the
Investment
Adviser, Goldman Sachs, the Trust Companies, Ayco or an Authorized
Institution will be responsible for any loss in
an
investor’s account or tax liability resulting from a redemption or
exchange of Class P Shares. For more information about
exchanges,
please see “How to Sell Shares—Can I Exchange My Investment From One
Goldman Sachs Fund To Another
Goldman
Sachs Fund.” |
|
How
To Buy Shares |
Shares
Offering
Shares of
the Fund are continuously offered through Goldman Sachs, acting in its capacity
as the Fund’s distributor (the “Distributor”). The Fund and the Distributor will
have the sole right to accept orders to purchase shares and reserve the right to
reject any purchase order in whole or in part.
How Can I Purchase
Shares Of The Fund?
If you are
a GS Client, you may purchase shares of the Fund through Goldman Sachs, the
Trust Companies, Ayco, or an
Authorized
Institution. Goldman Sachs, the Trust Companies, Ayco, and Authorized
Institutions have been authorized by the Trust to accept purchase, redemption or
exchange orders on behalf of the Fund for GS Clients. In order to make an
initial investment in the Fund you must furnish to Goldman Sachs, the Trust
Companies, Ayco or your Authorized Institution the information in the account
application.
To open an
account, contact Goldman Sachs, the Trust Companies, Ayco or your Authorized
Institution. Goldman Sachs, the Trust Companies, Ayco, and Authorized
Institutions will normally give order instructions on behalf of GS Clients to
Goldman Sachs, acting in its capacity as the Fund’s transfer agent (the
“Transfer Agent”). Goldman Sachs, the Trust Companies, Ayco, or your Authorized
Institution, as applicable, is responsible for transmitting accepted orders and
payments to the Transfer Agent within the time period agreed upon by them and
will set times by which orders and payments must be received by them from GS
Clients. The Trust, Transfer Agent, Investment Adviser and their affiliates will
not be responsible for any loss in connection with orders that are not
transmitted to the Transfer Agent on a timely basis.
59
The Fund
will be deemed to have received an order for purchase, redemption or exchange of
Fund shares when the order is accepted in “proper form” by any of the Transfer
Agent, Goldman Sachs, the Trust Companies, Ayco or an Authorized Institution, as
applicable, on a business day, and the order will be priced at the Fund’s
current NAV per share next determined after acceptance by any of the Transfer
Agent, Goldman Sachs, the Trust Companies, Ayco or an Authorized Institution, as
applicable. Proper form generally means that specific trade details and customer
identifying information must be received by the Transfer Agent at the time an
order is submitted. Goldman Sachs, the Trust Companies, Ayco and Authorized
Institutions may have different requirements regarding what constitutes proper
form for trade instructions. Please contact Goldman Sachs, the Trust Companies,
Ayco or your Authorized Institution for more information.
What Is My Minimum
Investment In The Fund?
No minimum
amount is required for initial purchases or additional investments in Class P
Shares.
What Should I Know
When I Purchase Shares?
All
recordkeeping, transaction processing and payments of distributions relating to
your account will be performed by Goldman Sachs, the Trust Companies, Ayco, or
your Authorized Institution, as applicable, and not by the Fund and its Transfer
Agent. Since the Fund will have no record of your transactions, you should
contact Goldman Sachs, the Trust Companies, Ayco, or your Authorized
Institution, as applicable, to purchase, redeem or exchange shares, to make
changes in or give instructions concerning your account or to obtain information
about your account. If you transfer your shares, the Trust reserves the right to
redeem your shares. The Trust, the Investment Adviser, Goldman Sachs, the Trust
Companies, Ayco and an Authorized Institution will not be responsible for any
loss in an investor’s account or tax liability resulting from a
redemption.
Goldman
Sachs, the Trust Companies, Ayco, and Authorized Institutions that invest in
shares on behalf of GS Clients may charge fees directly to the GS Clients’
accounts in connection with their investments. You should contact Goldman Sachs,
the Trust Companies, Ayco, or your Authorized Institution for information
regarding such charges, as these fees, if any, may affect the return that GS
Clients realize with respect to their investments.
The
Investment Adviser, Distributor and/or their affiliates may make payments or
provide services to Authorized Institutions to promote the sale, distribution
and/or servicing of shares of the Fund and other Goldman Sachs Funds. These
payments are made out of the Investment Adviser’s, Distributor’s and/or their
affiliates’ own assets, and are not an additional charge to the Fund. Such
payments are intended to compensate Authorized Institutions for, among other
things: marketing shares of the Fund and other Goldman Sachs Funds, which may
consist of payments relating to the Fund’s inclusion on preferred or recommended
fund lists or in certain sales programs sponsored by Authorized Institutions;
access to Authorized Institutions’ registered representatives, advisors or
salespersons, including at conferences and other meetings; assistance in
training and education of personnel; marketing support; the provision of
analytical or other data to the Investment Adviser or its affiliates relating to
sales of shares of the Fund and other Goldman Sachs Funds; the support or
purchase of technology platforms/software; and/or other specified services
intended to assist in the distribution and marketing of the Fund and other
Goldman Sachs Funds, including provision of consultative services to the
Investment Adviser or its affiliates relating to marketing and/or sale of shares
of the Fund and other Goldman Sachs Funds. The payments may also, to the extent
permitted by applicable regulations, sponsor various trainings and educational
programs. The payments by the Investment Adviser, Distributor and/or their
affiliates, which are in addition to the fees paid for these services by the
Fund, may also compensate Authorized Institutions for subaccounting,
sub-transfer agency, administrative and/or shareholder processing services.
These additional payments may exceed amounts earned on these assets by the
Investment Adviser, Distributor and/or their affiliates for the performance of
these or similar services. The amount of these additional payments is normally
not expected to exceed 0.50% (annualized) of the amount sold or invested through
Authorized Institutions. In addition, certain Authorized Institutions may have
access to certain services from the Investment Adviser, Distributor and/or their
affiliates, including research reports, economic analysis, and portfolio
analysis, portfolio construction and similar tools and software. In certain
cases, Authorized Institutions may not pay for these products or services or may
only pay for a portion of the total cost of these products or services. Please
refer to the “Payments to Others (Including Intermediaries)” section of the SAI
for more information about these payments and services.
The
payments made by the Investment Adviser, Distributor and/or their affiliates and
the services provided by each of Goldman Sachs, the Trust Companies, Ayco, or an
Authorized Institution may differ. The presence of these payments, receipt of
these services and the basis on which Goldman Sachs, the Trust Companies, Ayco,
or an Authorized Institution compensates its registered representatives,
advisors or salespersons may create an incentive for a particular registered
representative, advisor or salesperson to highlight, feature or recommend funds
based, at least in part, on the level of compensation paid. You should contact
Goldman Sachs, the Trust Companies, Ayco, or your Authorized Institution for
more information about the payments it receives and any potential conflicts of
interest.
60
Shareholder
Guide
What Else Should I
Know About Share Purchases?
The Trust
reserves the right to:
◼
Require
Goldman Sachs, the Trust Companies, Ayco, or an Authorized Institution to refuse
to open an account if you fail to (i) provide a taxpayer identification number,
a Social Security Number or other government-issued identification
(e.g., for an
individual, a driver’s license or passport) or (ii) certify that such number or
other information is correct (if required to do so under applicable
law).
◼
Reject or
restrict any purchase or exchange order by a particular purchaser (or group of
related purchasers) 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 shares of the Fund is evident, or if purchases,
sales or exchanges are, or a subsequent redemption might be, of a size that
would disrupt the management of the Fund.
◼
Close the
Fund to new investors from time to time and reopen any such Fund whenever it is
deemed appropriate by the Investment Adviser.
◼
Provide
for, modify or waive the minimum investment requirements.
◼
Modify the
manner in which shares are offered.
◼
Modify the
sales charge rate applicable to future purchases of shares.
Shares of
the Fund are only registered for sale in the United States and certain of its
territories. Generally, shares of the Fund will only be offered or sold to “U.S.
persons” and all offerings or other solicitation activities will be conducted
within the United States, in accordance with the rules and regulations of the
Securities Act of 1933, as amended (“Securities Act”).
The Fund
may allow you to purchase shares through Goldman Sachs, the Trust Companies,
Ayco or an Authorized Institution with securities instead of cash if consistent
with the Fund’s investment policies and operations and approved by the
Investment Adviser.
Notwithstanding
the foregoing, the Trust, Goldman Sachs, the Trust Companies, Ayco and any
Authorized Institution reserve the right to reject or restrict purchase or
exchange requests from any investor. The Trust, Goldman Sachs, the Trust
Companies and Ayco will not be liable for any loss resulting from rejected
purchase or exchange orders.
Please be
advised that abandoned or unclaimed property laws for certain states (to which
your account may be subject) require financial organizations to transfer
(escheat) unclaimed property (including shares of the Fund) to the appropriate
state if no activity occurs in an account for a period of time specified by
state law. For IRA accounts escheated to a state under these abandoned property
laws, the escheatment will generally be treated as a taxable distribution to
you; federal and any applicable state income tax will be withheld. This may
apply to your Roth IRA as well.
Customer
Identification Program. Federal law
requires the Fund to obtain, verify and record identifying information for
certain investors, which will be reviewed solely for customer identification
purposes, 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 information, for each investor who opens an
account directly with the Fund. Applications without the required information
may not be accepted by the Fund. Throughout the life of your account, the Fund
may request updated identifying information in accordance with their Customer
Identification Program. After accepting an application, to the extent permitted
by applicable law or their Customer Identification Program, the Fund 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 Fund; or (iii)
involuntarily redeem an investor’s shares and close an account in the event that
the Fund are unable to verify an investor’s identity or are unable to obtain all
required information. The Fund and their agents will not be responsible for any
loss or tax liability in an investor’s account resulting from the investor’s
delay in providing all required information or from closing an account and
redeeming an investor’s shares pursuant to their Customer Identification
Program.
How Are Shares
Priced?
The price
you pay when you buy shares is the Fund’s next-determined NAV per share
after
any of the
Transfer Agent, Goldman Sachs, the Trust Companies, Ayco or an Authorized
Institution, as applicable, has received and accepted your order in proper form.
The price you receive when you sell shares is the Fund’s next-determined NAV per
share after
any of the
Transfer Agent, Goldman Sachs, the Trust Companies, Ayco or an Authorized
Institution, as applicable, has received and accepted your order in proper form
with the redemption proceeds reduced by any applicable charges. Each class
generally calculates its NAV as follows:
|
NAV
= |
(Value
of Assets of the Class)
–
(Liabilities of the Class) |
|
|
Number
of Outstanding Shares of the
Class |
The Fund’s
investments for which market quotations are readily available are valued at
market value on the basis of quotations provided by pricing services or
securities dealers. If accurate quotations are not readily available, if the
Fund’s fund accounting agent is unable for other reasons to facilitate pricing
of individual securities or calculate the Fund’s NAV, or if the Investment
Adviser believes that such quotations do not accurately reflect fair value, the
fair value of the Fund’s investments may be determined in good faith under
61
valuation
procedures established by the Board of Trustees. Thus, such pricing may be based
on subjective judgments and it is possible that the prices resulting from such
valuation procedures may differ materially from the value realized on a sale.
Cases where there is no clear indication of the value of the Fund’s investments
include, among others, situations where a security or other asset or liability
does not have a price source or a price is unavailable.
Equity
securities listed on an exchange are generally valued at the last available sale
price on the exchange on which they are principally traded. To the extent the
Fund invests in foreign equity securities, “fair value” prices will be provided
by an independent third-party pricing (fair value) service in accordance with
the fair value procedures approved by the Board of Trustees. Fair value prices
are used because many foreign markets operate at times that do not coincide with
those of the major U.S. markets. Events that could affect the values of foreign
portfolio holdings may occur between the close of the foreign market and the
time of determining the NAV, and would not otherwise be reflected in the
NAV.
Fixed
income securities are generally valued on the basis of prices (including
evaluated prices) and quotations provided by pricing services or securities
dealers. Pricing services may use matrix pricing or valuation models, which
utilize certain inputs and assumptions, including, but not limited to, yield or
price with respect to comparable fixed income securities, to determine current
value. Pricing services generally value fixed income securities assuming orderly
transactions of an institutional round lot size, but the Fund may hold or
transact in such securities in smaller odd lot sizes. Odd lots may trade at
lower prices than institutional round lots.
Investments
in other open-end registered investment companies (if any), excluding
investments in ETFs, are valued based on the NAV of those open-end registered
investment companies (which may use fair value pricing as discussed in their
prospectuses). Investments in ETFs will generally be valued at the last sale
price or official closing price on the exchange on which they are principally
traded.
In
addition, the Investment Adviser, consistent with its procedures and applicable
regulatory guidance, may (but need not) determine to make an adjustment to the
previous closing prices of either domestic or foreign securities in light of
significant events, to reflect what it believes to be the fair value of the
securities at the time of determining the Fund’s NAV. Significant events that
could affect a large number of securities in a particular market may include,
but are not limited to: situations relating to one or more single issuers in a
market sector; significant fluctuations in U.S. or foreign markets; market
dislocations; market disruptions or unscheduled market closings; equipment
failures; natural or man made disasters or acts of God; armed conflicts;
governmental actions or other developments; as well as the same or similar
events which may affect specific issuers or the securities markets even though
not tied directly to the securities markets. Other significant events that could
relate to a single issuer may include, but are not limited to: corporate actions
such as reorganizations, mergers and buy-outs; corporate announcements,
including those relating to earnings, products and regulatory news; significant
litigation; ratings downgrades; bankruptcies; and trading limits or
suspensions.
One effect
of using an independent third-party pricing (fair value) service and fair
valuation may be to reduce stale pricing arbitrage opportunities presented by
the pricing of Fund shares. However, it involves the risk that the values used
by the Fund to price its investments may be different from those used by other
investment companies and investors to price the same investments.
Please note
the following with respect to the price at which your transactions are
processed:
◼
NAV per
share of each share class is generally calculated by the Fund’s fund accounting
agent on each business day as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) or such other times 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. Fund shares
will generally not be priced on any day the New York Stock Exchange is closed,
although Fund shares may be priced on such days if the Securities Industry and
Financial Markets Association (“SIFMA”) recommends that the bond markets remain
open for all or part of the day.
◼
On any
business day when the SIFMA recommends that the bond markets close early, the
Fund reserves the right to close at or prior to the SIFMA recommended closing
time. If the 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 on the next business day.
◼
The Trust
reserves the right to reprocess purchase (including dividend reinvestments),
redemption and exchange transactions that were processed at a NAV that is
subsequently adjusted, and to recover amounts from (or distribute amounts to)
shareholders accordingly based on the official closing NAV, as
adjusted.
◼
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.
Consistent
with industry practice, investment transactions not settling on the same day are
recorded and factored into the Fund’s NAV on the business day following trade
date (T+1). The use of T+1 accounting generally does not, but may, result in a
NAV that differs materially from the NAV that would result if all transactions
were reflected on their trade dates.
62
Shareholder
Guide
Note:
The time at which transactions and shares are priced and the time by which
orders must be received may be changed in case of an emergency or if regular
trading on the New York Stock Exchange and/or the bond markets is stopped at a
time other than their regularly scheduled closing time. In the event the New
York Stock Exchange and/or the bond markets do not open for business, 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 the Fund is open for business during this situation, please call
the appropriate phone number located on the back cover of the
Prospectus.
Foreign
securities may trade in their local markets on days the Fund is closed. As a
result, if the Fund holds foreign securities, its NAV may be impacted on days
when investors may not purchase or redeem Fund shares.
The Fund
relies on various sources to calculate its NAV. The ability of the Fund’s fund
accounting agent to calculate the NAV per share of each share class of the Fund
is subject to operational risks associated with processing or human errors,
systems or technology failures, cyber attacks and errors caused by third party
service providers, data sources, or trading counterparties. Such failures may
result in delays in the calculation of the Fund’s NAV and/or the inability to
calculate NAV over extended time periods. The Fund may be unable to recover any
losses associated with such failures. In addition, if the third party service
providers and/or data sources upon which the Fund directly or indirectly relies
to calculate its NAV or price individual securities are unavailable or otherwise
unable to calculate the NAV correctly, it may be necessary for alternative
procedures to be utilized to price the securities at the time of determining the
Fund’s NAV.
When Will Shares Be
Issued And Dividends Begin To Be Accrued?
Net
investment income dividends that are declared daily and paid monthly will begin
to be accrued as follows:
◼
Shares
Purchased by Federal Funds Wire:
◼
If a
purchase order is received in proper form before the Fund closes, shares will
generally be issued and dividends will generally begin to accrue on the
purchased shares on the later of (i) the business day after payment is received,
or (ii) the day that the federal funds wire is received by The Northern Trust
Company. Failure to provide payment on settlement date may result in a delay in
accrual.
◼
If a
purchase order is placed through an intermediary that settles through the
National Securities Clearing Corporation (the “NSCC”), the purchase order will
begin accruing dividends on the NSCC settlement date.
◼
Shares
Purchased by Check:
◼
If a
purchase order is received in proper form before the Fund closes, shares will
generally be issued and dividends will generally begin to accrue on the
purchased shares no later than two business days after payment is
received.
◼
Other
dividends or distributions will be distributed annually as a declared event and
paid to shareholders of record on the record date for such
events.
|
How
To Sell Shares |
How Can I Sell Shares
Of The Fund?
Generally,
shares may be sold (redeemed) only through Goldman Sachs, the Trust Companies,
Ayco, or an Authorized Institution. Goldman Sachs, the Trust Companies, Ayco and
Authorized Institutions will normally give redemption instructions on behalf of
GS Clients to the Transfer Agent. On any business day the Fund is open, the Fund
will generally redeem its shares upon request at their next-determined NAV per
share after any of the Transfer Agent, Goldman Sachs, the Trust Companies, Ayco
or an Authorized Institution, as applicable, has received and accepted a
redemption order in proper form, as described under “How To Buy Shares—How Can I
Purchase Shares Of The Fund?” above. Redemptions may be requested by electronic
trading platform, in writing or by telephone (unless Goldman Sachs, the Trust
Companies, Ayco, or an Authorized Institution opts out of the telephone
redemption privilege on the account application). You should contact Goldman
Sachs, the Trust Companies, Ayco or your Authorized Institution, to discuss
redemptions and redemption proceeds. The Fund may transfer redemption proceeds
to an account with Goldman Sachs, the Trust Companies, Ayco, or your Authorized
Institution. In the alternative, Goldman Sachs, the Trust Companies, Ayco, or
your Authorized Institution may request that redemption proceeds be sent to you
by check or wire (if the wire instructions are designated in the current records
of the Transfer Agent).
When Do I Need A
Medallion Signature Guarantee To Redeem Shares?
Generally,
a redemption request must be in writing and signed by an authorized person with
a Medallion signature guarantee if:
◼
You would
like the redemption proceeds sent to an address that is not your address of
record; or
◼
You would
like the redemption proceeds sent to a domestic bank account that is not
designated in the current records of the Transfer Agent.
63
A Medallion
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 Medallion signature guarantee. The written request may be confirmed by
telephone with both the requesting party and the designated Authorized
Institution to verify instructions. Additional documentation may be
required.
What Do I Need To
Know About Telephone Redemption Requests?
The Trust
and Goldman Sachs will not be liable for any loss or tax liability you may incur
in the event that the Trust accepts unauthorized telephone redemption requests
that the Trust reasonably believes to be genuine. The Trust may accept telephone
redemption instructions from any person identifying himself or herself as the
owner of an account or the owner’s registered representative where the owner has
not declined in writing to use this service. Goldman Sachs, the Trust Companies,
Ayco, or your Authorized Institution may submit redemption requests by telephone
on your behalf. Thus, you risk possible losses if a telephone redemption is not
authorized by you.
In an
effort to prevent unauthorized or fraudulent redemption and exchange requests by
telephone, the Transfer Agent and DST Asset Manager Solutions, Inc. (“DST”) each
employ reasonable procedures specified by the Trust to confirm that such
instructions are genuine. The following general policies are currently in
effect:
◼
Telephone
requests are recorded.
◼
Proceeds of
telephone redemption requests will be sent to your address of record or
authorized account designated in the current records of the Transfer Agent
(unless you provide written instructions and a Medallion signature guarantee
indicating another address or account).
◼
For the
30-day period following a change of address, telephone redemptions will only be
filled by a wire transfer to the authorized account designated in the current
records of the Transfer Agent (see immediately preceding bullet point). In order
to receive the redemption by check during this time period, the redemption
request must be in the form of a written, Medallion signature guaranteed
letter.
◼
The
telephone redemption option does not apply to shares held in an account
maintained and serviced by your Authorized Institution. If your shares are held
in an account with an Authorized Institution, you should contact your registered
representative of record, who may make telephone redemptions on your
behalf.
◼
The
telephone redemption option may be modified or terminated at any time without
prior notice.
Note:
It may be difficult to make telephone redemptions in times of unusual economic
or market conditions.
How Are Redemption
Proceeds Paid?
By
Wire: You may
arrange for your redemption proceeds to be paid as federal funds to an account
with Goldman Sachs, the Trust Companies, Ayco, or your Authorized Institution or
to a domestic bank account designated in the current records of the Transfer
Agent. In addition, redemption proceeds may be transmitted through an electronic
trading platform to an account with Goldman Sachs, the Trust Companies, Ayco, or
your Authorized Institution. The following general policies govern wiring
redemption proceeds:
◼
Redemption
proceeds will normally be paid in federal funds, between one and two business
days (or such other times in accordance with the requirements of Goldman Sachs,
the Trust Companies, Ayco, or your Authorized Institution) following receipt of
a properly executed wire transfer redemption request. In certain circumstances,
however (such as unusual market conditions or in cases of very large redemptions
or excessive trading), it may take up to seven days to pay redemption
proceeds.
◼
Redemption
requests may only be postponed or suspended for longer than seven days as
permitted under Section 22(e) of the Investment Company Act of 1940 (the
“Investment Company Act”) if (i) the New York Stock Exchange is closed for
trading or trading is restricted; (ii) an emergency exists which makes the
disposal of securities owned by the Fund or the fair determination of the value
of the Fund’s net assets not reasonably practicable; or (iii) the SEC, by order
or regulation, permits the suspension of the right of
redemption.
◼
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 until the
Federal Reserve Bank reopens.
◼
To change
the bank wiring instructions designated in the current records of the Transfer
Agent, you must send written instructions signed by an authorized person
designated in the current records of the Transfer Agent. A Medallion signature
guarantee may be required if you are requesting a redemption in conjunction with
the change.
◼
None of the
Trust, the Investment Adviser or the Transfer Agent assumes any responsibility
for the performance of your bank, Goldman Sachs, the Trust Companies, Ayco, or
Authorized Institution in the transfer process. If a problem with such
performance arises, you should deal directly with your bank, Goldman Sachs, the
Trust Companies, Ayco, or Authorized Institution.
64
Shareholder
Guide
By
Check: You may
elect to receive your redemption proceeds by check. Redemption proceeds paid by
check will normally be mailed to the address of record within two business days
(or such other times in accordance with the requirements of your Authorized
Institution) following receipt of a properly executed redemption request, except
in certain circumstances (such as those set forth above with respect to wire
transfer redemption requests). 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 Do I Need To
Know About Redemptions?
The
following generally applies to redemption requests:
◼
Shares of
the Fund continue to earn dividends up to, but not including, the date of
settlement.
◼
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.
◼
Goldman
Sachs, the Trust Companies, Ayco and Authorized Institutions are responsible for
the timely transmittal of redemption requests by GS Clients to the Transfer
Agent. In order to facilitate the timely transmittal of redemption requests,
Goldman Sachs, the Trust Companies, Ayco and Authorized Institutions may set
times by which they must receive redemption requests. Goldman Sachs, the Trust
Companies, Ayco or Authorized Institutions may also require additional
documentation from you.
◼
As
disclosed above, if you are a GS Client and propose to transfer your shares to
another institution for any reason, you may be required to either redeem your
shares of the Fund or if available, you may be able to choose to exchange your
shares of the Fund for a different share class offered by the Fund, which may be
offered in another Prospectus.
The Trust
reserves the right to:
◼
Redeem your
shares in the event any of Goldman Sachs, the Trust Companies, Ayco or your
Authorized Institution is no longer authorized to offer Class P
Shares.
◼
Redeem your
shares in the case of actual or suspected threatening conduct or actual or
suspected fraudulent, suspicious or illegal activity by you or any other
individual associated with your account.
◼
Subject to
applicable law, redeem your shares in other circumstances determined by the
Board of Trustees to be in the best interest of the Trust.
◼
Pay
redemptions by a distribution in-kind of securities (instead of cash). If you
receive redemption proceeds in-kind, you should expect to incur transaction
costs upon the disposition of those securities. In addition, if you receive
redemption proceeds in-kind, you will be subject to market gains or losses upon
the disposition of those securities.
◼
Reinvest
any amounts (e.g., dividends, distributions or redemption proceeds) which you
have elected to receive by check should your check remain uncashed for more than
180 days. No interest will accrue on amounts represented by uncashed checks.
Your check will be reinvested in your account at the NAV on the day of the
reinvestment. When reinvested, those amounts are subject to the risk of loss
like any Fund investment. If you elect to receive distributions in cash and a
check remains uncashed for more than 180 days, your cash election may be changed
automatically to reinvest and your future dividend and capital gains
distributions will be reinvested in the Fund at the NAV as of the date of
payment of the distribution. This provision may not apply to certain retirement
or qualified accounts, accounts with a non-U.S. address or closed accounts. Your
participation in a systematic withdrawal program may be terminated if a check
remains uncashed.
◼
Charge an
additional fee in the event a redemption is made via wire
transfer.
◼
Terminate
your account if you are no longer a GS Client, or otherwise no longer eligible
to invest in Class P Shares of the Fund.
The Fund
typically expects to meet redemption requests by using holdings of cash or cash
equivalents and/or proceeds from the sale of portfolio holdings. In addition,
under stressed market conditions, as well as for other temporary or emergency
purposes, the Fund may distribute redemption proceeds in-kind (instead of cash),
access a line of credit or overdraft facility, or borrow through other sources
to meet redemption requests.
None of the
Trust, the Investment Adviser, Goldman Sachs, the Trust Companies, Ayco or an
Authorized Institution will be responsible for any loss in an investor’s account
or tax liability resulting from an involuntary redemption.
Can I Exchange My
Investment From One Goldman Sachs Fund To Another Goldman Sachs
Fund?
You may
exchange your shares at NAV at the time of exchange for Class P Shares of
another Goldman Sachs Fund. The exchange privilege may be materially modified or
withdrawn at any time upon 60 days’ written notice. You should contact Goldman
Sachs, the Trust Companies, Ayco or your Authorized Institution to arrange for
the exchange of your shares for Class P Shares of another Goldman Sachs Fund. If
you propose to transfer your Class P Shares to another institution for any
reason, you may be required to either redeem your shares of the Fund or if
available, you may be able to choose to exchange your shares of the Fund for a
different share class offered by the Fund or another Goldman Sachs Fund, which
may be offered in another Prospectus. For more information, please see “How to
Sell Shares—What Else Do I Need to Know About Redemptions?” The shares you
receive in any exchange are subject to different (and possibly higher) fees and
expenses (which affect performance).
65
You should
keep in mind the following factors when making or considering an
exchange:
◼
You should
obtain and carefully read the prospectus of the Goldman Sachs Fund you are
acquiring before making an exchange. You should be aware that not all Goldman
Sachs Funds may offer all share classes.
◼
Currently,
the Fund does not impose any charge for exchanges, although the Fund may impose
a charge in the future.
◼
All
exchanges which represent an initial investment in a Goldman Sachs Fund must
satisfy the minimum initial investment requirement of that Fund. This
requirement may be waived at the discretion of the Trust. Exchanges into a
Goldman Sachs Fund need not meet the traditional minimum investment requirement
for that Fund if the entire balance of the original Fund account is
exchanged.
◼
Exchanges
are available only in states where exchanges may be legally
made.
◼
It may be
difficult to make telephone exchanges in times of unusual economic or market
conditions.
◼
The
Transfer Agent and DST may use reasonable procedures described above in “How To
Sell Shares—What Do I Need To Know About Telephone Redemption Requests?” in an
effort to prevent unauthorized or fraudulent telephone exchange
requests.
◼
Normally, a
telephone exchange will be made only to an identically registered
account.
◼
Exchanges
into Goldman Sachs Funds or certain share classes of Goldman Sachs Funds that
are closed to new investors may be restricted.
◼
Exchanges
into the Fund from another Goldman Sachs Fund received by the close of regular
trading on the New York Stock Exchange will normally begin to accrue dividends
on the next business day.
For federal
income tax purposes, an exchange from one Goldman Sachs 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.
|
Shareholder
Services |
Can My Distributions
From The Fund Be Invested In Other Goldman Sachs Funds?
You may
elect to cross-reinvest distributions paid by a Goldman Sachs Fund in shares of
the same class of other Goldman Sachs Funds.
◼
Shares will
be purchased at NAV.
◼
You may
elect cross-reinvestment into an identically registered account or a similarly
registered account provided that at least one name on the account is registered
identically.
◼
You cannot
make cross-reinvestments into a Goldman Sachs Fund unless that Fund’s minimum
initial investment requirement is met.
◼
You should
obtain and read the prospectus of the Goldman Sachs Fund into which
distributions are invested.
What Types Of Reports
Will I Be Sent Regarding My Investment?
Each of
Goldman Sachs, the Trust Companies, Ayco or an Authorized Institution is
responsible for providing any communication from the Fund to shareholders,
including but not limited to, prospectuses, prospectus supplements, proxy
materials and notices regarding the source of dividend payments under Section 19
of the Investment Company Act. They may charge additional fees not described in
the Prospectus to GS Clients for such services.
Goldman
Sachs, the Trust Companies, Ayco or an Authorized Institution will provide you
with a printed confirmation of each transaction in your account and a monthly
account statement.
You will
also receive an annual shareholder report containing audited financial
statements and a semi-annual shareholder report. If you have consented to the
delivery of a single copy of shareholder reports, prospectuses and other
information to all shareholders who share the same mailing address with your
account, you may revoke your consent at any time by contacting Goldman Sachs,
the Trust Companies, Ayco or your Authorized Institution. The Fund will begin
sending individual copies to you within 30 days after receipt of your
revocation.
|
Restrictions
on Excessive Trading
Practices |
Policies
and Procedures on Excessive Trading Practices. In
accordance with the policy adopted by the Board of Trustees, the Trust
discourages frequent purchases and redemptions of Fund shares and does not
permit market timing or other excessive trading practices. Purchases and
exchanges should be made with a view to longer-term investment purposes only
that are consistent with the investment policies and practices of the respective
Fund. Excessive, short-term (market timing) trading practices may disrupt
portfolio management strategies, increase brokerage and administrative costs,
harm Fund performance and result in dilution in the value of Fund shares held by
longer-term shareholders. The Trust and Goldman Sachs reserve the right to
reject or restrict purchase or exchange requests from any investor. The Trust
and Goldman Sachs will not be liable for any loss resulting from rejected
purchase or exchange
66
Shareholder
Guide
orders. To
minimize harm to the Trust and its shareholders (or Goldman Sachs), the Trust
(or Goldman Sachs) will exercise this right 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 the Fund. In making this judgment, trades executed in
multiple accounts under common ownership or control may be considered together
to the extent they can be identified. No waivers of the provisions of the policy
established to detect and deter market timing and other excessive trading
activity are permitted that would harm the Trust or its shareholders or would
subordinate the interests of the Trust or its shareholders to those of Goldman
Sachs or any affiliated person or associated person of Goldman
Sachs.
As a
deterrent to excessive trading, many foreign equity securities held by the
Goldman Sachs Funds are priced by an independent pricing service using fair
valuation. For more information on fair valuation, please see “How To Buy
Shares—How Are Shares Priced?”
Pursuant to
the policy adopted by the Board of Trustees of the Trust, Goldman Sachs has
developed criteria that it uses to identify trading activity that may be
excessive. Excessive trading activity in the Fund is measured by the number of
“round trip” transactions in a shareholder’s account. A “round trip” includes a
purchase or exchange into the Fund followed or preceded by a redemption or
exchange out of the same Fund. If the Fund detects that a shareholder has
completed two or more round trip transactions in a single Fund within a rolling
90-day period, the Fund may reject or restrict subsequent purchase or exchange
orders by that shareholder permanently. In addition, the Fund may, in its sole
discretion, permanently reject or restrict purchase or exchange orders by a
shareholder if the Fund detects other trading activity that is deemed to be
disruptive to the management of the Fund or otherwise harmful to the Fund. For
purposes of these transaction surveillance procedures, the Fund may consider
trading activity in multiple accounts under common ownership, control, or
influence. A shareholder that has been restricted from participation in the Fund
pursuant to this policy will be allowed to apply for re-entry after one year. A
shareholder applying for re-entry must provide assurances acceptable to the Fund
that the shareholder will not engage in excessive trading activities in the
future.
Goldman
Sachs may modify its surveillance procedures and criteria from time to time
without prior notice regarding the detection of excessive trading or to address
specific circumstances. Goldman Sachs will apply the criteria in a manner that,
in Goldman Sachs’ judgment, will be uniform.
Fund shares
may be held through omnibus arrangements maintained by Goldman Sachs, the Trust
Companies, Ayco or Authorized Institutions. Omnibus accounts include multiple
investors and such accounts typically provide the Fund with a net purchase or
redemption request on any given day where the purchases and redemptions of Fund
shares by the investors are netted against one another. The identity of
individual investors whose purchase and redemption orders are aggregated are
ordinarily not tracked by the Fund on a regular basis. Goldman Sachs, the Trust
Companies, Ayco or an Authorized Institution may not have the capability or may
not be willing to apply the Fund’s market timing policies. While Goldman Sachs,
the Trust Companies and Ayco may monitor share turnover at the omnibus account
level, the Fund’s ability to monitor and detect market timing by shareholders in
these omnibus accounts may be limited in certain circumstances, and certain
Authorized Institutions may charge the Fund a fee for providing certain
shareholder financial information requested as part of the Fund’s surveillance
process. The netting effect makes it more difficult to identify, locate and
eliminate market timing activities. In addition, those investors who engage in
market timing and other excessive trading activities may employ a variety of
techniques to avoid detection. There can be no assurance that the Fund, Goldman
Sachs, the Trust Companies and Ayco will be able to identify all those who trade
excessively or employ a market timing strategy, and curtail their trading in
every instance. If necessary, the Trust may prohibit additional purchases of
Fund shares by an Authorized Institution or by certain clients of the Authorized
Institution. Authorized Institutions may also monitor trading activities by
their clients in the Fund. The criteria used by Authorized Institutions to
monitor for excessive trading may differ from the criteria used by the Fund. If
an Authorized Institution fails to cooperate in the implementation or
enforcement of the Trust’s excessive trading policies, the Trust may take
certain actions including terminating the relationship.
67
Taxation
As with any
investment, you should consider how your investment in the Fund will be taxed.
The tax information below is provided as general information. More tax
information is available in the SAI. You should consult your tax adviser about
the federal, state, local or foreign tax consequences of your investment in the
Fund. Except as otherwise noted, the tax information provided assumes that you
are a U.S. citizen or resident.
Unless your
investment is through an IRA or other tax-advantaged account, you should
carefully consider the possible tax consequences of Fund distributions and
the sale of your Fund shares.
|
DISTRIBUTIONS |
The 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 taxable
to you as ordinary income, while distributions of long-term capital gains
are taxable to you as long-term capital gains, no matter how long you have owned
your Fund shares.
Under
current provisions of the Code, the maximum individual rate applicable to
long-term capital gains is generally either 15% or 20%, depending on whether the
individual's income exceeds certain threshold amounts. The preferential rate
described above also applies to certain qualifying dividend income, but Fund
distributions will generally not qualify for that favorable treatment and also
will generally not qualify for the corporate dividends received deduction
because the Funds will be earning interest income rather than dividend
income.
An
additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital gain distributions received from the
Fund and net gains from redemptions or other taxable dispositions of Fund
shares) of U.S. individuals, estates and trusts to the extent that such person’s
“modified adjusted gross income” (in the case of an individual) or “adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
The Fund’s
transactions in derivatives (such as futures contracts and swaps) will be
subject to special tax rules, the effect of which may be to accelerate income to
the Fund, defer losses to the Fund, cause adjustments in the holding periods of
the Fund’s securities and convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing and
character of distributions to you. The Fund’s use of derivatives may result in
the Fund realizing more short-term capital gains and ordinary income subject to
tax at ordinary income tax rates than it would if it did not use
derivatives.
Although
distributions are generally treated as taxable to you in the year they are paid,
distributions declared in October, November or December but paid in January are
taxable as if they were paid in December. The character and tax status of all
distributions will be available to shareholders after the close of each calendar
year.
The Fund
may be subject to foreign withholding or other foreign taxes on income or gain
from certain foreign securities. In general, the Fund may deduct these taxes in
computing its taxable income. Shareholders of the Emerging Markets Debt and
Local Emerging Markets Debt Funds may, subject to certain limitations, be
entitled to claim a credit or a deduction with respect to foreign taxes if the
Fund is eligible to and elects to pass through these taxes to you. If the Fund
make such an election the shareholders would also be required to include in
their income their proportionate share of the foreign taxes covered by the
election.
If you buy
shares of the 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 into 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 capital 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 the Fund may be disallowed under “wash
sale” rules to the extent the shares disposed of are replaced with other shares
of that same Fund within a period of 61 days beginning 30 days before and ending
30 days after the date of disposition 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.
68
Taxation
|
OTHER
INFORMATION |
When you
open your account, you should provide your Social Security Number or tax
identification number on your account application. By law, the Fund must
withhold 24% 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 Internal Revenue Service (“IRS”) instructs the Fund to do
so.
The Fund is
required to report to you and the IRS annually on Form 1099-B not only the gross
proceeds of Fund shares you sell or redeem but also, for shares purchased on or
after January 1, 2012, their cost basis. Cost
basis will be calculated using the Fund’s default method of average cost, unless
you instruct the Fund to use a different methodology. If you
would like to use the average cost method of calculation, no action is required.
To elect an alternative method, you should contact Goldman Sachs Funds at the
address or phone number on the back cover of the Prospectus. If your account is
held with an Intermediary, contact your representative with respect to reporting
of cost basis and available elections for your account.
You should
carefully review the cost basis information provided by the Fund and make any
additional basis, holding period or other adjustments that are required when
reporting these amounts on your federal income tax returns.
Non-U.S.
investors are generally subject to U.S. withholding tax and may be subject to
estate tax with respect to their Fund shares. Non-U.S. investors generally are
not subject to U.S. federal income tax withholding on certain distributions of
interest income and/or short-term capital gains that are designated by the
Funds. It is expected that a Fund will generally make designations of
short-term gains, to the extent permitted, but the Funds do not intend to make
designations of any distributions attributable to interest income. Therefore,
all distributions of interest income will be subject to withholding when paid to
non-U.S. investors.
Funds are
required to withhold U.S. tax (at a 30% rate) on payments of dividends made to
certain non-U.S. entities that fail to comply (or be deemed compliant) with
extensive reporting and withholding requirements designed to inform the U.S.
Department of the Treasury of U.S.-owned foreign investment accounts.
Shareholders may be requested to provide additional information to enable the
Funds to determine whether withholding is required.
69
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, among others, interest rate risk, credit/default 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/default risk involves the risk that
an issuer or guarantor could default on its obligations, and the 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.
A rising
interest rate environment could cause the value of the Funds’ fixed income
securities to decrease, and fixed income markets to experience increased
volatility in addition to heightened levels of liquidity risk. Additionally,
decreases in the value of fixed income securities could lead to increased
shareholder redemptions, which could impair the Fund’s ability to achieve its
investment objective. The risks associated with increasing interest rates are
heightened given that interest rates are near historic lows, but may be expected
to increase in the future with unpredictable effects on the markets and the
Fund’s investments.
The
Investment Adviser is subject to registration and regulation as a “commodity
pool operator” under the Commodity Exchange Act with respect to its service as
investment adviser to the Local Emerging Markets Debt Fund.
To the
extent the Fund invests in pooled investment vehicles (including investment
companies and ETFs) and partnerships, the Fund will be affected by the
investment policies, practices and performance of such entities in direct
proportion to the amount of assets the Fund invests therein.
To the
extent the Fund’s net assets decrease or increase in the future due to price
volatility or share redemption or purchase activity, the Fund’s expense ratio
may correspondingly increase or decrease from the expense ratio disclosed in the
Prospectus.
The
Investment Adviser will not consider the portfolio turnover rate a limiting
factor in making investment decisions for the Fund. A high rate of portfolio
turnover involves correspondingly greater expenses which must be borne by the
Fund and its shareholders, and is also likely to result in higher short-term
capital gains taxable to certain 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 the 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.
Each of the
Funds described in the Prospectus has a target duration range. A Fund’s duration
approximates its price sensitivity to changes in interest rates. For example,
suppose that interest rates in one day fall by one percent which, in turn,
causes yields on every bond in the market to fall by the same amount. In this
example, the price of a bond with a duration of three years may be expected to
rise approximately three percent and the price of a bond with a five year
duration may be expected to rise approximately five percent. The converse is
also true. Suppose interest rates in one day rise by one percent which, in turn,
causes yields on every bond in the market to rise by the same amount. In this
second example, the price of a bond with a duration of three years may be
expected to fall approximately three percent and the price of a bond with a five
year duration may be expected to fall approximately five percent. The longer the
duration of a bond, the more sensitive the bond’s price is to changes in
interest rates. In computing portfolio duration, the 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. 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. The Investment Adviser may use derivative
instruments to manage the durations of Funds’ investment portfolios. These
derivative instruments may include futures contracts, options on futures
contracts and swap transactions, as well as other types of derivatives, and can
be used to shorten or lengthen the duration of the Fund.
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 calculating maturity, the Fund may
determine the maturity of a variable or floating rate obligation according to
its interest rate reset date, or the date principal can be recovered on demand,
rather than the date of ultimate maturity. Similarly, to the extent that a fixed
70
Appendix
A
income
obligation has a call, refunding or redemption provision, the date on which the
instrument is expected to be called, refunded or redeemed may be considered to
be its maturity date. There is no guarantee that the expected call, refund or
redemption will occur, and the Fund’s average maturity may lengthen beyond the
Investment Adviser’s expectations should the expected call, refund or redemption
not occur.
The Funds’
investments in derivative instruments, including financial futures contracts,
options and swaps, can be significant. These transactions can result in sizeable
realized and unrealized capital gains and losses relative to the gains and
losses from the Funds’ investments in bonds and other securities. Short-term and
long-term realized capital gains distributions paid by the Funds are taxable to
their shareholders.
Interest
rates, fixed income securities prices, the prices of futures and other
derivatives, and currency exchange rates can be volatile, and a variance in the
degree of volatility or in the direction of the market from the Investment
Adviser’s expectations may produce significant losses in the Fund’s investments
in derivatives. In addition, a perfect correlation between a derivatives
position and a fixed income security position is generally impossible to
achieve. As a result, the Investment Adviser’s use of derivatives may not be
effective in fulfilling the Investment Adviser’s investment strategies and may
contribute to losses that would not have been incurred otherwise.
Financial
futures contracts used by each of the Funds include interest rate futures
contracts including, among others, Eurodollar futures contracts. Eurodollar
futures contracts are U.S. dollar-denominated futures contracts that are based
on the implied forward London Interbank Offered Rate (LIBOR) of a three-month
deposit. Further information is included in the Prospectus regarding futures
contracts, swaps and other derivative instruments used by the Funds, including
information on the risks presented by these instruments and other purposes for
which they may be used by the Funds.
Certain
Funds also have credit rating requirements for the securities they buy, which
are applied at the time of purchase. For the purpose of determining compliance
with any credit rating requirement, each Fund (other than the High Yield Fund)
assigns a security, at the time of purchase, the highest rating by an NRSRO if
the security is rated by more than one NRSRO. The High Yield Fund assigns a
security, at the time of purchase, the lower of two ratings if the security is
rated by two NRSROs, or the middle of three ratings if the security is rated by
three NRSROs. For this purpose, each Fund relies only on the ratings of the
following NRSROs: Standard & Poor’s, Moody’s and Fitch, Inc. Unrated
securities may be purchased by the Fund if they are determined by the Investment
Adviser to be of a credit quality consistent with the Fund’s credit rating
requirements.
A security
satisfies the Fund’s credit 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 the Fund’s credit rating
requirement at the time of purchase and is subsequently downgraded below a
minimum rating requirement or upgraded above a maximum rating requirement, the
Fund will not be required to dispose of such security. If a downgrade or upgrade
occurs, the Investment Adviser will consider what action, including the sale of
such security, is in the best interests of the Fund and its
shareholders.
As
discussed below, the Funds may invest in credit default swaps, which are
derivative investments.
The Funds
may, from time to time, enter into arrangements with certain brokers or other
counterparties that require the segregation of collateral. For operational, cost
or other reasons, when setting up arrangements relating to the
execution/clearing of trades, the Fund may choose to select a segregation model
which may not be the most protective option available in the case of a default
by a broker or counterparty.
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 SAI, which is
available upon request. Among other things, the SAI describes certain
fundamental investment restrictions that cannot be changed 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 the 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 U.S. Government Securities
(including zero coupon bonds) and securities issued by 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 SAI.
Debt
securities rated BBB– or higher by Standard & Poor’s, or Baa3 or higher by
Moody’s or having a comparable credit 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.
71
Certain
Funds may invest in fixed income securities rated BB+ or Ba1 or below (or
comparable unrated securities) which are commonly referred to as “junk bonds.”
Junk bonds are considered 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 the 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. The Funds
may invest in derivative instruments including without limitation, options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities and forward contracts and other derivatives relating to
foreign currency transactions. Derivatives may be used for both hedging and
non-hedging purposes (that is, to seek to increase total return), although
suitable derivative instruments may not always be available to the Investment
Adviser for these purposes. Losses from derivative instruments 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, the failure of the counterparty to perform
its contractual obligations, or the risks related to leverage factors associated
with such transactions. Derivatives are also subject to risks arising from
margin requirements, which include the risk that the Fund will be required to
pay additional margin or set aside additional collateral to maintain open
derivative positions and the risk of loss by the Fund of margin deposits in the
event of the bankruptcy or other similar insolvency with respect to a broker or
counterparty with whom the Fund has an open derivative position. Losses may also
arise if the Funds receive cash collateral under the transactions and some or
all of that collateral is invested in the market. To the extent that cash
collateral is so invested, such collateral will be subject to market
depreciation or appreciation, and the Fund may be responsible for any loss that
might result from its investment of the counterparty’s cash collateral. If cash
collateral is not invested, the Fund may be exposed to additional risk of loss
in the event of the insolvency of its custodian holding such collateral. The use
of these management techniques also involves the risk of loss if the Investment
Adviser is incorrect in its expectation of the timing or level of fluctuation in
securities prices, interest rates, currency prices or other variables.
Derivative instruments may be harder to value, subject to greater volatility and
more likely subject to changes in tax treatment than other investments. For
these reasons, the Investment Adviser’s attempts to hedge portfolio risks
through the use of derivative instruments may not be successful, and the
Investment Adviser may choose not to hedge portfolio risks. Using derivatives
for non-hedging purposes presents greater risk of loss than derivatives used for
hedging purposes.
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. The 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 would reduce the value of the portfolio security. In
addition, if the currency in which the 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.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations, entities
and/or individuals, changes in international trading patterns, trade barriers,
and other protectionist or retaliatory measures. International trade barriers or
economic sanctions against foreign countries, organizations, entities and/or
individuals may adversely affect the Fund’s foreign holdings or exposures. The
type and severity of sanctions and other similar measures, including counter
sanctions and other retaliatory actions, that may be imposed could vary broadly
in scope, and their impact is impossible to predict. These types of measures may
include, but are not limited to, banning a sanctioned country from global
payment systems that facilitate cross-border payments, restricting the
settlement of securities transactions by certain investors, and freezing the
assets of particular countries, entities, or persons. The imposition of
sanctions and other similar measures could, among other things, cause a decline
in the value and/or
72
Appendix
A
liquidity
of securities issued by the sanctioned country or companies located in or
economically tied to the sanctioned country, downgrades in the credit ratings of
the sanctioned country or companies located in or economically tied to the
sanctioned country, devaluation of the sanctioned country’s currency, and
increased market volatility and disruption in the sanctioned country and
throughout the world. Sanctions and other similar measures could limit or
prevent the Fund from buying and selling securities (in the sanctioned country
and other markets), significantly delay or prevent the settlement of securities
transactions, and significantly impact the Fund’s liquidity and
performance.
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.
Certain
foreign investments may become less liquid in response to social, political or
market developments or adverse investor perceptions, or become illiquid after
purchase by the Fund, particularly during periods of market turmoil. Certain
foreign investments may become illiquid when, for instance, there are few, if
any, interested buyers and sellers or when dealers are unwilling to make a
market for certain securities. When the Fund holds illiquid investments, its
portfolio may be harder to value, especially in changing markets.
If the Fund
focuses its investments in one or a few countries and currencies, the Fund may
be subjected to greater risks than if the Fund’s assets were not geographically
focused.
Risks
of Sovereign Debt. Investment
in sovereign debt obligations by the Fund involves risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due in accordance with the terms of such debt,
and the Fund may have limited recourse to 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 the 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 Emerging Countries. Each Fund
(except for U.S. Mortgages Fund) may invest in securities of issuers located in,
or otherwise economically tied to, emerging countries. The risks of foreign
investment are heightened when the issuer is located in an emerging country.
Emerging countries are generally located in Africa, Asia, the Middle East,
Eastern and Central Europe, and Central and South America. A Fund’s purchase and
sale of portfolio 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 the 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 the Fund. The repatriation of
investment income, capital or the proceeds of securities sales from certain
emerging countries is subject to restrictions such as the need for governmental
consents, which may make it difficult for the Fund to invest in such emerging
countries. A Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for such repatriation. In situations
where a country restricts direct investment in securities (which may occur in
certain Asian and other countries), the Fund may invest in such countries
through other investment funds in such countries.
73
Emerging
market countries may have more or less government regulation and generally do
not impose as extensive and frequent accounting, auditing, financial and other
reporting requirements as the securities markets of more developed countries.
The degree of cooperation between issuers in emerging and frontier market
countries with foreign and U.S. financial regulators may vary significantly.
Accordingly, regulators may not have sufficient access to audit and oversee
issuers, and there could be less information available about issuers in certain
emerging market countries. As a result, the Investment Adviser’s ability to
evaluate local companies or their potential impact on the Fund’s performance
could be inhibited.
Many
emerging countries have 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 occur in 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 to the Fund from an
investment in issuers in such countries.
Settlement
procedures in emerging countries are frequently less developed and reliable than
those in the United States and may involve the 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 the 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 the 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 the
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, the 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 value precisely because of the characteristics discussed above
and lower trading volumes.
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,
all or a significant portion of the Funds’ currency exposure in emerging
countries may not be covered by such instruments. Certain Funds are limited with
respect to how much they may invest in emerging countries debt. For purposes of
applying the Fund’s respective limitation, “emerging market countries” include
but are not limited to those considered to be developing by the World Bank.
Generally, the Investment Adviser has broad discretion to identify other
countries that it considers to qualify as emerging market countries. Sovereign
debt consists of debt securities issued by governments or any of their agencies,
political subdivisions or instrumentalities. Sovereign debt may also include
nominal and real inflation-linked securities. In determining whether an issuer
of corporate debt is in an emerging market country, the Investment Adviser will
ordinarily do so by identifying the issuer’s “country of risk.” The issuer’s
“country of risk” is determined based on a number of criteria, including its
country of domicile, the primary stock exchange on which it trades, the location
from which the majority of its revenue comes, and its reporting currency.
Although the Investment Adviser will generally rely on an issuer’s “country of
risk” as determined by Bloomberg, it is not required to do so, as long as the
issuer is otherwise tied economically to an emerging market country. The
Investment Adviser may (but is not required to) deem an issuer to be otherwise
tied to an emerging market country if it derives at least 50% of its revenues
and/or profits from goods produced, sales made or services provided in one or
more emerging market countries, measured at the time of
purchase.
74
Appendix
A
A Fund may
invest directly in the domestic bond markets in Mainland China through the
Mutual Bond Market Access between Mainland China and Hong Kong (“Bond Connect”).
Investing through Bond Connect is subject to a number of distinct operational
and regulatory risks in addition to risks typically associated with investments
in emerging market countries, which may affect the Fund’s performance. Bond
Connect’s order, clearance, and settlement procedures and systems are relatively
untested and subject to change, which could pose risks to the Fund. Furthermore,
the custody arrangements for investments made through Bond Connect may affect
the Fund’s ability to enforce its rights as the beneficial owner of these
investments.
Risks
of Investments in Central and South America. A
significant portion of the Emerging Markets Debt and Local Emerging Markets Debt
Funds’ portfolios may be invested in issuers located in Central and South
American countries. The economies of Central and South American countries have
experienced considerable difficulties in the past decade, including high
inflation rates, high interest rates and currency devaluations. As a result,
Central and South American securities markets have experienced great volatility.
In addition, a number of Central and South American countries are among the
largest emerging country debtors. There have been moratoria on, and
reschedulings of, repayment with respect to these debts. Such events can
restrict the flexibility of these debtor nations in the international markets
and result in the imposition of onerous conditions on their economies. 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 Funds’ investments in Central and South America.
Foreign
Custody Risk. A Fund
that invests in foreign securities may hold such securities and cash with
foreign banks, agents, and securities depositories appointed by the Fund’s
custodian (each a “Foreign Custodian”). Some Foreign Custodians may be recently
organized or new to the foreign custody business. In some countries, Foreign
Custodians may be subject to little or no regulatory oversight over or
independent evaluation of their operations. Further, the laws of certain
countries may place limitations on the Fund’s ability to recover its assets if a
Foreign Custodian enters bankruptcy. Investments in emerging markets may be
subject to even greater custody risks than investments in more developed
markets. Custody services in emerging market countries are very often
undeveloped and may be considerably less well regulated than in more developed
countries, and thus may not afford the same level of investor protection as
would apply in developed countries.
Risks
of Illiquid Investments. Each Fund
may not acquire any “illiquid investment” if, immediately after the acquisition,
the Fund would have invested more than 15% of its net assets in illiquid
investments that are assets. An “illiquid investment” is an investment that the
Fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days or less without the sale or disposition
significantly changing the market value of the investment. In determining
whether an investment is an illiquid investment, the Investment Adviser will
take into account actual or estimated daily transaction volume of an investment,
group of related investments or asset class and other relevant market, trading,
and investment-specific considerations. In addition, in determining the
liquidity of an investment, the Investment Adviser must determine whether
trading varying portions of a position in a particular portfolio investment or
asset class, in sizes that the Fund would reasonably anticipate trading, is
reasonably expected to significantly affect its liquidity, and if so, the Fund
must take this determination into account when classifying the liquidity of that
investment or asset class.
Investments
purchased by the Fund that are liquid at the time of purchase may subsequently
become illiquid. If one or more investments in the Fund’s portfolio become
illiquid, the Fund may exceed the 15% limitation in illiquid investments. In the
event that changes in the portfolio or other external events cause the Fund to
exceed this limit, the Fund must take steps to bring its illiquid investments
that are assets to or below 15% of its net assets within a reasonable period of
time. This requirement would not force the Fund to liquidate any portfolio
instrument where the Fund would suffer a loss on the sale of that
instrument.
In cases
where no clear indication of the value of the Fund’s portfolio instruments is
available, the portfolio instruments will be valued at their fair value
according to the valuation procedures approved by the Board of Trustees. These
cases include, among others, situations where a security or other asset or
liability does not have a price source, or the secondary markets on which an
investment has previously been traded are no longer viable, due to its lack of
liquidity. For more information on fair valuation, please see “Shareholder
Guide—How To Buy Shares—How Are Shares Priced?”
Risks
of Structured Investment Vehicles. Structured
Investment Vehicles (“SIVs”) are legal entities that are sponsored by banks,
broker-dealers or other financial firms specifically created for the purpose of
issuing particular securities or instruments. SIVs are often leveraged and
securities issued by SIVs may have differing credit preferences. Investments in
SIVs present counterparty risks, although they may be subject to a guarantee or
other financial support by the sponsoring entity. Investments in SIVs may be
more volatile, less liquid and more difficult to price accurately than other
types of investments.
75
Temporary
Investment Risks. Each Fund
may, for temporary defensive purposes (and to the extent that it is permitted to
invest in the following), invest up to 100% of its total assets in:
◼
U.S.
Government Securities
◼
Commercial
paper rated at least A-2 by Standard & Poor’s, P-2 by Moody’s or having a
comparable credit rating by another NRSRO (or, if unrated, determined by the
Investment Adviser to be of comparable credit quality)
◼
Certificates
of deposit
◼
Bankers’
acceptances
◼
Repurchase
agreements
◼
Non-convertible
preferred stocks and non-convertible corporate bonds with a remaining maturity
of less than one year
◼
ETFs
◼
Other
investment companies
◼
Cash
items
When the
Fund’s assets are invested in such instruments, the Fund may not be achieving
its investment objective.
Risks
of Short Selling. The U.S.
Mortgages Fund may engage in short selling. In these transactions, the Fund
sells a security it does not own in anticipation of a decline in the market
value of the security, then must borrow the security to make delivery to the
buyer. A Fund is obligated to replace the security borrowed by purchasing it at
the market price at the time of replacement. The price at such time may be more
or less than the price at which the security was sold by the Fund, which may
result in a loss or gain, respectively. Unlike purchasing a security, where
potential losses are limited to the purchase price and there is no upside limit
on potential gain, short sales involve no cap on maximum losses, while gains are
limited to the price of the security at the time of the short sale.
A Fund may,
during the term of any short sale, withdraw the cash proceeds of such short sale
and use these cash proceeds to purchase additional securities or for any other
Fund purposes. Because cash proceeds are Fund assets which are typically used to
satisfy the collateral requirements for the short sale, the reinvestment of
these cash proceeds may require the Fund to post as collateral other securities
that it owns. If the Fund reinvests the cash proceeds, the Fund might be
required to post an amount greater than its net assets (but less than its total
assets) as collateral. For these or other reasons, the Fund might be required to
liquidate long and short positions at times or in amounts that may be
disadvantageous to the Fund.
Each Fund
may make short sales against the box, in which the Fund enters into a short sale
of a security which it owns or has the right to obtain at no additional
cost.
The SEC and
financial industry regulatory authorities in other countries have imposed
temporary prohibitions and restrictions on certain types of short sale
transactions. These prohibitions and restrictions, or the imposition of other
regulatory requirements on short selling in the future, could inhibit the
ability of the Investment Adviser to sell securities short on behalf of the
Fund.
|
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 SAI, 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 (i) the full faith and credit of the U.S.
Treasury; (ii) the right of the issuer to borrow from the U.S. Treasury; (iii)
the discretionary authority of the U.S. government to purchase certain
obligations of the issuer; or (iv) 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 are traded independently. U.S. Government Securities may also include
Treasury inflation-protected securities whose principal value is periodically
adjusted according to the rate of inflation.
U.S.
Treasury obligations include, among other things, the separately traded
principal and interest components of securities guaranteed or issued by the U.S.
Treasury if such components are traded independently under the Separate Trading
of Registered Interest and Principal of Securities program
(“STRIPS”).
U.S.
Government Securities are deemed to include (i) securities for which the payment
of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government, its agencies, authorities or instrumentalities; and (ii)
participations in loans made to foreign governments or their agencies that are
so guaranteed. Certain of these participations may be regarded as
illiquid.
76
Appendix
A
U.S.
Government Securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the U.S.
government will be able or willing to repay the principal or interest when due
or provide financial support to U.S. government agencies, authorities,
instrumentalities or sponsored enterprises that issue U.S. Government Securities
if it is not obligated to do so by law.
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 the 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 the 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, the 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. The High
Yield, Investment Grade Credit and U.S. Mortgages 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. The value of some
mortgage-backed securities may be particularly sensitive to changes in
prevailing interest rates. The value of these securities may also fluctuate in
response to the market’s perception of the creditworthiness of the issuers.
Early repayment of principal on mortgage- or asset-backed securities may expose
the Fund to the risk of earning a lower rate of return upon reinvestment of
principal.
The High
Yield, Investment Grade Credit and U.S. Mortgages 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 other forms of insurance or guarantees, including individual loan, pool
and hazard insurance, subordination and letters of credit. Such insurance and
guarantees may be issued by private insurers, banks and mortgage poolers. There
is no assurance that private guarantors or insurers, if any, will meet their
obligations. 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, may be more difficult to value accurately and may be more volatile
than similar securities issued by a government entity.
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 the 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.
77
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 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. Throughout 2008, the market for
mortgage-backed securities began experiencing substantially, often dramatically,
lower valuations and greatly reduced liquidity. Markets for other asset-backed
securities have also been affected. These instruments are increasingly subject
to liquidity constraints, price volatility, credit downgrades and unexpected
increases in default rates and, therefore, may be more difficult to value and
more difficult to dispose of than previously. These events may have an adverse
effect on the Funds to the extent they invest in mortgage-backed or other fixed
income securities or instruments affected by the volatility in the fixed income
markets.
Asset-Backed
Securities. Each Fund
(other than the High Yield Floating Rate 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 may also include home equity line of credit loans and other
second-lien mortgages. 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, the Fund’s ability to
maintain positions in such securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. 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. Some
asset-backed securities have only a subordinated claim or security interest in
collateral. If the issuer of an asset-backed security defaults on its payment
obligations, there is the possibility that, in some cases, the Fund will be
unable to possess and sell the underlying collateral and that the Fund’s
recoveries on repossessed collateral may not be available to support payments on
the securities. In the event of a default, the Fund may suffer a loss if it
cannot sell collateral quickly and receive the amount it is owed. The value of
some asset-backed securities may be particularly sensitive to changes in the
prevailing interest rates. There is no guarantee that private guarantors or
insurers of an asset-backed security, if any, will meet their obligations.
Asset-backed securities may also be subject to increased volatility and may
become illiquid and more difficult to value even when there is no default or
threat of default due to the market’s perception of the creditworthiness of the
issuers and market conditions impacting asset-backed securities more
generally.
Municipal
Securities. The
Emerging Markets Debt Fund, High Yield Fund, Investment Grade Credit Fund, Local
Emerging Markets Debt Fund and U.S. Mortgages Fund may invest in securities and
instruments issued by state and local government issuers. Municipal Securities
in which the 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. Such securities may pay fixed, variable or floating rates
of interest.
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. Other purposes for which Municipal Securities may be issued
include refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. Municipal Securities in which the Funds may invest include private
activity bonds, pre-refunded municipal securities and auction rate securities.
Dividends paid by the Funds based on investments in Municipal Securities will be
taxable.
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
78
Appendix
A
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 the 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 the Fund’s duration. Certain tender option bonds may be
illiquid.
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 deterioration of the credit quality of these banks and
financial institutions could, therefore, cause a loss to the Fund that invests
in such 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.
The Funds
may invest in Municipal Securities issued by municipalities, including U.S.
territories, commonwealths and possessions, that may be, or may become, subject
to significant financial difficulties. Factors contributing to such difficulties
may include: lower property tax collections as a result of lower home values,
lower sales tax revenue as a result of reduced consumer spending, lower income
tax revenue as a result of higher unemployment rates, and budgetary constraints
of local, state and federal governments upon which issuers of municipal
securities may be relying for funding. Such securities may be considered below
investment grade or may be subject to future credit downgrades due to concerns
over potential default, insolvency or bankruptcy on the part of their issuers or
any credit support provider. During the recent economic downturn, several
municipalities have, in fact, filed for bankruptcy protection or have indicated
that they may seek bankruptcy protection in the future. A credit downgrade or
other adverse news about an issuer or any credit support provider could impact
the market value and liquidity of the securities and consequently could
negatively affect the performance of the Fund that holds such
securities.
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, certain Funds 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. As a result, the Fund’s investment in
such securities may be limited by certain investment restrictions contained in
the Investment Company Act.
Corporate
Debt Obligations, Trust Preferred Securities and Convertible
Securities. The Funds
may invest in corporate debt obligations, trust preferred securities and
convertible securities (except that the U.S. Mortgages Fund may not invest in
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 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
79
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. The 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 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. The 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.
The 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 presents
additional risk.
Certain
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).
The Funds
may, from time to time, engage in non-deliverable forward transactions to manage
currency risk or to gain exposure to a currency without purchasing securities
denominated in that currency. A non-deliverable forward is a transaction that
represents an agreement between the Fund and a counterparty (usually a
commercial bank) to pay the other party the amount that it would cost based on
current market rates as of the termination date to buy or sell a specified
(notional) amount of a particular currency at an agreed upon foreign exchange
rate on an agreed upon future date. If the counterparty defaults, the Fund will
have contractual remedies pursuant to the agreement related to the transaction,
but the Fund may be delayed or prevented from obtaining payments owed to it
pursuant to non-deliverable forward transactions. Such non-deliverable forward
transactions will be settled in cash.
Currency
exchange rates may fluctuate significantly over short periods of time, causing,
along with other factors, the 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.
Certain
forward foreign currency exchange contracts and other currency transactions are
not exchange traded or cleared. The market in such 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 the 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.
A Fund is
not required to post cash collateral with its counterparties in certain foreign
currency transactions. Accordingly, the Fund may remain more fully invested (and
more of the Fund’s assets may be subject to investment and market risk) than if
it were required to post cash collateral with its counterparties (which is the
case with certain transactions). Where the Fund’s counterparties are not
required to post cash collateral with the Fund, the Fund will be subject to
additional counterparty risk.
Structured
Securities and Inverse Floaters. Each Fund
may invest in structured securities. Structured securities are securities whose
value is determined by reference to changes in the value of specific currencies,
securities, interest rates, commodities, indices or other financial indicators
(the “Reference”) or the relative change in two or more References. Investments
in structured securities may provide exposure to certain securities or markets
in situations where regulatory or other restrictions prevent direct investments
in such issuers or markets.
80
Appendix
A
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, effectively leveraging the Fund’s
investments so that small changes in the value of the reference may result in
disproportionate gains or losses to the Fund. 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 are also subject
to the risk that the issuer of the structured securities may fail to perform its
contractual obligations. Certain issuers of structured products may be deemed to
be investment companies as defined in the Investment Company Act. As a result,
the Fund’s investments in structured securities may be subject to the limits
applicable to investments in other investment companies.
Structured
securities include, but are not limited to, equity linked notes. An equity
linked note is a note whose performance is tied to a single stock, a stock index
or a basket of stocks. Equity linked notes combine the principal protection
normally associated with fixed income investments with the potential for capital
appreciation normally associated with equity investments. Upon the maturity of
the note, the holder generally receives a return of principal based on the
capital appreciation of the linked securities. Depending on the terms of the
note, equity linked notes may also have a “cap” or “floor” on the maximum
principal amount to be repaid to holders, irrespective of the performance of the
underlying linked securities. For example, a note may guarantee the repayment of
the original principal amount invested (even if the underlying linked securities
have negative performance during the note’s term), but may cap the maximum
payment at maturity at a certain percentage of the issuance price or the return
of the underlying linked securities. Alternatively, the note may not guarantee a
full return on the original principal, but may offer a greater participation in
any capital appreciation of the underlying linked securities. The terms of an
equity linked note may also provide for periodic interest payments to holders at
either a fixed or floating rate. The secondary market for equity linked notes
may be limited, and the lack of liquidity in the secondary market may make these
securities difficult to dispose of and to value. Equity linked notes will be
considered equity securities for purposes of the Fund’s investment objective and
policies.
Structured
securities may also include credit linked notes. Credit linked notes are
securities with embedded credit default swaps. An investor holding a credit
linked note generally receives a fixed or floating coupon and the note’s par
value upon maturity, unless the referred credit defaults or declares bankruptcy,
in which case the investor receives the amount recovered. In effect, investors
holding credit linked notes receive a higher yield in exchange for assuming the
risk of a specified credit event.
Structured
securities may also include 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.
Floating
and variable rate obligations may be transferable among financial institutions,
but may not have the liquidity of conventional debt securities and are often
subject to legal or contractual restrictions on resale. Floating and variable
rate obligations are not currently listed on any securities exchange or
automatic quotation system. As a result, no active market may exist for some
floating and variable rate obligations. To the extent a secondary market exists
for other floating and variable rate obligations, such market may be subject to
irregular trading activity, wide bid/ask spreads, and extended trade settlement
periods. The lack of a highly liquid secondary market for floating and variable
rate obligations may have an adverse affect on the value of such obligations and
may make it more difficult to value the obligations for purposes of calculating
their respective net asset value.
For
floating and variable rate obligations, there may be a lag between an actual
change in the underlying interest rate benchmark and the reset time for an
interest payment of such an obligation, which could harm or benefit the Funds,
depending on the interest rate environment or other circumstances. In a rising
interest rate environment, for example, a floating or variable rate obligation
that does not reset immediately would prevent the Funds from taking full
advantage of rising interest rates in a timely manner. However, in a declining
interest rate environment, the Fund may benefit from a lag due to an
obligation’s interest rate payment not being immediately impacted by a decline
in interest rates.
81
Certain
floating and variable rate obligations have an interest rate floor feature,
which prevents the interest rate payable by the security from dropping below a
specified level as compared to a reference interest rate (the “reference rate”),
such as LIBOR. Such a floor protects the Fund from losses resulting from a
decrease in the reference rate below the specified level. However, if the
reference rate is below the floor, there will be a lag between a rise in the
reference rate and a rise in the interest rate payable by the obligation, and
the Fund may not benefit from increasing interest rates for a significant amount
of time.
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 degree to changes in interest rates than interest-bearing
securities having similar maturities and credit quality.
Mortgage
Dollar Rolls. The U.S.
Mortgages and Investment Grade Credit Funds may enter into mortgage dollar
rolls. A mortgage dollar roll involves the sale by the 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, the 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) call
and put options and purchase put and call options on any securities and other
instruments in which the Fund may invest or on any index consisting of
securities or other instruments in which it may invest. A Fund may also, to the
extent consistent with its investment policies, purchase and write (sell) 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 presents additional risk).
The successful use of options depends in part on the ability of the Investment
Adviser to anticipate 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 the Fund’s investment
portfolio, the Fund may incur losses that it would not otherwise incur. The use
of options can also increase the Fund’s transaction costs. Options written or
purchased by the 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 and Swaps 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 swap
on a futures contract provides an investor with the ability to gain economic
exposure to a particular futures market. 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 (except in the case of the U.S. Mortgages Fund) foreign
exchanges.
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Each Fund
may, to the extent consistent with its investment policies, purchase and sell
futures contracts, purchase and write call and put options on futures contracts,
and enter into swaps 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 the 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.
Futures
contracts and related options and swaps present the following
risks:
◼
While the
Fund may benefit from the use of futures and options and swaps 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, options transactions or swaps.
◼
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 the Fund may be exposed to additional risk of
loss.
◼
The loss
incurred by the Fund in entering into futures contracts and in writing call
options and entering into swaps on futures is potentially unlimited and may
exceed the amount of the premium received.
◼
Futures
markets are highly volatile and the use of futures may increase the volatility
of the Fund’s NAV.
◼
As a result
of the low margin deposits normally required in futures trading, a relatively
small price movement in a futures contract may result in substantial losses to
the Fund.
◼
Futures
contracts and options and swaps on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single
day.
◼
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 the Fund will generally purchase securities
on a when-issued or forward commitment basis with the intention of acquiring the
securities for its portfolio, the Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate.
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 counterparties approved by the Investment
Adviser pursuant to procedures approved by the Board of Trustees that furnish
collateral at least equal in value or market price to the amount of their
repurchase obligations. Some Funds may also enter into repurchase agreements
involving certain foreign government securities. The collateral may consist of
any type of security in which the Fund is eligible to invest directly.
Repurchase agreements involving obligations other than U.S. Government
Securities may be subject to additional risks.
If the
other party or “seller” defaults, the Fund might suffer a loss to the extent
that the proceeds from the sale of the underlying securities and other
collateral held by the Fund are less than the repurchase price and the Fund’s
costs associated with delay and enforcement of the repurchase agreement. In
addition, in the event of bankruptcy of the seller, the Fund could suffer
additional losses if a court determines that the Fund’s interest in the
collateral is not enforceable.
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.
Lending
of Portfolio Securities. The High
Yield and High Yield Floating Rate Funds may engage in securities lending.
Securities lending involves the lending of securities owned by the Fund to
financial institutions such as certain broker-dealers including, as permitted by
the SEC, Goldman Sachs. The borrowers are required to secure their loan
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 the Fund in short-term investments,
including registered and unregistered investment pools managed by the Investment
Adviser, its affiliates or the Funds’ custodian 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 the Fund will be responsible for any loss that might result
from its investment of the borrowers’ collateral. If the Investment Adviser
determines to make securities loans, the value of the securities loaned may not
exceed 33 1/3% of the value of the total assets of the Fund (including the loan
collateral). Loan collateral (including any investment of the collateral) is not
subject to the percentage limitations described elsewhere in the Prospectus
regarding investments in fixed income securities and cash
equivalents.
83
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 its agent, or becomes insolvent.
Borrowings
and Reverse Repurchase Agreements. Each Fund
can borrow money from banks and other financial institutions, and may enter into
reverse repurchase agreements in amounts not exceeding one-third of the Fund’s
total assets (including the amount borrowed or received). Borrowings and reverse
repurchase agreements involve the use of leverage and subject the Fund to the
risks associated with leverage, including exposure to potential gains and losses
in excess of the amount invested.
Interest
Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps, Total Return Swaps,
Equity Swaps, Options on Swaps and Interest Rate Caps, Floors and
Collars. The Funds
may enter into some or all of the following swap transactions and options
agreements, including interest rate caps, floors and collars. Interest rate
swaps involve the exchange by the Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed-rate
payments for floating rate payments. 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 or
pool of securities. Credit swaps give one party to a transaction (the buyer of
the credit swap) the right to dispose of or acquire an asset (or group of assets
or exposure to the performance of an index), 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 party 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
based on an agreed upon interest rate. If the underlying asset in a total return
swap declines in value over the term of the swap, the party may also be required
to pay the dollar value of that decline to the counterparty. Equity swaps allow
the parties to a swap agreement to exchange the dividend income or other
components of return on an equity investment (for example, a group of equity
securities or an index) for another payment stream. An equity swap may be used
by the Fund to invest in a market without owning or taking physical custody of
securities in circumstances in which direct investment may be restricted for
legal reasons or is otherwise deemed impractical or
disadvantageous.
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 or to modify the terms of an existing 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 or modify an underlying swap on agreed-upon
terms, which generally entails a greater risk of loss than the Fund incurs in
buying a swaption. 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. As an example, when the Fund is the buyer of a credit default swap
(commonly known as buying protection), it may make periodic payments to the
seller of the credit default swap to obtain protection against a credit default
on a specified underlying asset (or group of assets). If a default occurs, the
seller of a credit default swap may be required to pay the Fund the notional
amount of the credit default swap on a specified security (or group of
securities). On the other hand, when the Fund is a seller of a credit default
swap (commonly known as selling protection), in addition to the credit exposure
the Fund has on the other assets held in its portfolio, the Fund is also subject
to the credit exposure on the notional amount of the swap since, in the event of
a credit default, the Fund may be required to pay the notional amount of the
credit default swap on a specified security (or group of securities) to the
buyer of the credit default swap. A Fund will be the seller of a credit default
swap only when the credit of the underlying asset is deemed by the Investment
Adviser to meet the Fund’s minimum credit criteria at the time the swap is first
entered into.
When the
Fund writes (sells) credit swaps on individual securities or instruments, the
Fund must identify on its books liquid assets equal to the full notional amount
of the swaps while the positions are open.
The use of
interest rate, mortgage, credit, currency index, total return and equity 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, or in its evaluation of the creditworthiness
of swap counterparties and the issuers of the underlying assets, the investment
performance of the Fund would be less favorable than it would have been if these
investment techniques were not used.
Currently,
certain standardized swap transactions are subject to mandatory central clearing
and exchange trading. Although central clearing and exchange trading are
expected to decrease counterparty risk and increase liquidity compared to
bilaterally negotiated swaps, central clearing and exchange trading do not
eliminate counterparty risk or illiquidity risk entirely. Depending on the size
of the
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Fund and
other factors, the margin required under the rules of a clearinghouse and by a
clearing member may be in excess of the collateral required to be posted by the
Fund to support its obligations under a similar bilateral, uncleared swap.
However, certain applicable regulators have adopted rules imposing certain
margin requirements, including minimums, on uncleared swaps which may result in
the Fund and its counterparties posting higher amounts for uncleared
swaps.
Other
Investment Companies. Each Fund
may invest in securities of other investment companies, including ETFs and money
market funds, subject to statutory limitations prescribed by the Investment
Company Act or rules, regulations or exemptive relief thereunder. These
statutory limitations include in certain circumstances 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 the 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.
Subject to
applicable law and/or pursuant to an exemptive order obtained from the SEC or
under an exemptive rule adopted by the SEC, the Fund may invest in certain other
investment companies (including ETFs and money market funds) and business
development companies beyond the statutory limits described above or otherwise
provided that certain conditions are met. Some of those investment companies may
be funds for which the Investment Adviser or any of its affiliates serves as
investment adviser, administrator or distributor.
Additionally,
to the extent that any Fund serves as an “acquired fund” to another Goldman
Sachs Fund or unaffiliated investment company, the Fund’s ability to invest in
other investment companies and private funds may be limited and, under these
circumstances, the Fund’s investments in other investment companies and private
funds will be consistent with applicable law and/or exemptive rules adopted by
or exemptive orders obtained from the SEC. For example, to the extent the Fund
serves as an acquired fund in a fund of funds arrangement in reliance on Rule
12d1-4 under the Investment Company Act, the Fund would be prohibited from
purchasing or otherwise acquiring the securities of an investment company or
private fund if, after such purchase or acquisition, the aggregate value of the
Fund’s investments in such investment companies and private funds would exceed
10% of the value of the Fund’s total assets, subject to limited exceptions
(including for investments in money market funds).
The use of
ETFs is generally intended to help the Fund match the total return of the
particular market segments or indices represented by those ETFs, although that
may not be the result. Most ETFs are passively managed investment companies
whose shares are purchased and sold on a securities exchange. An ETF generally
represents a portfolio of securities designed to track a particular market
segment or index. An investment in an ETF generally presents the same primary
risks as an investment in a conventional fund (i.e., one that is not
exchange-traded) that has the same investment objectives, strategies and
policies. In addition, an ETF may fail to accurately track the market segment or
index that underlies its investment objective. The price of an ETF can
fluctuate, and the Fund could lose money investing in an ETF. Moreover, ETFs are
subject to the following risks that do not apply to conventional funds: (i) the
market price of the ETF’s shares may trade at a premium or a discount to their
net asset value; (ii) an active trading market for an ETF’s shares may not
develop or be maintained; and (iii) there is no assurance that the requirements
of the exchange necessary to maintain the listing of an ETF will continue to be
met or remain unchanged.
A Fund will
indirectly bear its proportionate share of any management fees and other
expenses paid by such other investment companies, in addition to the fees and
expenses regularly borne by the Fund. 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.
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
speculative. 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 factors as specific issuer developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less
liquidity.
Non-investment
grade fixed income securities are also 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, the 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
85
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 the 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 the 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. The lack of sufficient market liquidity may
cause the Fund to 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 the Fund’s ability to dispose
of particular portfolio investments. A less liquid secondary market also may
make it more difficult for the 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.
Downgraded
Securities. After its
purchase, a portfolio security may be assigned a lower rating or cease to be
rated, which may affect the market value and liquidity of the security. If this
occurs, the Fund may continue to hold the security if the Investment Adviser
believes it is in the best interest of the Fund and its
shareholders.
Collateralized
Loan Obligations. The Funds
may invest in collateralized loan obligations (“CLOs”). A CLO is a trust
typically collateralized by a pool of loans, which may include, among others,
domestic and foreign senior secured loans, senior unsecured loans, and
subordinate corporate loans, including loans that may be rated below investment
grade or equivalent unrated loans. CLOs may charge management and other
administrative fees. The cashflows from the trust are split into two or more
portions, called tranches, varying in risk and yield. The riskiest portion is
the “equity” tranche which bears the bulk of defaults from the bonds or loans in
the trust and serves to protect the other, more senior tranches from default in
all but the most severe circumstances. Because it is partially protected from
defaults, a senior tranche from a CLO trust typically has higher ratings and
lower yields than its underlying securities, and can be rated investment grade.
Despite the protection from the equity tranche, CLO tranches can experience
substantial losses due to actual defaults, increased sensitivity to defaults due
to collateral default and disappearance of protecting tranches, market
anticipation of defaults, as well as aversion to CLO securities as a
class.
The risks
of an investment in a CLO depend largely on the type of the collateral
securities and the class of the CLO in which the Fund invests. Normally, CLOs
are privately offered and sold, and thus, are not registered under the
securities laws. As a result, investments in CLOs may be characterized by the
Fund as illiquid investments. However, an active dealer market may exist for
CLOs that qualify under the Rule 144A “safe harbor” from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers, and such CLOs may be characterized by the Fund
as liquid investments.
Loan-Related
Investments. The Funds
(except U.S. Mortgages Fund) may invest in loan-related investments such as loan
participations and assignments. A loan participation is an interest in a loan to
a U.S. or foreign company or other borrower (the “borrower”) which is
administered and sold by a financial intermediary. The Funds may only invest in
loans to issuers in whose obligations it may otherwise invest. Loan interests
may take the form of a direct or co-lending relationship with the 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 the Fund acts as
co-lender in connection with a loan interest or when it acquires certain
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.
An
assignment typically succeeds to all the rights and obligations of the assigning
institution and becomes a lender under the credit agreement with respect to the
debt obligation; however, the purchaser’s rights can be more restricted than
those of the assigning institution, and, in any event, the Fund may not be able
to unilaterally enforce all rights and remedies under the loan and with regard
to any associated collateral. A participation typically results in a contractual
relationship only with the institution participating out the
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interest,
not with the borrower. In purchasing participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement against the borrower, and the Fund may not directly benefit from the
collateral supporting the debt obligation in which it has purchased the
participation. As a result, the Fund will be exposed to the credit risk of both
the borrower and the institution selling the participation. Investors in loans,
such as the Fund, may not be entitled to rely on the anti-fraud protections of
the federal securities laws, although they may be entitled to certain
contractual remedies.
The market
for loan obligations may be subject to irregular trading activity, wide bid/ask
spreads and extended trade settlement periods. Because transactions in many
loans are subject to extended trade settlement periods, the Fund may not receive
the proceeds from the sale of a loan for a period after the sale. As a result,
sale proceeds related to the sale of loans may not be available to make
additional investments or to meet the Fund’s redemption obligations for a period
after the sale of the loans, and, as a result, the Fund may have to sell other
investments or engage in borrowing transactions, such as borrowing from its
credit facility, if necessary to raise cash to meet its obligations. During
periods of heightened redemption activity or distressed market conditions, the
Fund may seek to obtain expedited trade settlement, which will generally incur
additional costs (although expedited trade settlement will not always be
available).
Senior
loans hold the most senior position in the capital structure of a borrower, are
typically secured with specific collateral and have a claim on the assets and/or
stock of the borrower that is senior to that held by subordinated debt holders
and stockholders of the borrower. The proceeds of senior loans primarily are
used to finance leveraged buyouts, recapitalizations, mergers, acquisitions,
stock repurchases, refinancings and to finance internal growth and for other
corporate purposes. Senior loans typically have a stated term of between five
and nine years, and have rates of interest which typically are redetermined
daily, monthly, quarterly or semi-annually by reference to a base lending rate,
plus a premium or credit spread. Longer interest rate reset periods generally
increase fluctuations in the Fund’s net asset value as a result of changes in
market interest rates. As a result, as short-term interest rates increase,
interest payable to the Fund from its investments in senior loans should
increase, and as short-term interest rates decrease, interest payable to the
Fund from its investments in senior loans should decrease. Second lien loans
have the same characteristics as senior loans except that such loans are
subordinated or unsecured and thus lower in priority of payment to senior loans.
Accordingly, the risks associated with second lien loans are higher than the
risk of loans with first priority over the collateral. In the event of default
on a second lien loan, the first priority lien holder has first claim to the
underlying collateral of the loan. It is possible that no collateral value would
remain for the second priority lien holder and therefore result in a loss of
investment to the Fund. Second lien loans typically have adjustable floating
rate interest payments. Generally, loans have the benefit of restrictive
covenants that limit the ability of the borrower to further encumber its assets
or impose other obligations. To the extent a loan does not have certain
covenants (or has less restrictive covenants), an investment in the loan will be
particularly sensitive to the risks associated with loan
investments.
Preferred
Stock, Warrants and Stock Purchase Rights. Each Fund
(except for U.S. Mortgages Fund) may invest in preferred stock, warrants and
stock purchase rights (or “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 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.
Distressed
Debt. A Fund
that invests in distressed debt may risk holding the securities through
bankruptcy proceedings. There are a number of significant risks inherent in the
bankruptcy process. Many events in a bankruptcy are the product of contested
matters and adversary proceedings and are beyond the control of the creditors. A
bankruptcy filing by an issuer may adversely and permanently affect the issuer,
and if the proceeding is converted to liquidation, the value of the issuer may
not equal the liquidation value that was believed to exist at the time of the
investment. The duration of a bankruptcy proceeding is difficult to predict, and
a creditor’s return on investment can be adversely affected by delays until the
plan of reorganization ultimately becomes effective. The administrative costs in
connection with a bankruptcy proceeding are frequently high and would be paid
out of the debtor’s estate prior to any return to creditors. Because the
standards for classification of claims under bankruptcy law are vague, there
exists the risk that the Fund’s influence with respect to the class of
securities or other obligations it owns can be lost by increases in the number
and amount of claims in the same class or by different classification and
treatment. In the early stages of the bankruptcy process it is often difficult
to estimate the extent of, or even to identify, any contingent claims that might
be made. In addition, certain claims that have priority by law (for example,
claims for taxes) may be substantial.
Equity
Investments. After its
purchase, a portfolio investment (such as a convertible debt obligation) may
convert to an equity security. Alternatively, the Fund may acquire equity
securities in connection with a restructuring or other similar event related to
one or more of its investments. If this occurs, the Fund may continue to hold
the investment (or make additional purchases of that equity investment) if the
Investment Adviser believes it is in the best interest of the Fund and its
shareholders.
87
Asset
Segregation. As
investment companies registered with the SEC, the Funds must identify on their
books (often referred to as “asset segregation”) liquid assets, or engage in
other SEC- or SEC staff-approved or other appropriate measures, to “cover” open
positions with respect to certain kinds of derivative instruments. In the case
of swaps, futures contracts, options, forward contracts and other derivative
instruments that do not cash settle, for example, the Funds must identify on
their books liquid assets equal to the full notional amount of the instrument
while the positions are open, to the extent there is not a permissible
offsetting position or a contractual “netting” agreement with respect to swaps
(other than credit default swaps where the Fund is the protection seller).
However, with respect to certain swaps, futures contracts, options, forward
contracts and other derivative instruments that are required to cash settle, the
Fund may identify liquid assets in an amount equal to the Fund’s daily
marked-to-market net obligations (i.e., the Fund’s daily net liability) under
the instrument, if any, rather than its full notional amount. Forwards and
futures contracts that do not cash settle may be treated as cash settled for
asset segregation purposes when the Funds have entered into a contractual
arrangement with a third party FCM or other counterparty to off-set the Funds’
exposure under the contract and, failing that, to assign their delivery
obligation under the contract to the counterparty. The Funds reserve the right
to modify their asset segregation policies in the future in their discretion,
consistent with the Investment Company Act and SEC or SEC staff guidance. By
identifying assets equal to only their net obligations under certain
instruments, the Funds will have the ability to employ leverage to a greater
extent than if the Funds were required to identify assets equal to the full
notional amount of the instrument.
In October
2020, the SEC adopted a final rule related to the use of derivatives, short
sales, reverse repurchase agreements and certain other transactions by
registered investment companies. In connection with the final rule, the SEC and
its staff will rescind and withdraw applicable guidance and relief regarding
asset segregation and coverage transactions reflected in the Fund’s asset
segregation and cover practices discussed above. Subject to certain exceptions,
and after an eighteen-month transition period, the final rule requires the Fund
to trade derivatives (and other transactions that create future payment or
delivery obligations) subject to a value-at-risk leverage limit and certain
derivatives risk management program and reporting requirements. These
requirements may limit the ability of the Fund to use derivatives, short sales,
reverse repurchase agreements and similar financing transactions as part of its
investment strategies and may increase the cost of the Fund’s investments and
cost of doing business, which could adversely affect
investors.
88
Appendix
B
Financial
Highlights
The
financial highlights tables are intended to help you understand the 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 the Fund (assuming reinvestment of all dividends and distributions). The
information for the Fund has been audited by PricewaterhouseCoopers LLP, whose
report, along with the Fund’s financial statements, is included in the Fund’s
annual report (available upon request).
|
|
Goldman
Sachs Emerging Markets Debt Fund | |||
|
|
Class
P Shares | |||
|
|
Year
Ended March 31, |
Period Ended
March 31, 2019(a)
| ||
|
|
2022 |
2021 |
2020 | |
|
Per
Share Data | ||||
|
Net
asset value, beginning of period |
$11.99 |
$10.37 |
$12.20 |
$12.59 |
|
Net
investment income(b)
|
0.47 |
0.48 |
0.55 |
0.55 |
|
Net
realized and unrealized gain (loss) |
(1.32) |
1.60 |
(1.84) |
(0.40) |
|
Total
from investment operations |
(0.85) |
2.08 |
(1.29) |
0.15 |
|
Distributions
to shareholders from net investment income |
(0.49) |
(0.46) |
(0.29) |
(0.50) |
|
Distributions
to shareholders from return of capital |
— |
— |
(0.25) |
(0.04) |
|
Total
distributions |
(0.49) |
(0.46) |
(0.54) |
(0.54) |
|
Net
asset value, end of period |
$10.65 |
$11.99 |
$10.37 |
$12.20 |
|
Total
return(c) |
(7.43)% |
20.12% |
(11.10)% |
1.46% |
|
Net
assets, end of period (in 000s) |
$35,720 |
$35,499 |
$14,207 |
$14,908 |
|
Ratio
of net expenses to average net assets |
0.85% |
0.85% |
0.86% |
0.85%(d)
|
|
Ratio
of total expenses to average net assets |
0.88% |
0.90% |
0.91% |
0.91%(d)
|
|
Ratio
of net investment income to average net assets |
3.97% |
3.96% |
4.49% |
5.00%(d)
|
|
Portfolio
turnover rate(e)
|
32% |
79% |
87% |
80% |
(a)
Commenced
operations on April 20, 2018.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(d)
Annualized.
(e)
The
Fund’s portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term investments
and certain derivatives. If such transactions were included, the Fund’s
portfolio turnover rate may be higher.
89
|
|
Goldman
Sachs High Yield Fund | |||
|
|
Class P
Shares | |||
|
|
Year Ended March 31, |
Period Ended
March 31, 2019(a)
| ||
|
|
2022 |
2021 |
2020 | |
|
Per
Share Data | ||||
|
Net
asset value, beginning of period |
$6.41 |
$5.48 |
$6.33 |
$6.42 |
|
Net
investment income(b)
|
0.28 |
0.33 |
0.35 |
0.33 |
|
Net
realized and unrealized gain (loss) |
(0.36) |
0.94 |
(0.83) |
(0.08) |
|
Total
from investment operations |
(0.08) |
1.27 |
(0.48) |
0.25 |
|
Distributions
to shareholders from net investment income |
(0.28) |
(0.34) |
(0.37) |
(0.34) |
|
Distributions
to shareholders from return of capital |
(0.03) |
— |
—(c)
|
— |
|
Total
distributions |
(0.31) |
(0.34) |
(0.37) |
(0.34) |
|
Net
asset value, end of period |
$6.02 |
$6.41 |
$5.48 |
$6.33 |
|
Total
return(d) |
(1.47)% |
23.35% |
(8.04)% |
4.00% |
|
Net
assets, end of period (in 000s) |
$1,417,912 |
$1,575,340 |
$1,331,465 |
$1,604,685 |
|
Ratio
of net expenses to average net assets |
0.71% |
0.74% |
0.74% |
0.74%(e)
|
|
Ratio
of total expenses to average net assets |
0.76% |
0.77% |
0.76% |
0.77%(e)
|
|
Ratio
of net investment income to average net assets |
4.44% |
5.31% |
5.55% |
5.67%(e)
|
|
Portfolio
turnover rate(f)
|
56% |
71% |
80% |
59% |
(a)
Commenced
operations on April 20, 2018.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Amount
is less than $0.005 per share.
(d)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(e)
Annualized.
(f)
The
Fund’s portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term investments
and certain derivatives. If such transactions were included, the Fund’s
portfolio turnover rate may be higher.
90
Appendix
B
|
|
Goldman
Sachs High Yield Floating Rate Fund | |||
|
|
Class
P Shares | |||
|
|
Year
Ended March 31, |
Period
Ended
March 31, 2019(a)
| ||
|
|
2022 |
2021 |
2020 | |
|
Per
Share Data | ||||
|
Net
asset value, beginning of period |
$9.37 |
$7.91 |
$9.37 |
$9.69 |
|
Net
investment income(b)
|
0.32 |
0.35 |
0.49 |
0.45 |
|
Net
realized and unrealized gain (loss) |
(0.12) |
1.47 |
(1.46) |
(0.33) |
|
Total
from investment operations |
0.20 |
1.82 |
(0.97) |
0.12 |
|
Distributions
to shareholders from net investment income |
(0.32) |
(0.36) |
(0.49) |
(0.44) |
|
Net
asset value, end of period |
$9.25 |
$9.37 |
$7.91 |
$9.37 |
|
Total
return(c) |
2.18% |
23.49% |
(11.11)% |
1.32% |
|
Net
assets, end of period (in 000s) |
$4,252,333 |
$1,681,575 |
$1,132,605 |
$2,215,089 |
|
Ratio
of net expenses to average net assets |
0.62% |
0.71% |
0.69% |
0.62%(d)
|
|
Ratio
of total expenses to average net assets |
0.64% |
0.76% |
0.69% |
0.63%(d)
|
|
Ratio
of net investment income to average net assets |
3.40% |
3.94% |
5.22% |
5.04%(d)
|
|
Portfolio
turnover rate(e)
|
26% |
53% |
39% |
69% |
(a)
Commenced
operations on April 20, 2018.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(d)
Annualized.
(e)
The
Fund’s portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term investments
and certain derivatives. If such transactions were included, the Fund’s
portfolio turnover rate may be higher.
91
|
|
Goldman
Sachs Investment Grade Credit Fund | |||
|
|
Class P
Shares | |||
|
|
Year
Ended March 31, |
Period
Ended
March 31, 2019(a)
| ||
|
|
2022 |
2021 |
2020 | |
|
Per
Share Data | ||||
|
Net
asset value, beginning of period |
$9.59 |
$8.96 |
$9.16 |
$8.93 |
|
Net
investment income(b)
|
0.23 |
0.27 |
0.31 |
0.30 |
|
Net
realized and unrealized gain (loss) |
(0.58) |
0.78 |
(0.07) |
0.23 |
|
Total
from investment operations |
(0.35) |
1.05 |
0.24 |
0.53 |
|
Distributions
to shareholders from net investment income |
(0.20) |
(0.29) |
(0.32) |
(0.30) |
|
Distributions
to shareholders from net realized gains |
(0.22) |
(0.13) |
(0.12) |
— |
|
Distributions
to shareholders from return of capital |
(0.06) |
— |
— |
— |
|
Total
distributions |
(0.48) |
(0.42) |
(0.44) |
(0.30) |
|
Net
asset value, end of period |
$8.76 |
$9.59 |
$8.96 |
$9.16 |
|
Total
return(c) |
(4.10)% |
11.61% |
2.45% |
6.12% |
|
Net
assets, end of period (in 000s) |
$176,368 |
$156,039 |
$189,611 |
$196,668 |
|
Ratio
of net expenses to average net assets |
0.37% |
0.37% |
0.37% |
0.37%(d)
|
|
Ratio
of total expenses to average net assets |
0.45% |
0.45% |
0.46% |
0.51%(d)
|
|
Ratio
of net investment income to average net assets |
2.38% |
2.73% |
3.22% |
3.57%(d)
|
|
Portfolio
turnover rate(e)
|
31% |
69% |
76% |
82% |
(a)
Commenced
operations on April 20, 2018.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(d)
Annualized.
(e)
The
Fund’s portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term investments
and certain derivatives. If such transactions were included, the Fund’s
portfolio turnover rate may be higher.
92
Appendix
B
|
|
Goldman
Sachs Local Emerging Markets Debt
Fund | |||
|
|
Class P
Shares | |||
|
|
Year
Ended March 31, |
Period
Ended
March 31, 2019(a)
| ||
|
|
2022 |
2021 |
2020 | |
|
Per
Share Data | ||||
|
Net
asset value, beginning of period |
$5.55 |
$4.97 |
$5.74 |
$6.75 |
|
Net
investment income(b)
|
0.21 |
0.22 |
0.26 |
0.31 |
|
Net
realized and unrealized gain (loss) |
(0.55) |
0.58 |
(0.78) |
(1.03) |
|
Total
from investment operations |
(0.34) |
0.80 |
(0.52) |
(0.72) |
|
Distributions
to shareholders from net investment income |
(0.22) |
— |
—(c)
|
— |
|
Distributions
to shareholders from return of capital |
— |
(0.22) |
(0.25) |
(0.29) |
|
Total
distributions |
(0.22) |
(0.22) |
(0.25) |
(0.29) |
|
Net
asset value, end of period |
$4.99 |
$5.55 |
$4.97 |
$5.74 |
|
Total
return(d) |
(6.42)% |
16.27% |
(9.82)% |
(10.66)% |
|
Net
assets, end of period (in 000s) |
$20,864 |
$29,194 |
$30,957 |
$52,263 |
|
Ratio
of net expenses to average net assets |
0.91% |
0.90% |
0.92% |
0.90%(e)
|
|
Ratio
of total expenses to average net assets |
1.41% |
1.50% |
1.28% |
1.24%(e)
|
|
Ratio
of net investment income to average net assets |
3.73% |
3.87% |
4.48% |
5.75%(e)
|
|
Portfolio
turnover rate(f)
|
123% |
111% |
84% |
117% |
(a)
Commenced
operations on April 20, 2018.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Rounds
to less than $0.005 per share.
(d)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(e)
Annualized.
(f)
The
Fund’s portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term investments
and certain derivatives. If such transactions were included, the Fund’s
portfolio turnover rate may be higher.
93
|
|
Goldman
Sachs U.S. Mortgages Fund | |||
|
|
Class
P Shares | |||
|
|
Year
Ended March 31, |
Period
Ended
March 31, 2019(a)
| ||
|
|
2022 |
2021 |
2020 | |
|
Per
Share Data | ||||
|
Net
asset value, beginning of period |
$10.58 |
$10.58 |
$10.32 |
$10.16 |
|
Net
investment income(b)
|
0.02 |
0.14 |
0.23 |
0.28 |
|
Net
realized and unrealized gain (loss) |
(0.57) |
0.17 |
0.36 |
0.18 |
|
Total
from investment operations |
(0.55) |
0.31 |
0.59 |
0.46 |
|
Distributions
to shareholders from net investment income |
(0.13) |
(0.31) |
(0.32) |
(0.30) |
|
Distributions
to shareholders from return of capital |
(0.01)
|
— |
(0.01) |
— |
|
Total
distributions |
(0.14) |
(0.31) |
(0.33) |
(0.30) |
|
Net
asset value, end of period |
$9.89 |
$10.58 |
$10.58 |
$10.32 |
|
Total
return(c) |
(5.23)% |
2.89% |
5.77% |
4.57% |
|
Net
assets, end of period (in 000s) |
$4,471 |
$12,382 |
$4,971 |
$8,575 |
|
Ratio
of net expenses to average net assets |
0.43% |
0.44% |
0.44% |
0.44%(d)
|
|
Ratio
of total expenses to average net assets |
0.50% |
0.46% |
0.49% |
0.52%(d)
|
|
Ratio
of net investment income to average net assets |
0.17% |
1.30% |
2.17% |
2.89%(d)
|
|
Portfolio
turnover rate(e)
|
1,242% |
1,027% |
1,233% |
963% |
(a)
Commenced
operations on April 20, 2018.
(b)
Calculated
based on the average shares outstanding methodology.
(c)
Assumes
investment at the NAV at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at the NAV
at the end of the period and no sales or redemption charges (if any). Total
returns would be reduced if a sales or redemption charge was taken into account.
Returns do not reflect the impact of taxes to shareholders relating to Fund
distributions or the redemption of Fund shares. Total returns for periods less
than one full year are not annualized.
(d)
Annualized.
(e)
The
Fund’s portfolio turnover rate is calculated in accordance with regulatory
requirements, without regard to transactions involving short term investments
and certain derivatives. If such transactions were included, the Fund’s
portfolio turnover rate may be higher.
94
Single
Sector Fixed Income Funds Prospectus (Class P
Shares)
|
FOR
MORE INFORMATION |
Annual/Semi-Annual
Report
Additional
information about the Fund’s investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the Fund’s annual reports, you will find
a discussion of the market conditions and investment strategies that
significantly affected the Fund’s performance during the last fiscal
year.
Statement of
Additional Information
Additional
information about the Fund and its policies is also available in the Fund’s SAI.
The SAI is incorporated by reference into the Prospectus (i.e., is
legally considered part of the Prospectus).
The Fund’s
annual and semi-annual reports and SAI are available free upon request by
calling Goldman Sachs at 1-800-526-7384. You can also access and download the
annual and semi-annual reports and the SAI at the Fund’s website:
www.gsam.com/content/gsam/us/en/advisors/fund-center/summary-prospectuses.html.
From time
to time, certain announcements and other information regarding the Fund may be
found at
http://www.gsamfunds.com/announcements-ind for individual investors or http://www.gsamfunds.com/announcements for advisers.
http://www.gsamfunds.com/announcements-ind for individual investors or http://www.gsamfunds.com/announcements for advisers.
To obtain
other information and for shareholder inquiries:
|
|
|
|
|
◼ By
telephone: |
1-800-621-2550 |
|
|
◼ By
mail: |
Goldman
Sachs Funds
P.O.
Box 06050
Chicago,
IL 60606 |
|
|
◼ On
the Internet: |
SEC
EDGAR database – http://www.sec.gov |
|
Other
information about the Fund is available on the EDGAR Database on the SEC’s
internet site at http://www.sec.gov. You may
obtain copies of this information, after paying a duplicating fee, by electronic
request at the following e-mail address: [email protected].
The
Fund's investment company registration number is 811-05349.
GSAM® is a registered service mark of Goldman Sachs & Co. LLC
GSAM® is a registered service mark of Goldman Sachs & Co. LLC
SSFIPRO-22P