<PAGE>
As filed with the Securities and Exchange Commission on October 1, 1997.
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 39 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 41 ( X )
(Check appropriate box or boxes)
__________
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-993-4400
____________
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Jeffrey A. Dalke, Esq.
85 Broad Street - 12th Floor Drinker Biddle & Reath LLP
New York, New York 10004 1345 Chestnut Street
Philadelphia, PA 19107
(Name and address of agent for service)
It is proposed that this filing will become effective (check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
(X) on October 1, 1997 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On May 1, 1997 pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (Date) pursuant to paragraph (a)(2) of rule 485.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2. On March 31, 1997, Registrant
filed a Rule 24f-2 notice for its fiscal year ended January 31, 1997.
This registration statement is being filed solely to fulfill an undertaking to
file a post-effective amendment using financial statements within four to six
months from the effective date of the post-effective amendment to the
Registration Statement relat ing to the CORE Large Cap Growth Fund.
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs Equity Funds
Class A, Class B and Class C Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs Captial Growth Fund, Goldman Sachs Mid Cap Equity Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman
Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description Cover Page; Fund Highlights; Investment
of Registrant Objective and Policies; Description of
Securities; Risk Factors; Investment
Techniques; Investment Restrictions;
Portfolio Turnover; Reports to
Shareholders; Shares of the Trust;
Additional Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of the Trust;
Other Securities Taxation; Additional Information
7. Purchase of Securities How to Invest; Net Asset
Being Offered Value; Additional Information
8. Redemption or How to sell Shares of the Fund;
Repurchase Additional Information
</TABLE>
<PAGE>
9. Pending Legal Not Applicable
Proceedings
<TABLE>
<CAPTION>
PART B CAPTION
- ------ -------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value,
and Pricing of Other Information Regarding
Securities Being Purchases, Redemptions, Ex-
Offered changes and Dividends
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs Equity Funds
Institutional Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs Captial Growth Fund, Goldman Sachs Mid Cap Equity Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman
Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and Expenses
3. Condensed Financial Financial Highlights
Information
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Poli-
cies; Description of Securi-
ties; Risk Factors; Investment
Techniques; Investment Re-
strictions; Portfolio Turn-
over; Reports to Shareholders;
Shares of the Trust; Addition-
al Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of
Other Securities the Trust; Taxation; Addi-
tional Information
7. Purchase of Securities How to Invest; Net Asset
Being Offered Value; Additional Information
8. Redemption or How to sell Shares of the
Repurchase Fund; Additional Information
</TABLE>
<PAGE>
9. Pending Legal Not Applicable
Proceedings
<TABLE>
<CAPTION>
PART B CAPTION
- ------ -------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value,
and Pricing of Other Information Regarding
Securities Being Purchases, Redemptions, Ex-
Offered changes and Dividends
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
GOLDMAN SACHS TRUST
Goldman Sachs Equity Funds
Service Shares
---------------
CROSS REFERENCE SHEET
(as required by Rule 485)
PART A CAPTION
- ------ -------
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs Captial Growth Fund, Goldman Sachs Mid Cap Equity Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman
Sachs Emerging Markets Equity Fund and Goldman Sachs Asia Growth Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fund Highlights; Fees and
Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description Cover Page; Fund Highlights;
of Registrant Investment Objective and Poli-
cies; Description of Securi-
ties; Risk Factors; Investment
Techniques; Investment Re-
strictions; Portfolio Turn-
over; Reports to Shareholders;
Shares of the Trust; Addition-
al Information
5. Management of the Fund Management
6. Capital Stock and Dividends; Shares of
Other Securities the Trust; Taxation; Addi-
tional Information
7. Purchase of Securities How to Invest; Net Asset
Being Offered Value; Additional Information
8. Redemption or How to sell Shares of the
Repurchase Fund; Additional Information
</TABLE>
<PAGE>
9. Pending Legal Not Applicable
Proceedings
<TABLE>
<CAPTION>
PART B CAPTION
- ------ -------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Not Applicable
and History
13. Investment Objectives Investment Policies;
and Policies Investment Restrictions
14. Management of the Management
Registrant
15. Control Persons and Shares of the Trust
Principal Holders of
Securities
16. Investment Advisory Management
and Other Services
17. Brokerage Allocation Portfolio Transactions
and Other Securities and Brokerage
18. Capital Stock and Shares of the Trust
Other Securities
19. Purchase, Redemption Management; Net Asset Value,
and Pricing of Other Information Regarding
Securities Being Purchases, Redemptions, Ex-
Offered changes and Dividends
20. Tax Status Taxation
21. Underwriters Management-Distributor
22. Calculation of Performance Information
Performance Data
23. Financial Statements Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and Small Cap
Value (formerly "Small Cap Equity") Funds. Goldman Sachs Funds Management, L.P.
("GSFM"), New York, New York, an affiliate of Goldman Sachs, serves as
investment adviser to the CORE U.S. Equity (formerly the "Select Equity Fund")
and Capital Growth Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as investment
adviser to the International Equity, Emerging Markets Equity and Asia Growth
Funds. GSAM, GSFM and GSAMI are each referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as each Fund's distributor and
transfer agent.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
PROSPECTUS
GOLDMAN SACHS EQUITY FUNDS CLASS A, B AND C SHARES
October 1, 1997
GOLDMAN SACHS BALANCED FUND
Seeks long-term capital growth and current income through investments in eq-
uity and fixed income securities.
GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and growth of income through investments
in equity securities that are considered to have favorable prospects for
capital appreciation and/or dividend paying ability.
GOLDMAN SACHS CORE U.S. EQUITY FUND
Seeks long-term growth of capital and dividend income through a broadly di-
versified portfolio of large cap and blue chip equity securities represent-
ing all major sectors of the U.S. economy.
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of U.S. issuers which are included in the Russell 2000 In-
dex at the time of investment.
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap companies that are organized outside the U.S.
or whose securities are principally traded outside the U.S.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital through diversified investments in equity
securities of companies that are considered to have long-term capital appre-
ciation potential.
GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term capital appreciation primarily through investments in equity
securities of companies with public stock market capitalizations of between
$500 million and $10 billion at the time of investment.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies that are organized outside the U.S. or whose securities
are principally traded outside the U.S.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through investments in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of emerging country issuers.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation through investments in equity securi-
ties of companies related (in the manner described herein) to Asian coun-
tries.
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES
OF U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS
OF ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING
COUNTRIES IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA
GROWTH FUNDS MAY INVEST WITHOUT LIMIT, AND IN WHICH OTHER FUNDS CAN INVEST A
PORTION OF THEIR ASSETS, ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY,
HAVE SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE
NOT SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER
REPORTING REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
FURTHER, INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND
CERTAIN OTHER EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS
IN SHARE REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED
WITH INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated October 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains
the Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights....................................................... 3
Fees and Expenses..................................................... 8
Financial Highlights.................................................. 14
Investment Objectives and Policies.................................... 23
Description of Securities............................................. 31
Investment Techniques................................................. 36
Risk Factors.......................................................... 40
Investment Restrictions............................................... 42
Portfolio Turnover.................................................... 42
Management............................................................ 43
Reports to Shareholders............................................... 48
How to Invest......................................................... 48
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders.................................... 54
Distribution and Authorized Dealer Service Plans...................... 57
How to Sell Shares of the Funds....................................... 58
Dividends............................................................. 60
Net Asset Value....................................................... 61
Performance Information............................................... 61
Shares of the Trust................................................... 62
Taxation.............................................................. 63
Additional Information................................................ 65
Appendix ............................................................. A-1
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND NAMES INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARKS
------------- ---------------------- ----------------------- -----------------------
<S> <C> <C> <C>
BALANCED FUND Long-term capital growth Between 45% and 65% of Lehman Aggregate Bond
and current income. total assets in equity Index and the Standard &
securities and at least Poor's Index of 500
25% in fixed income Common Stocks (the "S&P
senior securities. 500 Index")
- --------------------------------------------------------------------------------------------
GROWTH AND Long-term growth of At least 65% of total S&P 500 Index
INCOME FUND capital and growth of assets in equity
income. securities that the
Investment Adviser
considers to have
favorable prospects for
capital appreciation
and/or dividend paying
ability.
- --------------------------------------------------------------------------------------------
CORE U.S. Long-term growth of At least 90% of total S&P 500 Index
EQUITY FUND capital and dividend assets in
income. equity securities of
U.S. issuers. The Fund
seeks to achieve its
objective through a
broadly diversified
portfolio of large cap
and blue chip equity
securities representing
all major sectors of
the U.S. economy. The
Fund's investments are
selected using both a
variety of quantitative
techniques and
fundamental research in
seeking to maximize the
Fund's expected return,
while maintaining risk,
style, capitalization
and industry
characteristics
similar to the S&P 500
Index.
</TABLE>
(continued)
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ----------------------------- --------------------
<S> <C> <C> <C>
CORE LARGE Long-term growth of At least 90% of total assets Russell 1000 Growth
CAP GROWTH capital. in equity securities of U.S. Index
FUND Dividend income is a issuers, including certain
secondary foreign issuers traded in the
consideration. U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of equity securities of large
cap U.S. issuers that are
expected to have better
prospects for earnings growth
than the growth rate of the
general domestic economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
Russell 1000 Growth Index.
- -------------------------------------------------------------------------------------------
CORE SMALL Long-term growth of At least 90% of total assets Russell 2000 Index
CAP EQUITY capital. in equity securities of U.S.
FUND issuers, including certain
foreign issuers traded in the
U.S. The Fund seeks to achieve
its objective through a
broadly diversified portfolio
of equity securities of U.S.
issuers which are included in
the Russell 2000 Index at the
time of investment. The Fund's
investments are selected using
both a variety of quantitative
techniques and fundamental
research in seeking to
maximize the Fund's expected
return, while maintaining
risk, style, capitalization
and industry characteristics
similar to the Russell 2000
Index.
- -------------------------------------------------------------------------------------------
CORE Long-term growth of At least 90% of total assets EAFE Index (unhedged)
INTERNATIONAL capital. in equity securities of
EQUITY FUND companies organized outside
the United States or whose
securities are principally
traded outside the United
States. The Fund seeks broad
representation of large cap
issuers across major countries
and sectors of the
international economy. The
Fund's investments are
selected using both a variety
of quantitative techniques and
fundamental research in
seeking to maximize the Fund's
expected return, while
maintaining risk, style,
capitalization and industry
characteristics similar to the
unhedged Morgan Stanley
Capital International (MSCI)
Europe, Australia and Far East
Index (the "EAFE Index"). The
Fund may employ certain
currency management
techniques.
- -------------------------------------------------------------------------------------------
CAPITAL Long-term capital At least 90% of total assets S&P 500 Index
GROWTH FUND growth. in a diversified portfolio of
equity securities. The
Investment Adviser considers
long-term capital appreciation
potential in selecting
investments.
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
FUND NAME INVESTMENT OBJECTIVES INVESTMENT CRITERIA BENCHMARK
- -------------- --------------------- ----------------------------- --------------------
<S> <C> <C> <C>
MID CAP Long-term capital At least 65% of total assets Russell Midcap Index
EQUITY FUND appreciation. in equity securities of
companies with public stock
market capitalizations of
between $500 million and $10
billion at the time of
investment ("Mid-Cap
Companies").
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term capital Substantially all, and at FT/S&P Actuaries
EQUITY FUND appreciation. least 65%, of total assets in Europe & Pacific
equity securities of companies Index (unhedged)
organized outside the United
States or whose securities are
principally traded outside the
United States. The Fund may
employ currency management
techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term capital At least 65% of total assets Russell 2000
VALUE FUND growth. in equity securities of
companies with public stock
market capitalizations of $1
billion or less at the time of
investment. The Fund currently
emphasizes investments
in companies with
public stock market
capitalizations
of $500 million or less at the
time of investment.
- -------------------------------------------------------------------------------------------
EMERGING Long-term capital Substantially all, and at Morgan Stanley
MARKETS appreciation. least 65%, of total assets in Capital International
EQUITY FUND equity securities of emerging Emerging Markets Free
country issuers. The Fund may Index
employ certain currency
management techniques.
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term capital Substantially all, and at Morgan Stanley
FUND appreciation. least 65%, of total assets in Capital International
equity securities of companies All Country Asia Free
in China, Hong Kong, India, ex Japan Index
Indonesia, Malaysia, Pakistan,
the Philippines,
Singapore, South Korea, Sri
Lanka, Taiwan and Thailand.
The Fund may employ certain
currency management
techniques.
</TABLE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to
the extent applicable, foreign exchange conditions, so that an investment
in any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent
that a Fund invests in the securities of small market capitalization
companies, the Fund may be exposed to a higher degree of risk and price
volatility . Securities of such issuers may lack sufficient market
liquidity to enable a Fund to effect sales at an advantageous time or
without a substantial drop in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments
5
<PAGE>
and currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. Generally, there is less availability of
data on foreign companies and securities markets as well as less regulation of
foreign stock exchanges, brokers and issuers. A Fund's investments in emerging
markets and countries ("Emerging Countries") involves greater risks than
investments in the developed countries of Western Europe, the United States,
Canada, Australia, New Zealand and Japan. In addition, because the CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds invest primarily outside the United States, these Funds may
involve greater risks, since the securities markets of foreign countries are
generally less liquid and subject to greater price volatility. The securities
markets of emerging countries, including those in Asia, Latin America, Eastern
Europe and Africa are marked by a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such securities
by a limited number of investors.
Other. A Fund's use of certain investment techniques, including derivatives,
forward contracts, options and futures, will subject the Fund to greater risk
than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Mid Cap Equity and Small Cap Value Funds. Goldman Sachs
Funds Management, L.P. serves as Investment Adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the International Equity, Emerging Markets Equity and
Asia Growth Funds. As of August 19, 1997, the Investment Advisers, together
with their affiliates, acted as investment adviser or distributor for assets in
excess of $124 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
<TABLE>
<CAPTION>
MINIMUM
--------------------
INITIAL
PURCHASE ADDITIONAL
TYPE OF PURCHASE AMOUNT INVESTMENTS
- ---------------- -------- -----------
<S> <C> <C>
Regular Purchases.......................................... $1,000 $50
Tax-Sheltered Retirement Plans and UGMA/UTMA Purchases..... $ 250 $50
Automatic Investment Plan.................................. $ 50 $50
403(b) Plans............................................... $ 200 $50
</TABLE>
For further information, see "How to Invest--How to Buy Shares of the Funds"
on page 49.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of Securities
Dealers, Inc. (the "NASD") and certain other financial service firms that have
agreements with Goldman Sachs relating to the sale of shares ("Authorized
Dealers"). See "How to Invest" on page 48.
6
<PAGE>
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer three classes of shares through this Prospectus. These shares
may be purchased at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed at
the time of purchase ("Class A shares"), (ii) with a contingent deferred sales
charge imposed on redemptions within six years of purchase ("Class B shares")
or (iii) without any initial or contingent deferred sales charge, as long as
shares are held for one year or more ("Class C Shares"). Direct purchases of $1
million or more of Class A shares will be sold without an initial sales charge
and will be subject to a contingent deferred sales charge at the time of
certain redemptions.
<TABLE>
<CAPTION>
MAXIMUM INITIAL MAXIMUM CONTINGENT
ALL FUNDS SALES CHARGE DEFERRED SALES CHARGE
--------- --------------- ---------------------
<S> <C> <C>
Class A................. 5.5% (See above)
Class B................. N/A 5% declining to 0% after six years
Class C................. N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>
Over time, the deferred sales charge and distribution fees attributable to
Class B or Class C shares will exceed the initial sales charge and the
distribution fees attributable to Class A shares. Class B shares convert to
Class A shares, which are subject to lower distribution fees, eight years after
initial purchase. Class C shares, which are subject to the same distribution
fees as Class B shares, do not convert to Class A shares and are subject to the
higher distribution fees indefinitely. See "How to Invest--Alternative Purchase
Arrangements" on page 48.
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after receipt
of such request in proper form, subject to any applicable contingent deferred
sales charge. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- --------------------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
CORE International Equity............. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Small Cap Value....................... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
You may receive dividends in additional shares of the same class of the Fund
in which you have invested or you may elect to receive dividends in cash,
shares of the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Funds") or ILA Service Units of the Prime Obligations Portfolio
or the Tax-Exempt Diversified Portfolio, if you hold Class A shares of a Fund,
or ILA Class B or Class C Units of the Prime Obligations Portfolio, if you hold
Class B or Class C shares of a Fund (the "ILA Portfolios"). For further
information concerning dividends, see "Dividends."
7
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
GROWTH
AND CORE U.S.
BALANCED INCOME EQUITY
FUND FUND FUND
-------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C/5/
------- ------- ---------- ------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none none none none
Exchange
Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
net assets)
Management Fees
(after
applicable
limitations)/6/. 0.65% 0.65% 0.65% 0.70% 0.70% 0.70% 0.59% 0.59% 0.59%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.04% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.10% 0.10% 0.10% 0.23% 0.23% 0.23% 0.24% 0.24% 0.24%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/. 1.00% 1.75% 1.75% 1.22% 1.93% 1.93% 1.29% 1.83% 1.83%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
CORE CORE CORE
LARGE CAP SMALL CAP INTERNATIONAL
GROWTH FUND/5/ EQUITY FUND/5/ EQUITY FUND/5/
-------------------------------- -------------------------------- --------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........ none none none none none none none none none
Exchange
Fees/4/........ none none none none none none none none none
ANNUAL FUND OPERATING
EXPENSES:
(as a percentage of average
net assets)
Management Fees
(after
applicable
limitations)/6/. 0.60% 0.60% 0.60% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.05% 0.75% 0.75% 0.25% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.05% 0.05% 0.05% 0.20% 0.20% 0.20% 0.25% 0.25% 0.25%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/. 0.90% 1.65% 1.65% 1.25% 1.95% 1.95% 1.50% 2.00% 2.00%
========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
8
<PAGE>
FEES AND EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
CAPITAL MID CAP INT'L
GROWTH EQUITY EQUITY
FUND FUND/5/ FUND
-------------------------------- ----------------------------- --------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
------- ------- ---------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases.... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends....... none none none none none none none none none
Maximum Deferred
Sales Charge.... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/......... none none none none none none none none none
Exchange
Fees/4/......... none none none none none none none none none
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average net
assets)
Management Fees
(after
applicable
limitations)/6/. 1.00% 1.00% 1.00% 0.75% 0.75% 0.75% 0.89% 0.89% 0.89%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.25% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.15% 0.15% 0.15% 0.10% 0.10% 0.10% 0.34% 0.34% 0.34%
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/.. 1.40% 2.15% 2.15% 1.35% 1.85% 1.85% 1.69% 2.23% 2.23%
==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
SMALL EMERGING
CAP MARKETS ASIA
VALUE EQUITY GROWTH
FUND FUND/5/ FUND
--------------------------------- -------------------------------- ---------------------------------
CLASS A CLASS B CLASS C/5/ CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C/5/
---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases.... 5.5%/1/ none none 5.5%/1/ none none 5.5%/1/ none none
Maximum Sales
Charge Imposed
on Reinvested
Dividends....... none none none none none none none none none
Maximum Deferred
Sales Charge.... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/......... none none none none none none none none none
Exchange
Fees/4/......... none none none none none none none none none
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average net
assets)
Management Fees
(after
applicable
limitations)/6/. 1.00% 1.00% 1.00% 1.10% 1.10% 1.10% 0.86% 0.86% 0.86%
Distribution
(Rule 12b-1)
Fees (after
applicable
limitations)/7/. 0.00% 0.75% 0.75% 0.25% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.35% 0.35% 0.35% 0.30% 0.30% 0.30% 0.35% 0.35% 0.35%
---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/.. 1.60% 2.35% 2.35% 1.90% 2.40% 2.40% 1.67% 2.21% 2.21%
========== ========== =========== ========== ========== ========== ========== ========== ===========
</TABLE>
- ----
/1/As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.00% is imposed on certain redemptions of Class A
shares sold without an initial sales charge as part of an investment of $1
million or more. See "How to Invest--Offering Price--Class A Shares."
/2/A contingent deferred sales charge is imposed upon shares redeemed within
six years of purchase at a rate of 5% in the first year, declining to 1% in
the sixth year, and eliminated thereafter. See "How to Invest--Offering
Price--Class B Shares."
/3/A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/5/Based on estimated amounts for the current fiscal year.
/6/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds equal to .16%, .15%,
.10%, .10%, .11%, .10% and .14%, respectively. Without such limitations,
management fees would be .75%, .75%, .85%, .85%, 1.00%, 1.20% and 1.00% of
each Fund's average daily net assets, respectively.
/7/Goldman Sachs is imposing the entire distribution fee attributable to Class
A shares of the CORE International Equity, Mid Cap Equity and Emerging
Markets Equity Funds. Goldman Sachs voluntarily has agreed not to impose the
entire distribution fee attributable to Class A shares of each other Fund,
except Growth and Income,
9
<PAGE>
CORE U.S. Equity, CORE Small Cap Equity, International Equity and Asia Growth
Funds where Goldman Sachs voluntarily has agreed not to impose a portion of
the distribution fee equal to .21%, .04%, .20%, .04% and .04%, respectively,
of the distribution fee. Distribution fees for Class A shares would otherwise
be payable at the rate of .25% of average daily net assets.
/8/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of each Fund other than Balanced, CORE Large Cap Growth, CORE
Small Cap Equity, CORE International Equity and Mid Cap Equity Funds) for
the following funds to the extent such expenses exceed the following
percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
CORE International Equity........................................ 0.25%
Mid Cap Equity................................................... 0.10%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/9/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below.
Information for Class A and Class B shares of the Balanced, Growth and
Income, CORE U.S. Equity, Capital Growth, International Equity, Small Cap
Value and Asia Growth Funds is shown for the fiscal year ended January 31,
1997. Information for the Class A and B shares of the CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and
Emerging Markets Equity Funds, and Class C shares of each Fund are estimated
for the current fiscal year.
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced
Class A.............................................. 0.62% 1.77%
Class B.............................................. 0.62% 2.27%
Class C.............................................. 0.62% 2.27%
Growth and Income
Class A.............................................. 0.23% 1.43%
Class B.............................................. 0.23% 1.93%
Class C.............................................. 0.23% 1.93%
CORE U.S. Equity
Class A.............................................. 0.28% 1.53%
Class B.............................................. 0.28% 2.03%
Class C.............................................. 0.28% 2.03%
CORE Large Cap Growth
Class A.............................................. 0.65% 1.90%
Class B.............................................. 0.65% 2.40%
Class C.............................................. 0.65% 2.40%
CORE Small Cap Equity
Class A.............................................. 0.71% 2.06%
Class B.............................................. 0.71% 2.56%
Class C.............................................. 0.71% 2.56%
CORE International Equity
Class A.............................................. 0.86% 2.21%
Class B.............................................. 0.86% 2.71%
Class C.............................................. 0.86% 2.71%
Capital Growth
Class A.............................................. 0.15% 1.65%
Class B.............................................. 0.15% 2.15%
Class C.............................................. 0.15% 2.15%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Mid Cap Equity
Class A.............................................. 0.26% 1.51%
Class B.............................................. 0.26% 2.01%
Class C.............................................. 0.26% 2.01%
International Equity
Class A.............................................. 0.38% 1.88%
Class B.............................................. 0.38% 2.38%
Class C.............................................. 0.38% 2.38%
Small Cap Value
Class A.............................................. 0.35% 1.85%
Class B.............................................. 0.35% 2.35%
Class C.............................................. 0.35% 2.35%
Emerging Markets Equity
Class A.............................................. 0.92% 2.62%
Class B.............................................. 0.92% 3.12%
Class C.............................................. 0.92% 3.12%
Asia Growth
Class A.............................................. 0.37% 1.87%
Class B.............................................. 0.37% 2.37%
Class C.............................................. 0.37% 2.37%
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A Shares................................ $65 $85 $107 $171
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 68 85 115 181
--Assuming no redemption...................... 18 55 95 181
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 28 55 95 206
--Assuming no redemption...................... 18 55 95 206
Growth and Income Fund
Class A Shares................................ 67 92 118 195
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 91 124 200
--Assuming no redemption...................... 20 61 104 200
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 30 61 104 225
--Assuming no redemption...................... 20 61 104 225
CORE U.S. Equity Fund
Class A Shares................................ 67 94 122 202
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 69 88 119 193
--Assuming no redemption...................... 19 58 99 193
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 29 58 99 215
--Assuming no redemption...................... 19 58 99 215
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
CORE Large Cap Growth Fund
Class A Shares................................ 64 82 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 67 82 N/A N/A
--Assuming no redemption...................... 17 52 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 27 52 N/A N/A
--Assuming no redemption...................... 17 52 N/A N/A
CORE Small Cap Equity Fund
Class A Shares................................ 67 92 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 91 N/A N/A
--Assuming no redemption...................... 20 61 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 30 61 N/A N/A
--Assuming no redemption...................... 20 61 N/A N/A
CORE International Equity Fund
Class A Shares................................ 69 100 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 70 93 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 30 63 N/A N/A
--Assuming no redemption...................... 20 63 N/A N/A
Capital Growth Fund
Class A Shares................................ 68 97 127 214
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 72 97 135 222
--Assuming no redemption...................... 22 67 115 222
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 32 67 115 248
--Assuming no redemption...................... 32 67 115 248
Mid Cap Equity Fund
Class A Shares................................ 68 95 125 208
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 69 88 120 194
--Assuming no redemption...................... 19 58 100 194
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 29 58 100 217
--Assuming no redemption...................... 19 58 100 217
International Equity Fund
Class A Shares................................ 71 105 142 244
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 73 100 139 234
--Assuming no redemption...................... 23 70 119 234
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 33 70 119 256
--Assuming no redemption...................... 23 70 119 256
Small Cap Value Fund
Class A Shares................................ 70 103 137 235
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 74 103 146 242
--Assuming no redemption...................... 24 73 126 242
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 34 73 126 269
--Assuming no redemption...................... 24 73 126 269
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Emerging Markets Equity Fund
Class A Shares................................ 73 111 N/A N/A
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 74 105 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 34 75 N/A N/A
--Assuming no redemption...................... 24 75 N/A N/A
Asia Growth Fund
Class A Shares................................ 71 105 141 242
Class B Shares
--Assuming complete redemption at end of peri-
od........................................... 72 99 138 233
--Assuming no redemption...................... 22 69 118 233
Class C Shares
--Assuming complete redemption at end of peri-
od........................................... 32 69 118 254
--Assuming no redemption...................... 22 69 118 254
</TABLE>
The hypothetical example assumes that a contingent deferred sales charge
will not apply to redemptions of Class A shares within the first 18 months.
Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight.
The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information set forth in the
foregoing table and hypothetical example relates only to Class A, B and C
shares. Each Fund also offers Institutional and Service Shares, which are
subject to different fees and expenses (which affect performance), have
different minimum investment requirements and are entitled to different
services than Class A, Class B and Class C shares. Information regarding
Institutional and Service Shares may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
page of this Prospectus. Because of the Distribution Plans, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the NASD's rules regarding investment
companies.
In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive certain compensation
for the sale and distribution of Class A, Class B and Class C shares of the
Funds or for services to the Funds. For additional information regarding such
compensation, see "Management" and "Services Available to Shareholders" in the
Prospectus and "Other Information Regarding Purchases, Redemptions, Exchanges
and Dividends" in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
13
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds (except the CORE Large Cap Growth Fund) outstanding during the period(s)
indicated has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders for the Funds for
the year ended January 31, 1997 (the "Annual Report"). The following data with
respect to a share (of the Class specified) of the CORE Large Cap Growth Fund
during the period ended July 31, 1997 are unaudited. This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report and Semi-Annual Report also contain performance information and are
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus. During
the periods shown, the Trust did not offer Class A, Class B or Class C shares
of the CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and
Emerging Markets Equity Funds or Class C shares of any other Fund.
Accordingly, there are no financial highlights for these Funds or Classes.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURE INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- ------------- ---------- ----------- --------- ---------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... $17.31 $0.66 $2.47 $(0.66) $(1.00) -- $1.47 $18.78 18.59%
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- -------------
BALANCED FUND
- ---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 208.11(f) $.0587 $81,410 1.00% 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET ADDITIONAL
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT PAID-IN
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME CAPITAL
--------- ---------- -------------- ---------- ------------- ---------- ----------
GROWTH AND INCOME FUND
- ----------------------------------------------------------------------------------------------------
1997--Class A
Shares.......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01) $--
1997--Class B
Shares(f)....... 20.82 0.17 4.31 (0.17) (1.97) (0.06) --
1997--Institu-
tional
Shares(f)....... 21.25 0.29 3.96 (0.30) (1.97) (0.04) --
1997--Service
Shares(f)....... 20.71 0.28 4.50 (0.28) (1.97) (0.07) --
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) (0.60) -- --
1995--Class A
Shares.......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07) 0.11(b)
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 14.18 0.15 1.68 (0.15) (0.06) (0.01) --
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
NET NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(A) RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- -------------
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $3.20 $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD
ENDED JANUARY
31,
1994--Class A
Shares(c)....... 1.61 15.79 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(H) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- ------------- ---------- ----------- --------- ---------
CORE U.S. EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $19.66 $0.16 $4.46 $(0.16) $(0.80) -- $3.66 $23.32 23.75%
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET RATIO OF NET INVESTMENT
ASSETS AT NET INVESTMENT RATIO OF INCOME
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(G) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- ------------
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD
ENDED JANUARY
31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
16
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(E) SHAREHOLDERS
------------------------- ----------------------------------
NET REALIZED FROM
AND UNREALIZED NET REALIZED
NET ASSET GAIN ON FROM GAIN ON IN EXCESS NET NET ASSET
VALUE, NET INVESTMENTS, NET INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT OPTIONS AND INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- ---------- ------------ ---------- ----------- --------- ---------
CORE LARGE CAP GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares (unau-
dited).......... $10.00 $0.01 $1.94 -- -- -- $1.95 $11.95 19.50%(f)
1997--Class B
Shares (unau-
dited).......... 10.00 -- 1.94 -- -- -- 1.94 11.94 19.40(f)
1997--Institu-
tional Shares
(unaudited)..... 10.00 0.03 1.92 -- -- -- 1.95 11.95 19.50(f)
1997--Service
Shares (unau-
dited).......... 10.00 0.02 1.92 -- -- -- 1.94 11.94 19.40(f)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
NET RATIO OF
ASSETS AT RATIO OF RATIO OF NET NET
END OF NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE PERIOD EXPENSES TO INCOME TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION (IN AVERAGE NET AVERAGE NET AVERAGE NET TO AVERAGE
RATE RATE(B) 000'S) ASSETS ASSETS ASSETS NET ASSETS
----------- ---------- --------- ------------ ------------- ------------ -------------
CORE LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(C)
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares (unau-
dited).......... 18.14%(f) $0.0292 $29,491 0.90%(d) 0.45%(d) 2.96%(d) (1.61)%(d)
1997--Class B
Shares (unau-
dited).......... 18.14(f) 0.0292 3,734 1.65(d) (0.35)(d) 3.46(d) (1.90)(d)
1997--Institu-
tional Shares
(unaudited)..... 18.14(f) 0.0292 2 0.65(d) 0.94 (d) 2.46(d) (0.87)(d)
1997--Service
Shares (unau-
dited).......... 18.14(f) 0.0292 2 1.15(d) 0.30 (d) 2.96(d) (1.51)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(c) For the period from May 1, 1997 (commencement of operations) to July 31,
1997.
(d) Annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) Not annualized.
17
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ ------------------------------------
NET REALIZED FROM NET NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENTS OF NET (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT OPTIONS INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME AND FUTURES INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- -------------- ---------- ----------- --------- ---------
CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $14.91 $0.10 $3.56 $(0.10) $(1.72) $(0.02) $1.82 $16.73 25.97%
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
RATIO OF ------------------------
NET RATIO OF
NET RATIO OF INVESTMENT NET
ASSETS AT NET INCOME RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO (LOSS) TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(F) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------ ---------- -------------
CAPITAL GROWTH FUND
- ---------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 52.92% $.0563 $920,646 1.40% 0.62% 1.65% 0.37%
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD
ENDED JANUARY
31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
18
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
---------------------------------
NET
REALIZED TOTAL
AND INCOME
NET ASSET UNREALIZED (LOSS)
VALUE, NET GAIN ON FROM
BEGINNING INVESTMENT INVESTMENTS INVESTMENT
OF PERIOD INCOME AND OPTIONS OPERATIONS
--------- ---------- ----------- ----------
MID CAP EQUITY FUND
- ------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Institu-
tional Shares... $15.91 $0.24 $3.77 $4.01
FOR THE PERIOD
ENDED JANUARY
31,
1996--Institu-
tional
Shares(a)....... 15.00 0.13 0.90 1.03
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------
NET
FROM NET ASSETS
REALIZED NET NET AT END
IN EXCESS GAIN ON TOTAL INCREASE ASSET OF
FROM NET OF NET INVESTMENTS DISTRIBUTIONS IN NET VALUE, PORTFOLIO AVERAGE PERIOD
INVESTMENT INVESTMENT AND OPTION TO ASSET END OF TOTAL TURNOVER COMMISSION (IN
INCOME INCOME TRANSACTIONS SHAREHOLDERS VALUE PERIOD RETURN(B) RATE RATE(E) 000'S)
---------- ---------- ------------ ------------- -------- ------ ---------- ---------- ---------- --------
MID CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Institu-
tional Shares... $(0.24) $(0.02) $(0.93) $(1.19) $2.82 $18.73 25.63% 74.03% $.0547 $145,253
FOR THE PERIOD
ENDED JANUARY
31,
1996--Institu-
tional
Shares(a)....... (0.12) -- -- (0.12) 0.91 15.91 6.89(d) 58.77(d) -- 135,671
<CAPTION>
RATIOS ASSUMING NO
EXPENSE LIMITATIONS
--------------------
RATIO OF RATIO OF
NET RATIO OF NET
INVESTMENT EXPENSES INVESTMENT
RATIO OF NET INCOME TO TO INCOME TO
EXPENSES TO AVERAGE AVERAGE AVERAGE
AVERAGE NET NET NET NET
ASSETS ASSETS ASSETS ASSETS
------------ ---------- --------- ----------
MID CAP EQUITY FUND
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1997--Institu-
tional Shares... 0.85% 1.35% 0.91% 1.29%
FOR THE PERIOD
ENDED JANUARY
31,
1996--Institu-
tional
Shares(a)....... 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- ----
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
19
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(G)
----------------------------------------
NET NET REALIZED
REALIZED AND UNREALIZED
AND UNREALIZED GAIN (LOSS)
NET ASSET NET GAIN (LOSS) ON ON FOREIGN
VALUE, INVESTMENT INVESTMENTS, CURRENCY
BEGINNING INCOME OPTIONS RELATED
OF PERIOD (LOSS) AND FUTURES TRANSACTIONS
--------- ---------- -------------- --------------
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28)
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34)
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38)
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11)
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
-----------------------
FROM NET
REALIZED
GAIN ON NET NET RATIO OF
FROM INVESTMENT, INCREASE NET ASSET ASSETS AT NET
NET OPTION AND (DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO
INVESTMENT FUTURES IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET
INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000'S) ASSETS
---------- ------------ ----------- --------- ----------- --------- ---------- ---------- -----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $ -- $(0.21) $2.12 $19.32 13.48% 38.01% $.0318 $536,283 1.69%
1997--Class B
Shares(e)....... -- (0.21) 0.33 19.24 2.83(c) 38.01 .0318 19,198 2.23(d)
1997--Institu-
tional
Shares(e)....... (0.03) (0.21) 1.95 19.40 12.53(c) 38.01 .0318 68,374 1.10(d)
1997--Service
Shares(e)....... -- (0.21) 1.64 19.34 10.42(c) 38.01 .0318 674 1.60(d)
1996--Class A
Shares.......... (0.58) (0.87) 2.68 17.20 28.68 68.48 -- 330,860 1.52
1995--Class A
Shares.......... -- (0.59) (3.58) 14.52 (16.65) 84.54 -- 275,086 1.73
1994--Class A
Shares.......... -- -- 3.75 18.10 26.13 60.04 -- 269,091 1.76
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... -- -- 0.17 14.35 1.23(c) 0.00 -- 66,063 1.80(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET
INVESTMENT RATIO OF INVESTMENT
INCOME (LOSS) EXPENSES INCOME (LOSS)
TO AVERAGE TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS NET ASSETS
------------- ---------- -------------
INTERNATIONAL EQUITY FUND
- -------------------------------------------------------
<S> <C> <C> <C>
1997--Class A
Shares.......... (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 0.26 1.77 0.01
1995--Class A
Shares.......... 0.40 1.98 0.15
1994--Class A
Shares.......... 0.51 2.01 0.26
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(b)....... (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
20
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON NET
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND (DECREASE) VALUE,
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES IN NET END OF TOTAL
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- -------------- ------------ ----------- --------- ---------
SMALL CAP VALUE FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ -- $ 3.62 $20.91 $ 27.28%
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
-----------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------- ---------- ------------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD
ENDED JANUARY
31,
1993--Class A
Shares(c)....... 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
21
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
---------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN (LOSS) ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- -------------- -------------- ---------- ---------- ----------- --------- ---------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ -- $(0.18) $16.31 (1.01)%
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--Institu-
tional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY
31,
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD
ENDED JANUARY
31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
22
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
and the equity portion of the Balanced Funds are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Funds") are
managed using both quantitative and fundamental techniques. CORE is an acronym
for "Computer-Optimized, Research-Enhanced," which reflects
23
<PAGE>
the CORE Funds' investment process. This investment process and the
proprietary models used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE U.S. Funds"), and a broad universe of
foreign equity securities for the CORE International Equity Fund. As described
more fully below, the Investment Adviser uses proprietary multifactor models
(each a "Multifactor Model") to forecast the returns of different markets,
currencies and individual securities. In the case of a U.S. equity security
followed by the Goldman Sachs Global Investment Research Department (the
"Research Department"), a rating is assigned based upon the Research
Department's evaluation. In the discretion of the Investment Adviser, ratings
may also be assigned to U.S. equity securities based on research ratings
obtained from other industry sources. In the case of a foreign equity
security, the Investment Adviser may rely on research from both the Research
Department and other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE U.S. Funds use one Multifactor Model to forecast the
returns of securities held in each Fund's portfolio. The CORE International
Equity Fund uses multiple Multifactor Models to forecast returns. Currently,
the CORE International Equity Fund uses one model to forecast equity market
returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price ratio, price momentum, price volatility, consensus growth
forecasts, earnings estimate revisions, earnings stability, and, in the case
of models for the CORE International Equity Fund, currency momentum and
country political risk ratings). All of the factors used in the Multifactor
Models have been shown to significantly impact the performance of the
securities, currencies and markets they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Funds are derived using a statistical formulation that considers
each factor's historical performance in different market environments. As
such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the
Investment Adviser believes that all the Multifactor Models are broader in
scope and provide a more thorough evaluation than most conventional
quantitative models. Securities and markets ranked highest by the relevant
Multifactor Model do not have one dominant investment characteristic; rather,
they possess an attractive combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." The ratings reflect
the analyst's judgment as to the investment results of a specific security and
incorporate economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.
24
<PAGE>
BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
25
<PAGE>
CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective: The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives And Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with
U.S. accounting standards. The Investment Adviser emphasizes a company's
growth prospects in analyzing equity securities to be purchased by the Fund.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with
U.S. accounting standards. The Fund's investments are selected using both a
variety of quantitative
26
<PAGE>
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index. The Fund seeks a portfolio
comprised of companies with small market capitalizations, strong expected
earnings growth and momentum, and better valuation and risk characteristics
than the Russell 2000 Index. The Fund may invest only in fixed income
securities that are considered cash equivalents.
The Investment Adviser believes that the companies in which the Fund may
invest offer greater opportunity for growth of capital than larger, more
mature, better known companies. Investments in small market capitalization
issuers involve special risks. See "Description of Securities" and "Risk
Factors." If the issuer of a portfolio security held by the Fund is no longer
included in the Russell 2000 Index, the Fund may, but is not required to, sell
the security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are principally
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
27
<PAGE>
CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the capitalization of an issuer increases above $10 billion
after purchase of such issuer's securities, the Fund may, but is not required
to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors." Up to 35% of the
Fund's total assets may be invested in fixed income securities.
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SMALL CAP VALUE FUND (FORMERLY THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
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Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Investments" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase equity securities of issuers that have not paid
dividends on a timely basis, securities of companies that have experienced
difficulties, and securities of companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
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different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in Asia (other than Japan) to the
extent that foreign investors are permitted by applicable law to make such
investments. Allocation of the Fund's investments will depend upon the
relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities of foreign issuers
that are traded in the U.S. and comply with U.S. accounting standards).
Investments in foreign securities may offer potential benefits that are not
available from investments exclusively in equity securities of domestic
issuers quoted in U.S. dollars. Foreign countries may have economic policies
or business cycles different from those of the U.S. and markets for foreign
securities do not necessarily move in a manner parallel to U.S. markets.
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Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). 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 a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign 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 about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than 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), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs"), and each
Fund, other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds, may also invest in European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers
(together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and the underlying securities are quoted. However, by investing in
Depository Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund
will avoid currency risks during the settlement period for purchases and
sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
CORE International Equity, International Equity, Emerging Markets
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Equity and Asia Growth Funds may have currency exposure independent of their
securities positions, the value of the assets of a Fund as measured in U.S.
dollars will be affected by changes in foreign currency exchange rates. A Fund
may, to the extent it invests in foreign securities, purchase or sell forward
foreign currency exchange contracts for hedging purposes and to seek to
protect against anticipated changes in future foreign currency exchange rates.
In addition, the Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies. 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, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by 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 U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps or other privately negotiated currency instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may also engage in a variety of foreign
currency management techniques. However, due to the limited market for these
instruments with respect to the currencies of many Emerging Countries,
including certain Asian
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countries, the Investment Advisers do not currently anticipate that a
significant portion of Emerging Markets Equity or Asia Growth Fund's currency
exposure will be covered by such instruments. For a discussion of such
instruments and the risks associated with their use, see "Investment Objective
and Policies" in the Additional Statement.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may invest
in debt obligations of foreign governments and governmental agencies,
including those of Emerging Countries. Investment in sovereign debt
obligations involves special risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, 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.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial
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investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage 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.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund 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 regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE
Funds, which only invest in debt instruments that are cash equivalents) may
invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets in debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth and Income, Capital Growth, Small Cap
Value, International Equity, Emerging Markets Equity and Asia Growth Funds may
invest up to 10%, 10%, 35%, 35%, 35%, and 35%, respectively, of their total
assets in debt securities which are unrated or rated in the lowest rating
categories by Standard & Poor's or Moody's (i.e., BB or lower by Standard &
Poor's or Ba or lower by Moody's), including securities rated D by Moody's or
Standard & Poor's. Mid Cap Equity Fund may invest up to 10% of its total
assets in below investment grade debt securities rated B or higher by Standard
& Poor's or B or higher by Moody's. Fixed income securities rated BBB or Baa
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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. Fixed income securities
rated BB or Ba or below (or comparable unrated securities) are commonly
referred to as "junk bonds" and are considered predominantly speculative and
may be questionable as to principal and interest payments. In some cases, such
bonds may be highly speculative, have poor prospects for reaching investment
grade standing and be in default. As a result, investment in such bonds will
entail greater speculative risks than those associated with investment in
investment grade bonds. Also, to the extent that the rating assigned to a
security in a Fund's portfolio is downgraded by a rating organization, the
market price and liquidity of such security may be adversely affected. See
Appendix A to the Additional Statement for a description of the corporate bond
ratings assigned by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependent upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or
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purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of options transactions, however, the writing
of an option on a foreign currency will constitute only a partial hedge, up to
the amount of the premium received. If an option that a Fund has written is
exercised, the Fund could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of
an option on foreign currency may constitute an effective hedge against
exchange rate fluctuations; however, in the event of exchange rate movements
adverse to a Fund's position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. In addition to purchasing put and call
options for hedging purposes, the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may
purchase call or put options on currency to seek to increase total return when
the Investment Adviser anticipates that the currency will appreciate or
depreciate in value, but the securities quoted or denominated in that currency
do not present attractive investment opportunities and are not held in the
Fund's portfolio. When purchased or sold to seek to increase total return,
options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. The profitability of a Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to correctly analyze the futures markets. In addition, because of the
low margin deposits normally required in futures trading, a relatively small
37
<PAGE>
price movement in a futures contract may result in substantial losses to a
Fund. Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain over-the-counter options, and certain
restricted securities, unless it is determined, based upon the continuing
review of the trading markets for a specific restricted security, that such
restricted security is eligible for resale under Rule 144A under the
Securities Act of 1933 and, therefore, is liquid. The Trustees have adopted
guidelines and delegated to the Investment Advisers the daily function of
determining and monitoring the liquidity of portfolio securities. The
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
each determination. Investing in restricted securities eligible for resale
pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The purchase price and subsequent
valuation of restricted and illiquid securities normally reflect a discount,
which may be significant, from the market price of comparable securities for
which a liquid market exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, a Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with
delay and enforcement of the repurchase agreement. The Trustees have reviewed
and approved certain counterparties whom they believe to be
38
<PAGE>
creditworthy and have authorized the Funds to enter into repurchase agreements
with such counterparties. In addition, each Fund, together with other
registered investment companies having management agreements with an
Investment Adviser or 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
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. Cash collateral may be invested in cash equivalents. If an
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of a
Fund. A Fund may experience a loss or delay in the recovery of its securities
if the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
MORTGAGE DOLLAR ROLLS
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) 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 would benefit to
the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for the forward purchase. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets in an amount equal to the forward
purchase price. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds and Emerging Market Equity Fund may only
hold up to 35% of their respective total assets) in U.S.
39
<PAGE>
Government securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds only), (iii) mortgage
swaps, index swaps and interest rate swaps, caps, floors and collars (Balanced
Fund only), (iv) yield curve options and inverse floating rate securities
(Balanced Fund only), (v) other investment companies, (vi) unseasoned
companies, (vii) municipal securities (Balanced Fund only) and (viii)
custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--Foreign
Investments." The International Equity, Emerging Markets Equity and Asia
Growth Funds may each invest without limit in the securities of issuers in
Emerging Countries. The CORE International Equity Fund may invest up to 25%,
the Balanced, Growth and Income, Mid Cap Equity and Small Cap Value Funds may
each invest up to 15% and the Capital Growth Fund may invest up to 10% of its
total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement volume
limitations have been reached.
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
40
<PAGE>
persons or limit investment by foreign persons to only a specified percentage
of an issuer's outstanding securities or a specific class of securities which
may have less advantageous terms (including price) than securities of the
issuer available for purchase by nationals. In addition, certain countries may
restrict or prohibit investment opportunities in issuers or industries deemed
important to national interests. Such restrictions may affect the market
price, liquidity and rights of securities that may be purchased by a Fund. The
repatriation of both investment income and capital from certain Emerging
Countries is subject to restrictions such as the need for governmental
consents. Due to restrictions on direct investment in equity securities in
certain Asian countries, such as Taiwan, it is anticipated that a Fund may
invest in such countries only through other investment funds in such
countries. See "Other Investment Companies" in the Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, 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 Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the 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. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such 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.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
41
<PAGE>
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's (other than the CORE
Small Cap Equity, CORE International Equity and Emerging Markets Equity Funds)
historical portfolio turnover ratio. It is anticipated that the annual
portfolio turnover rates of the CORE Small Cap Equity, CORE International
Equity and Emerging Markets Equity Funds will generally not exceed 70%, 70%
and 100%, respectively. The portfolio turnover rate is calculated by dividing
the lesser of the dollar amount of sales or purchases of portfolio securities
by the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less.
Notwithstanding the foregoing, the Investment Adviser may, from time to time,
make short-term investments when it believes such investments are in the best
interest of a Fund.
42
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004, a separate operating division of Goldman Sachs,
serves as the investment adviser to the Balanced, Growth and Income, CORE
Large Cap Growth, CORE Small Cap Equity, CORE International Equity, Mid Cap
Equity and Small Cap Value Funds. Goldman Sachs registered as an investment
adviser in 1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New
York, New York 10004, a Delaware limited partnership which is an affiliate of
Goldman Sachs, serves as the investment adviser to the CORE U.S. Equity and
Capital Growth Funds. Goldman Sachs Funds Management, L.P. registered as an
investment adviser in 1990. Goldman Sachs Asset Management International, 133
Peterborough Court, London EC4A 2BB, England, an affiliate of Goldman Sachs,
serves as the investment adviser to the International Equity, Emerging Markets
Equity and Asia Growth Funds. Goldman Sachs Asset Management International
became a member of the Investment Management Regulatory Organisation Limited
in 1990 and registered as an investment adviser in 1991. As of August 19,
1997, GSAM, GSFM and GSAMI, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $124 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will have access to
the research of, and proprietary technical models developed by, Goldman Sachs
and may apply quantitative and qualitative analysis in determining the
appropriate allocations among the categories of issuers and types of
securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
43
<PAGE>
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-----------------
----------------------
-------------
-----------------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty Investment
Management, Inc. and its
predecessor firm
("Liberty").
- ------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1992. Prior to 1992, he
Mid Cap Equity 1997 was a research analyst
in the Investment
Research Department of
Goldman, Sachs & Co.
- ------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman joined the
Vice President Growth and Income 1996 Investment Adviser in
Balanced (Equity) 1996 1993. Prior to 1993, she
Mid Cap Equity 1996 was an equity analyst at
Delphi Management.
- ------------------------------------------------------------------------------------------
Robert Beckwitt Portfolio Manager-- Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisor at Fidelity
Investments.
- ------------------------------------------------------------------------------------------
Jonathan A. Beinner Portfolio Manager-- Since Mr. Beinner joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1990.
Fixed Income
Department
- ------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
1996 and is also co-head
of the Japanese Equity
Group in Tokyo. Prior to
1996, he spent 12 years
at CINMAN.
- ------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1992. Prior to 1992, he
CORE Small Cap Equity 1997 was studying for a Ph.D.
CORE International Equity 1997 in finance at the
University of Chicago.
- ------------------------------------------------------------------------------------------
Robert G. Collins Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- ------------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991.
- ------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- ------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Growth and Income 1993 Investment Adviser in
Balanced (Equity) 1994 1993. Prior to 1993, he
Mid Cap Equity 1995 was a principal of
Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
- ------------------------------------------------------------------------------------------
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S.Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989.
CORE Small Cap Equity 1997
CORE International Equity 1997
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
-----------------
----------------------
-------------
-----------------------------------
<C> <C> <C> <S>
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- --------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- --------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMAN for five
years.
- --------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- --------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- --------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- --------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
CORE Small Cap Equity 1997
CORE International Equity 1997
- --------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- --------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- --------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- --------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
International Equity 1997 1994. Prior to 1994, she
was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed at Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates. In
effecting purchases and sales of portfolio securities for the Funds, the
Investment Advisers will seek the best price and execution of a Fund's orders.
In doing so, where two or more brokers or dealers offer comparable prices and
execution for a particular trade, consideration may be given to whether the
broker or dealer provides investment research or brokerage services or sells
shares of any Goldman Sachs Fund. See the Additional Statement for a further
description of the Investment Advisers' brokerage allocation practices.
45
<PAGE>
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% N/A
CORE Small Cap Equity........................ 0.85% N/A
CORE International Equity.................... 0.85% N/A
Mid Cap Equity............................... 0.75% 0.75%
Small Cap Value.............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% N/A
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- --------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, Mid Cap Equity, International Equity, Small Cap Value and Asia Growth
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The contractual rate set forth
in the table is the rate payable under the Management Agreements and is
identical to the aggregate advisory and administration fees payable by each
Fund under the previous separate investment advisory (including subadvisory in
the case of the International Equity Fund) and administration agreements. For
the fiscal year ended January 31, 1997, the annual rate expressed is the
combined advisory and administration fees paid (after voluntary fee
limitations). The difference, if any, between the stated fees and the actual
fees paid by the Funds reflects that the applicable Investment Adviser did not
charge the full amount of the fees to which it would have been entitled. The
Investment Advisers may discontinue or modify such voluntary limitations in
the future at their discretion, although they have no current intention to do
so.
The Investment Advisers to the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Mid Cap Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management, distribution and authorized
dealer service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses and, transfer agency fees in
the case of each Fund other than Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity and Mid Cap Equity Funds) to the extent
such expenses exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.25%, 0.10%, 0.20%,
0.16% and 0.24% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.
46
<PAGE>
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers and other persons for performing
administrative services to their customers. These services include maintaining
account records, processing orders to purchase, redeem and exchange Fund
shares and responding to certain customer inquiries. In addition, these
services may also include responding to certain inquiries from and providing
written materials to depository institutions about a Fund; furnishing advice
about and assisting depository institutions in obtaining from state regulatory
agencies any rulings, exemptions or other authorizations that may be required
to conduct a mutual fund sales program; acting as liaison between depository
institutions and national regulatory organizations; assisting with the
preparation of sales material; and providing general assistance and advice in
establishing and maintaining mutual fund sales programs on the premises of
depository institutions.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Shares may
also be sold by Authorized Dealers. Authorized Dealers include investment
dealers that are members of the NASD and certain other financial service
firms. To become an Authorized Dealer, a dealer or financial service firm must
enter into a sales agreement with Goldman Sachs. The minimum investment
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as
each Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund by Goldman Sachs (as Transfer Agent) and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive a
fee from each Fund (other than the Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity and Mid Cap Equity Funds), with respect
to Class A, Class B and Class C shares of $12,000 per year plus $7.50 per
account, together with out-of-pocket and transaction-related expenses
(including those out-of-pocket expenses payable to servicing and/or sub-
transfer agents). Goldman Sachs is entitled to receive a fee from the
Balanced, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity and Mid Cap Equity Funds, with respect to Class
47
<PAGE>
A, Class B and Class C shares, equal to its proportionate share of the total
transfer agency fees borne by the Fund. Such fees are equal to the fixed
charges set forth above applicable to Class A, Class B and Class C shares plus
0.04% of the average daily net assets of the Institutional and Service classes
of the Fund. Shareholders with inquiries regarding any Fund should contact
Goldman Sachs (as Transfer Agent) at the address or the telephone number set
forth on the back cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Funds do
not generally provide sub-accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this Prospectus Class A, Class B and
Class C shares, as described more fully in "How to Buy Shares of the Funds."
If you do not specify in your instructions to the Funds which class of shares
you wish to purchase, the Funds will assume that your instructions apply to
Class A shares.
CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A shares of a
Fund, no sales charge will be imposed at the time of purchase, but you will
incur a deferred sales charge equal to 1.00% if you redeem your shares within
18 months of purchase. Class A shares are subject to distribution fees of
0.25% (which currently are being waived in the case of Balanced, CORE Large
Cap Growth, Capital Growth and Small Cap Value Funds, limited to 0.21% for the
CORE U.S. Equity, International Equity and Asia Growth Funds, limited to 0.05%
for the CORE Small Cap Equity Fund and limited to 0.04% for the Growth and
Income Fund) and authorized dealer service fees of 0.25%, per annum,
respectively, of each Fund's average daily net assets attributable to Class A
shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and authorized dealer service fees of 0.75% and 0.25%, per annum,
respectively, of each Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans." Class B shares
will automatically convert to Class A shares, based on their relative net
asset values, eight years after the initial purchase. Your entire investment
in Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.
CLASS C SHARES. Class C shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
shares are subject to distribution and authorized dealer
48
<PAGE>
service fees of 0.75% and 0.25%, per annum, respectively, of each Fund's
average daily net assets attributable to Class C shares. See "Distribution and
Authorized Dealer Service Plans." Class C shares have no conversion feature,
and accordingly, an investor that purchases Class C shares will be subject to
the distribution fees imposed on Class C shares for an indefinite period,
subject to annual approval by the Fund's Board of Trustees and certain
regulatory limitations. Your entire investment in Class C shares is available
to work for you from the time you make your initial investment, but the
distribution fee paid by Class C shares will cause your Class C shares to have
a higher expense ratio and to pay lower dividends, to the extent dividends are
paid, than Class A shares (or Class B shares after conversion to Class A
shares).
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $50,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years, you might consider purchasing
Class B shares. If you prefer not to pay an initial sales charge and are
unsure of the length of your investment or plan to hold your investment for
less than eight years, you may prefer Class C shares. There is a maximum
purchase limitation of $250,000 and $1,000,000 in the aggregate on purchases
of Class B shares and Class C shares, respectively. Although Class C shares
are subject to a CDSC for only twelve months and at a lower rate than Class B
shares, Class C shares do not have the conversion feature applicable to Class
B shares, making them subject to higher distribution fees for an indefinite
period. Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C shares.
HOW TO BUY SHARES OF THE FUNDS--CLASS A, CLASS B AND CLASS C SHARES
You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. Currently, each Fund's net asset value is
determined as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. New York time).
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). An initial investment minimum of $200 applies to purchases in
connection with 403(b) plans. For purchases through the Automatic Investment
Plan, the minimum initial investment is $50. The minimum subsequent investment
is $50. These requirements may be waived at the discretion of the Trust's
officers.
You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Equity Funds--(Name of Fund and Class of
shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-6711. Federal
funds wires, ACH transfers and bank wires should be sent to State Street Bank
and Trust Company ("State Street"). Payment must be received within three
Business Days after receipt of the purchase order. An investor's Authorized
Dealer is responsible for forwarding payment promptly to the Fund.
49
<PAGE>
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Funds may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
OFFERING PRICE--CLASS A SHARES
The offering price of Class A shares of each Fund is the next determined net
asset value per share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of the Funds equal to 1.00% of the amount under $3 million, 0.50% of the
next $2 million, and 0.25% thereafter. Goldman Sachs may also pay, with
respect to all or a portion of the amount purchased, a commission in
accordance with the foregoing schedule to Authorized Dealers who initiate
or are responsible for purchases of $500,000 or more by plans or $1
million or more by "wrap" accounts satisfying the criteria set forth in
(h) or (j) below. Purchases by such plans will be made at net asset value
with no initial sales charge, but if all of the shares held are redeemed
within 18 months after the end of the calendar month in which such
purchase was made, a contingent deferred sales charge (CDSC), as described
below, of 1.00% will be imposed upon the plan sponsor or the third party
administrator. In addition, Authorized Dealers shall remit to Goldman
Sachs such payments received in connection with "wrap" accounts in the
event that shares are redeemed within 18 months after the end of the
calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
50
<PAGE>
Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 18
months after the end of the calendar month in which the purchase was made,
excluding any period of time in which the shares were exchanged into and
remained invested in an ILA Portfolio (the contingent deferred sales charge
period), a CDSC of 1.00% will be imposed. Any applicable CDSC will be assessed
on an amount equal to the lesser of the current market value or the original
purchase cost of the redeemed Class A shares. Accordingly, no CDSC will be
imposed on increases in account value above the initial purchase price,
including any dividends which have been reinvested in additional Class A
shares. Upon redemption of shares subject to a CDSC, shareholders will receive
that portion of the appreciation in account value attributable to the shares
actually redeemed. In determining whether a CDSC applies to a redemption, it
will be assumed that the redemption is first made from any Class A shares in
your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver or Reduction of Contingent
Deferred Sales Charges" below.
Class A shares of the Funds may be sold at net asset value without payment
of any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Trustee or officer of the Trust and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion; (g) any state, county or city, or any instrumentality, department,
authority or agency thereof, which is prohibited by applicable investment laws
from paying a sales charge or commission in connection with the purchase of
shares of a Fund; (h) pension and profit sharing plans, pension funds and
other company-sponsored benefit plans that (1) buy shares costing $500,000 or
more, or (2) have at the time of purchase, 100 or more eligible participants,
or (3) certify that they project to have annual plan purchases of $200,000 or
more, or (4) are provided administrative services by a third party
administrator that in the aggregate satisfies (1) or (3) above; (i) until
October 15, 1997 shareholders whose purchase is attributable to redemption
proceeds (subject to appropriate documentation) from a registered open-end
management investment company not distributed or managed by Goldman Sachs or
its affiliates, if such redemption has occurred no more than 60 days prior to
the purchase of shares of the Funds and the shareholder either (1) paid an
initial sales charge or (2) was at some time subject to a deferred sales
charge with respect to the redemption proceeds; (j) "wrap" accounts for the
benefit of clients of broker-dealers, financial institutions or financial
planners, provided that they have entered into an agreement with GSAM
specifying aggregate minimums and certain operating policies and standards;
(k) registered investment advisers investing for accounts for which they
receive asset-based fees; (l) accounts over which GSAM or its advisory
affiliates have investment discretion; and (m) shareholders receiving
distributions from a qualified retirement plan invested in the Goldman Sachs
Funds and reinvesting such proceeds in a Goldman Sachs IRA. Purchasers must
certify eligibility for an exemption on the Account Application and notify
Goldman Sachs if the shareholder is no longer eligible for an exemption.
Exemptions will be granted subject to confirmation of a purchaser's
entitlement. Investors purchasing shares of the Funds at net asset value
without payment of any initial sales charge may be charged a fee if they
effect transactions in shares through a broker or agent. In addition, under
certain circumstances, dividends and distributions from any of the Goldman
Sachs Funds may be reinvested in shares of each Fund at net asset value, as
described under "Cross-Reinvestment of Dividends and Distributions and
Automatic Exchange Program."
51
<PAGE>
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A shares of the Goldman Sachs Funds
may be combined under the Right of Accumulation. See the Additional Statement
for more information about the Right of Accumulation.
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Goldman Sachs Funds may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table that follows. At redemption, the charge will
be assessed on the amount equal to the lesser of the current market value or
the original purchase cost of the shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the six-year period.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund
52
<PAGE>
acquired by exchange from Class B shares of another Goldman Sachs Fund will
convert into Class A shares of such Fund based on the date of the initial
purchase. Class B shares acquired through reinvestment of distributions will
convert into Class A shares based on the date of the initial purchase of the
shares on which the distribution was paid. The conversion of Class B shares to
Class A shares will not occur at any time the Funds are advised that such
conversions may constitute taxable events for federal tax purposes, which the
Funds believe is unlikely. If conversions do not occur as a result of possible
taxability, Class B shares would continue to be subject to higher expenses
than Class A shares for an indeterminate period.
OFFERING PRICE--CLASS C SHARES
Investors may purchase Class C shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However, if
Class C shares are redeemed within 12 months of purchase a CDSC of 1% will be
deducted from the redemption proceeds. At redemption, the charge will be
assessed on the amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No CDSC will be imposed
on increases in account value above the initial purchase price, including
shares derived from the reinvestment of dividends or capital gains
distributions. Upon redemption of shares subject to a CDSC, shareholders will
receive that portion of the appreciation in account value attributable to the
shares actually redeemed.
For the purpose of determining the number of months from the time of any
purchase, all payments during a month will be aggregated and deemed to have
been made on the first day of that month. In processing redemptions of Class C
shares, the Funds will first redeem shares held for longer than 12 months, and
then shares held for the longest period during the 12 month period. Proceeds
from the CDSC are payable to the Distributor and may be used in whole or in
part to defray the Distributor's expenses related to providing distribution-
related services to the Funds in connection with the sale of Class C shares,
including the payment of compensation to Authorized Dealers. A commission
equal to 1.00% of the amount invested is paid to Authorized Dealers.
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A, CLASS B AND CLASS C SHARES
A shareholder who redeems Class A or Class B shares of a Fund may reinvest
at net asset value any portion or all of his redemption proceeds (plus that
amount necessary to acquire a fractional share to round off his purchase to
the nearest full share) in Class A shares of the same Fund or any other
Goldman Sachs Fund. A shareholder who redeems Class C shares of a Fund may
reinvest at net asset value any portion or all of his redemption proceeds
(plus that amount necessary to acquire a fractional share to round off his
purchase to the nearest full share) in Class C shares of the same Fund or any
other Goldman Sachs Fund. Shareholders should obtain and read the applicable
prospectuses of such other funds and consider their objectives, policies and
applicable fees before investing in any of such funds. This reinvestment
privilege is subject to the condition that the shares redeemed have been held
for at least thirty (30) days before the redemption and that the reinvestment
is effected within ninety (90) days after such redemption. If you redeemed
Class A or Class C shares, paid a CDSC upon a redemption and reinvest in Class
A or Class C shares subject to the conditions set forth above, your account
will be credited with the amount of the CDSC previously charged, and the
reinvested shares will continue to be subject to a CDSC. In this case, the
holding period of the Class A or Class C shares acquired through reinvestment
for purposes of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed shares. If you redeemed Class B
shares and paid a CDSC upon redemption, you are permitted to reinvest the
redemption proceeds in Class A shares at net asset value as described above,
but the amount of the CDSC paid upon redemption will not be credited to your
account.
53
<PAGE>
A reinvesting shareholder may be subject to tax as a result of such
redemption. If the redemption occurs within ninety (90) days after the
original purchase of Class A shares, any sales charge paid on the original
purchase cannot be taken into account by a reinvesting shareholder to the
extent an otherwise applicable sales charge is not imposed pursuant to the
reinvestment privilege for purposes of determining gain or loss, if any,
realized on the redemption, but instead will be added to the tax basis of the
Class A shares received in the reinvestment. To the extent that any loss is
realized and shares of the same Fund are purchased within thirty (30) days
before or after the redemption, some or all of the loss may not be allowed as
a deduction depending upon the number of shares purchased. Shareholders should
consult their own tax advisers concerning the tax consequences of a redemption
and reinvestment. Upon receipt of a written request, the reinvestment
privilege may be exercised once annually by a shareholder, except that there
is no such time limit as to the availability of this privilege in connection
with transactions the sole purpose of which is to reinvest the proceeds at net
asset value in a tax-sheltered retirement plan.
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE--CLASS A, B AND C
SHARES
The CDSC on Class B shares, Class C shares and Class A shares that are
subject to a CDSC may be waived or reduced if the redemption relates to (a)
retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company sponsored
benefit plans (each a "Plan"); (b) the death or disability (as defined in
section 72 of the Code) of a participant or beneficiary in a Plan; (c)
hardship withdrawals by a participant or beneficiary in a Plan; (d) satisfying
the minimum distribution requirements of the Code; (e) the establishment of
"substantially equal periodic payments" as described in Section 72(t) of the
Code; (f) the separation from service by a participant or beneficiary in a
Plan; (g) the death or disability (as defined in section 72 of the Code) of a
shareholder if the redemption is made within one year of such event; (h)
excess contributions being returned to a Plan; (i) distributions from a
qualified retirement plan invested in the Goldman Sachs Funds which are being
reinvested into a Goldman Sachs IRA; and (j) redemption proceeds which are to
be reinvested in accounts or non-registered products over which GSAM or its
advisory affiliates have investment discretion. In addition, Class A, Class B
and Class C shares subject to a Systematic Withdrawal Plan may be redeemed
without a CDSC. However, Goldman Sachs reserves the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B and
Class C shares and 10% of the value of your Class A shares.
SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Fund or ILA Portfolio. See "Fund Highlights."
A shareholder may also elect to exchange automatically a specified dollar
amount of shares of a Fund for shares of the same class or an equivalent class
of any other Goldman Sachs Fund or ILA Portfolio.
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Shares acquired through cross-reinvestment of dividends or the automatic
exchange program will be purchased at net asset value and will not be subject
to any initial or contingent deferred sales charge as a result of the cross-
reinvestment or exchange, but shares subject to a CDSC acquired under the
automatic exchange program may be subject to a CDSC at the time of redemption
from the fund into which the exchange is made determined on the basis of the
date and value of the investor's initial purchase of the fund from which the
exchange (or any prior exchange) is made. Automatic exchanges are made monthly
on the fifteenth day of each month or the first Business Day thereafter. The
minimum dollar amount for automatic exchanges must be at least $50 per month.
Cross-reinvestments and automatic exchanges are subject to the following
conditions: (i) the value of the shareholder's account(s) in the fund which is
paying the dividend or from which the automatic exchange is being made must
equal or exceed $5,000 and (ii) the value of the account in the acquired fund
must equal or exceed the acquired fund's minimum initial investment
requirement or the shareholder must elect to continue cross-reinvestment or
automatic exchanges until the value of acquired fund shares in the
shareholder's account equals or exceeds the acquired fund's minimum initial
investment requirement. A Fund shareholder may elect cross-reinvestment into
an identical account or an account registered in a different name or with a
different address, social security or other taxpayer identification number,
provided that the account in the acquired fund has been established,
appropriate signatures have been obtained and the minimum initial investment
requirement has been satisfied. A Fund shareholder should obtain and read the
prospectus of the fund into which dividends are invested or automatic
exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans,
403(b) plans and defined contribution plans such as 401(k) Salary Reduction
Plans. Detailed information concerning these plans may be obtained from the
Transfer Agent. This information should be read carefully, and consultation
with an attorney or tax adviser may be advisable. The information sets forth
the service fee charged for retirement plans and describes the federal income
tax consequences of establishing a plan.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition
of an initial sales charge or CDSC at the time of exchange for shares of the
same class or an equivalent class of any other Fund, Goldman Sachs Fund or ILA
Portfolio. A shareholder needs to obtain and read the prospectus of the fund
into which the exchange is made. The shares of these other funds acquired by
an exchange may later be exchanged for shares of the same class (or an
equivalent class) of the original Fund at the next determined net asset value
without the imposition of an initial or contingent deferred sales charge if
the dollar amount in the Fund resulting from such exchanges is below the
shareholder's all-time highest dollar amount on which it has previously paid
the applicable sales charge. Shares of these other funds purchased through
dividends and/or capital gains reinvestment may be exchanged for shares of the
Funds without a sales charge. In addition to free automatic exchanges pursuant
to the Automatic Exchange Program, six free exchanges are permitted in each
twelve-month period. A fee of $12.50 may be charged for each subsequent
exchange during such period. The exchange privilege may be modified or
withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.
An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has
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owned shares will be measured from the date the shareholder acquired the
original shares subject to a CDSC and will not be affected by any subsequent
exchange.
An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Equity
Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO 64141-
6711 or, unless the investor has specifically declined telephone exchange
privileges on the Account Application or elected in writing not to utilize
telephone exchanges, by a telephone request to the Transfer Agent at 800-526-
7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain procedures are employed to
prevent unauthorized or fraudulent exchange requests as set forth under "How
to Sell Shares of the Funds."
Under the telephone exchange privilege, shares may be exchanged among accounts
with different names, addresses and social security or other taxpayer
identification numbers only if the exchange instructions are in writing and
received in accordance with the procedures set forth under "How to Sell Shares
of the Funds." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent a sales charge that
would otherwise apply to the shares received in the exchange is not imposed,
the sales charge paid on such purchase of Class A shares cannot be taken into
account by the exchanging shareholder for purposes of determining gain or
loss, if any, realized on such redemption for federal income tax purposes, but
instead will be added to the tax basis of the shares received in the exchange.
Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized by
the Trust to accept purchase, exchange and redemption orders on the Trust's
behalf. In these cases, a Fund will be deemed to have received an order that
is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a Business Day, and the order will be priced at a Fund's net
asset value per share next determined after such acceptance. Otherwise, a Fund
or Goldman Sachs must receive an order in proper form before it is effective.
Authorized Dealers and intermediaries will be responsible for transmitting
accepted orders to the Funds within the period agreed upon by them.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
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The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Advisers, Distributor, and/or their affiliates may also pay
additional compensation, out of their assets and not as an additional charge
to the Funds, to selected Authorized Dealers and other persons in connection
with the sale, distribution and/or servicing of Class A, Class B or Class C
shares (such as additional payments based on new sales, amounts exceeding pre-
established thresholds, or the length of time clients' assets have remained in
a Fund), and will from time to time, subject to applicable NASD regulations,
contribute to various non-cash and cash incentive arrangements to promote the
sale of shares, as well as sponsor various educational programs, sales
contests and/or promotions in which participants may receive reimbursement of
expenses, entertainment and prizes such as travel awards, merchandise, cash,
investment research and educational information and related support materials.
This additional compensation may vary among Authorized Dealers depending upon
such factors as the amounts their clients have invested (or may invest) in the
Funds, the particular program involved, or the amount of reimbursable
expenses. Additional compensation based on sales may, but is currently not
expected to, exceed .50% (annualized) of the amount invested. For further
information, see "Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends" in the Additional Statement.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLANS--CLASS A, CLASS B AND CLASS C SHARES
The Trust, on behalf of each Fund's Class A, Class B and Class C shares, has
adopted Distribution Plans pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "Act") (each a "Distribution Plan"). Goldman
Sachs is entitled to a quarterly fee from each Fund under its Class A, Class B
or Class C Distribution Plan for distribution services equal, on an annual
basis, to 0.25%, 0.75% and 0.75%, respectively, of a Fund's average daily net
assets attributable to Class A, Class B and Class C shares. Currently, Goldman
Sachs has voluntarily agreed to waive the entire amount of such fee
attributable to Class A shares for the Balanced, CORE Large Cap Growth,
Capital Growth and Small Cap Value Funds; to limit the amount of such fee to
0.21% of average daily net assets attributable to Class A shares of CORE U.S.
Equity, International Equity and Asia Growth Funds; to limit the amount of
such fee to 0.05% of average daily net assets attributable to Class A shares
of CORE Small Cap Equity Fund; and to limit the amount of such fee to 0.04% of
average daily net assets attributable to Class A shares of the Growth and
Income Fund. Goldman Sachs has no current intention of modifying or
discontinuing such waiver, but may do so in the future at its discretion. The
average rate for the fiscal year ended January 31, 1997 paid by the Balanced,
Growth and Income, CORE U.S. Equity, Capital Growth, Small Cap Value,
International Equity and Asia Growth Funds to Goldman Sachs was 0.00%, 0.04%,
0.21%, 0.00%, 0.00%, 0.21% and 0.21%, respectively, with respect to each
Fund's Class A shares. The average rate for the fiscal year ended January 31,
1997 paid by the Funds offering Class B shares was 0.75%.
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Goldman Sachs may use the distribution fee for its expenses of distributing
Class A, Class B and Class C shares of the Funds. The types of expenses for
which Goldman Sachs may be compensated for distribution services under the
Class A, Class B and Class C Distribution Plans include compensation paid to
and expenses incurred by Authorized Dealers, Goldman Sachs and their
respective officers, employees and sales representatives, commissions paid to
Authorized Dealers (Class B and Class C only), allocable overhead, telephone
and travel expenses, the printing of prospectuses for prospective
shareholders, preparation and distribution of sales literature, advertising of
any type and all other expenses incurred in connection with activities
primarily intended to result in the sale of Class A, Class B and Class C
shares. If the fee received by Goldman Sachs pursuant to the Class A, Class B
and Class C Distribution Plans exceeds its expenses, Goldman Sachs may realize
a profit from these arrangements. The Distribution Plans will be reviewed and
is subject to approval annually by the Trustees. The aggregate compensation
that may be received under each Distribution Plan for distribution services
may not exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C shares, Goldman Sachs pays sales
commissions of 0.75% of the purchase price to Authorized Dealers from its own
resources at the time of sale. Goldman Sachs plans to pay the 0.75%
distribution fee on a quarterly basis as an ongoing commission to Authorized
Dealers on Class C shares that have been outstanding for one year or more.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or similar
services not otherwise provided on behalf of the Funds. The Service Plans will
be reviewed and are subject to approval annually by the Trustees. For the
fiscal year ended January 31, 1997, each Fund then offering Class A or Class B
shares paid Authorized Dealer service fees at the foregoing rate for each
Fund's Class A and Class B shares.
In connection with the sale of Class C shares, Goldman Sachs pays the 0.25%
service fee to Authorized Dealers in advance for the first year after the
shares have been sold by the Authorized Dealer. After the shares have been
held for one year, Goldman Sachs pays the service fee on a quarterly basis. In
addition, as described above under "Distribution Plan--Class A, Class B and
Class C shares," Goldman Sachs pays sales commissions of 0.75% of the purchase
price of Class C shares from its own resources at the time of sale.
Accordingly, the total up front commission paid by Goldman Sachs to the
Authorized Dealer at the time of sale is 1.00% of the purchase price.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will normally be mailed by check to a shareholder within
three (3) Business Days of receipt of a properly executed request. If shares
to be redeemed were recently purchased by check, a Fund
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may delay transmittal of redemption proceeds until such time as it has assured
itself that good funds have been collected for the purchase of such shares.
This may take up to fifteen (15) days. Redemption requests may be made by
writing to or calling the Transfer Agent at the address or telephone number
set forth on the back cover page of this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above.
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Further documentation may be required for executors, trustees or corporations.
Once wire transfer instructions have been given by Goldman Sachs or an
Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor any Authorized
Dealer assumes any further responsibility for the performance of
intermediaries or the shareholder's bank in the transfer process. If a problem
with such performance arises, the shareholder should deal directly with such
intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C shares. The CDSC applicable to Class A, Class B or Class C shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See the
Additional Statement for more information about the Systematic Withdrawal
Plan.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid in (i) cash, (ii) additional shares of the same
class of the Fund or (iii) shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Fund or an
ILA Portfolio.
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-
term and short-term capital gains, reduced by available capital losses, at
least annually. From time to time, a portion of any Fund's dividends may
constitute a return of capital.
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At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio
securities. Therefore, subsequent distributions on such shares from such
income or realized appreciation may be taxable to the investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Total return calculations for
Class A shares reflect the effect of paying the maximum initial sales charge.
Investment at a lower sales charge would result in higher performance figures.
Total return calculations for Class B and Class C shares reflect deduction of
the applicable CDSC imposed upon redemption of Class B and Class C shares held
for the applicable period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In
addition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at net asset value. Any performance data
which is based on a Fund's net asset value per share would be reduced if any
applicable sales charge were taken into account. In addition to the above,
each Fund may from time to time advertise its performance relative to certain
averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance data is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued
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expenses for the period. The calculation of net investment income for these
purposes may differ from the net investment income determined for accounting
purposes. The Balanced and Growth and Income Funds' quotations of distribution
rate are calculated by annualizing the most recent distribution of net
investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rate is being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A, Class B and Class C
shares will be affected by the payment of a sales charge, distribution fees
and other class specific expenses. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes. Information about the Trust's other series and
classes is contained in separate prospectuses.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of September 5, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 83.72% of Mid Cap Equity
Fund's outstanding shares. As of the same date, Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 64.71% of CORE Large Cap Growth Fund's
outstanding shares. As of the same date, The Goldman Sachs Group LP,
Attention: Elaine King, 85 Broad Street, New York, New York 10004, was
recordholder of 63.63% of CORE Small Cap Equity Fund and 85.42% of CORE
International Equity Fund's outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under
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certain circumstances, as permitted by the Act, communicate with other
shareholders in connection with requiring a special meeting of shareholders.
The Trustees will call a special meeting of shareholders for the purpose of
electing Trustees if, at any time, less than a majority of Trustees holding
office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds intend to elect and each other Fund has elected to be
treated as a regulated investment company and each Fund intends to continue to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. Dividends paid by a Fund
from the excess of net long-term capital gain over net short-term capital loss
will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations under the Code. Dividends paid by
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds are not generally expected to qualify, in the hands of
corporate shareholders, for the corporate dividends-received deduction, but a
portion of each other Fund's dividends may generally so qualify. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
63
<PAGE>
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
64
<PAGE>
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
65
<PAGE>
APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A shares of
a Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain shares
of the Fund at the same reduced sales charge as though the total quantity were
invested in one lump sum by filing this Statement of Intention incorporated by
reference in the Account Application. Income dividends and capital gain
distributions taken in additional shares will not apply toward the completion
of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MA 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQ PROABC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
CLASS A, B AND C SHARES
GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
October 1, 1997
GOLDMAN SACHS EQUITY FUNDS INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term capital growth Seeks long-term growth of capital
and current income through in- through diversified investments in eq-
vestments in equity and fixed uity securities of companies that are
income securities. considered to have long-term capital ap-
preciation potential.
GOLDMAN SACHS GROWTH AND INCOME
FUND GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term growth of cap- Seeks long-term capital appreciation
ital and growth of income primarily through investments in equity
through investments in equity securities of companies with public
securities that are considered stock market capitalizations of between
to have favorable prospects $500 million and $10 billion at the time
for capital appreciation of investment.
and/or dividend paying abili-
ty.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation
GOLDMAN SACHS CORE U.S. EQUITY through investments in equity securities
FUND of companies that are organized outside
Seeks long-term growth of cap- the U.S. or whose securities are princi-
ital and dividend income pally traded outside the U.S.
through a broadly diversified
portfolio of large cap and
blue chip equity securities
representing all major sectors
of the U.S. economy.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through
investments in equity securities of com-
panies with public stock market capital-
izations of $1 billion or less at the
time of investment.
GOLDMAN SACHS CORE LARGE CAP
GROWTH FUND
Seeks long-term growth of cap- GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
ital through a broadly diver- Seeks long-term capital appreciation
sified portfolio of equity se- through investments in equity securities
curities of large cap U.S. is- of emerging country issuers.
suers that are expected to
have better prospects for
earnings growth than the
growth rate of the general do-
mestic economy. Dividend in-
come is a secondary considera-
tion.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies related (in the manner de-
scribed herein) to Asian countries.
GOLDMAN SACHS CORE SMALL CAP EQ-
UITY FUND
Seeks long-term growth of cap-
ital through a broadly diver-
sified portfolio of equity se-
curities of U.S. issuers which
are included in the Russell
2000 Index at the time of in-
vestment.
GOLDMAN SACHS CORE INTERNATIONAL
EQUITY FUND
Seeks long-term growth of cap-
ital through a broadly diver-
sified portfolio of equity se-
curities of large cap compa-
nies that are organized out-
side the U.S. or whose securi-
ties are principally traded
outside the U.S.
-----------------
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA GROWTH
FUNDS MAY INVEST WITHOUT LIMIT, AND IN WHICH OTHER FUNDS CAN INVEST A PORTION
OF THEIR ASSETS ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER,
INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER
EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE
REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, Goldman Sachs CORE International Equity, Mid Cap Equity
and Small Cap Value (formerly "Small Cap Equity") Funds. Goldman Sachs Funds
Management, L.P. ("GSFM"), New York, New York, an affiliate of Goldman Sachs,
serves as investment adviser to the CORE U.S. Equity (formerly the "Select
Equity Fund") and Capital Growth Funds. Goldman Sachs Asset Management
International ("GSAMI"), London, England, an affiliate of Goldman Sachs, serves
as investment adviser to the International Equity, Emerging Markets Equity and
Asia Growth Funds. GSAM, GSFM and GSAMI are each referred to in this Prospectus
as the "Investment Adviser." Goldman Sachs serves as each Fund's distributor
and transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated October 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Goldman Sachs by calling the telephone
number, or writing to one of the addresses, listed on the back cover of this
Prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
Additional Statement and other information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 9
Investment Objectives and Policies. 18
Description of Securities.......... 26
Investment Techniques.............. 31
Risk Factors....................... 35
Investment Restrictions............ 37
Portfolio Turnover................. 37
Management......................... 38
Net Asset Value.................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information............. 43
Shares of the Trust................. 43
Taxation............................ 44
Additional Information.............. 45
Reports to Shareholders............. 46
Dividends........................... 46
Purchase of Institutional Shares.... 46
Exchange Privilege.................. 48
Redemption of Institutional Shares.. 48
Appendix ........................... A-1
Account Information Form
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAMES OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------------- ---------------------------------------
--------------
---------------------
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers. The Fund
dividend income. seeks to achieve its objective through
a broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected returns,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
- ----------------------------------------------------------------------------------------
</TABLE>
(continued)
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAMES OBJECTIVES INVESTMENT CRITERIA BENCHMARK
---------------- ---------------------------------------
--------------
----------------------
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of investment. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- -------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- -------------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies Index
appreciation. with public stock market
capitalizations of between $500 million
and $10 billion at the time of
investment ("Mid-Cap Companies").
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment. The Fund currently
emphasizes investments in companies
with public stock market
capitalizations of $500 million or less
at the time of investment.
- -------------------------------------------------------------------------------------------
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex Japan
South Korea, Sri Lanka, Taiwan and Index
Thailand. The Fund may employ certain
currency management techniques.
</TABLE>
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan. In addition, because the CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds invest
primarily outside the United States, these Funds may involve greater risks,
since the securities markets of foreign countries are generally less liquid
and subject to greater price volatility. The securities markets of emerging
countries, including those in Asia, Latin America, Eastern Europe and
Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
CORE U.S. Equity and Capital Growth Funds. Goldman Sachs Asset Management
International serves as Investment Adviser to the International Equity,
Emerging Markets Equity and Asia Growth Funds. As of August 19, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $124 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
5
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment is $1,000,000 in Institutional Shares of
the Fund alone or in combination with Institutional Shares (or the
corresponding class) of any other mutual fund sponsored by Goldman Sachs
and designated as an eligible fund for this purpose.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS
--------------------------- CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
CORE International Equity............. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Small Cap Value....................... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund or you may elect to receive dividends in
cash. For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
CORE CORE
GROWTH LARGE SMALL CORE MID SMALL EMERGING
AND CORE U.S. CAP CAP INTERNATIONAL CAPITAL CAP INT'L CAP MARKETS ASIA
BALANCED INCOME EQUITY GROWTH EQUITY EQUITY GROWTH EQUITY EQUITY VALUE EQUITY GROWTH
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND/1/ FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND
-------- ------ --------- ------- ------- ------------- ------- ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... None None None None None None None None None None None None
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... None None None None None None None None None None None None
Redemption Fees. None None None None None None None None None None None None
Exchange Fees... None None None None None None None None None None None None
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average daily
net assets)
Management Fees
(after
applicable
limitations)/2/. 0.65% 0.70% 0.59% 0.60% 0.75% 0.75% 1.00% 0.75% 0.89% 1.00% 1.10% 0.86%
Distribution
(Rule 12b-1)
Fees........... None None None None None None None None None None None None
Other Expenses
(after
applicable
limitations)/3/. 0.10% 0.12% 0.06% 0.05% 0.20% 0.25% 0.09% 0.10% 0.21% 0.15% 0.20% 0.24%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES
(AFTER FEE AND
EXPENSE
LIMITATIONS)/4/. 0.75% 0.82% 0.65% 0.65% 0.95% 1.00% 1.09% 0.85% 1.10% 1.15% 1.30% 1.10%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced Fund................................. $ 8 $24 $ 42 $ 93
Growth and Income Fund........................ $ 8 $26 $ 46 $101
CORE U.S. Equity Fund......................... $ 7 $21 $ 36 $ 81
CORE Large Cap Growth Fund.................... $ 7 $21 n/a n/a
CORE Small Cap Equity Fund.................... $10 $30 n/a n/a
CORE International Equity Fund................ $10 $32 n/a n/a
Capital Growth Fund........................... $11 $35 $ 60 $133
Mid Cap Equity Fund........................... $ 9 $27 $ 47 $105
International Equity Fund..................... $11 $35 $ 61 $134
Small Cap Value Fund.......................... $12 $37 $ 63 $140
Emerging Markets Equity Fund.................. $13 $41 n/a n/a
Asia Growth Fund.............................. $11 $35 $ 61 $134
</TABLE>
- ---------------------
/1/ Based on estimated amounts for the current fiscal year.
/2/ TheInvestment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds equal to 0.16%, 0.15%,
0.10%, 0.10%, 0.11%, 0.10% and 0.14%, respectively. Without such
limitations, management fees would be 0.75%, 0.75%, 0.85%, 0.85%, 1.00%,
1.20% and 1.00% of each Fund's average daily net assets, respectively.
7
<PAGE>
/3/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of each Fund other than Balanced, CORE
Small Cap Equity, CORE International Equity, CORE Large Cap Growth and Mid
Cap Equity Funds)) for the following funds to the extent such expenses
exceed the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced Fund.................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
CORE International Equity........................................ 0.25%
Mid Cap Equity................................................... 0.10%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Institutional shares of the Growth and Income,
CORE U.S. Equity, International Equity and Asia Growth Funds for the fiscal
year ended January 31, 1997, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.12% 0.82%
CORE U.S. Equity....................................... 0.10% 0.85%
International Equity................................... 0.25% 1.25%
Asia Growth............................................ 0.26% 1.26%
</TABLE>
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Institutional Shares of the Balanced, CORE
Large Cap Growth, CORE Small Cap Equity, CORE International Equity, Mid Cap
Equity and Emerging Markets Equity Funds for the current fiscal year are
estimated to be as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced Fund.......................................... 0.62% 1.27%
CORE Large Cap Growth.................................. 0.65% 1.40%
CORE Small Cap Value .................................. 0.71% 1.56%
CORE International Equity.............................. 0.86% 1.71%
Mid Cap Equity......................................... 0.26% 1.01%
Emerging Markets Equity................................ 0.82% 2.02%
</TABLE>
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Each Fund also offers Service Shares and Class A, Class B and Class C Shares,
which are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding Service, Class A, Class B and Class C Shares
may be obtained from an investor's sales representative or from Goldman Sachs
by calling the number on the back cover of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds (except the CORE Large Cap Growth Fund) outstanding during the period(s)
indicated has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders for the Funds for
the year ended January 31, 1997 (the "Annual Report"). The following data with
respect to a share (of the Class specified) of the CORE Large Cap Growth Fund
during the period ended July 31, 1997 are unaudited. This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report and Semi-Annual Report also contain performance information and are
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus. During
the periods shown, the Trust did not offer the CORE Small Cap Equity, CORE
International Equity and Emerging Markets Equity Funds, Institutional or Service
Shares of the Balanced, Capital Growth or Small Cap Value Funds, Class A and B
for Mid Cap Equity or Class C shares of any Fund. Accordingly, there are no
financial highlights for these Funds or Classes.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(h) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURE INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- ------------------- ---------- ------------- ---------- ----------- --------- ---------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.31 $0.66 $2.47 $(0.66) $(1.00) -- $1.47 $18.78 18.59%
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(g) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 208.11(f) $.0587 $81,410 1.00% 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(h) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET ADDITIONAL
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT PAID-IN
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME CAPITAL
--------- ---------- -------------- ---------- ------------- ---------- ----------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01) $--
1997--Class B
Shares(f)....... 20.82 0.17 4.31 (0.17) (1.97) (0.06) --
1997--Institu-
tional
Shares(f)....... 21.25 0.29 3.96 (0.30) (1.97) (0.04) --
1997--Service
Shares(f)....... 20.71 0.28 4.50 (0.28) (1.97) (0.07) --
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) (0.60) -- --
1995--Class A
Shares.......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07) 0.11(b)
FOR THE PERIOD ENDED JANUARY 31,
1994--Class A
Shares(c)....... 14.18 0.15 1.68 (0.15) (0.06) (0.01) --
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
NET NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(a) RATE RATE(g) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- -------------
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... $3.20 $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
1994--Class A
Shares(c)....... 1.61 15.79 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(h) SHAREHOLDERS
------------------------- -----------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
NET ASSET GAIN (LOSS) ON FROM REALIZED GAIN IN EXCESS (DECREASE) NET ASSET
VALUE, NET INVESTMENTS, NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT OPTIONS INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- ---------- ------------- ---------- ----------- --------- ---------
CORE U.S. EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
1997--Class A
Shares.......... $19.66 $0.16 $4.46 $(0.16) $(0.80) -- $3.66 $23.32 23.75%
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET RATIO OF NET INVESTMENT
ASSETS AT NET INVESTMENT RATIO OF INCOME
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE AVERAGE
RATE RATE(g) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- ------------
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ ------------------------------------
NET REALIZED FROM NET NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENTS OF NET (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT OPTIONS INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME AND FUTURES INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- -------------- ---------- ----------- --------- ---------
CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $14.91 $0.10 $3.56 $(0.10) $(1.72) $(0.02) $1.82 $16.73 25.97%
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
------------------------
RATIO OF
NET RATIO OF
NET RATIO OF INVESTMENT NET
ASSETS AT NET INCOME RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO (LOSS) TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(F) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------ ---------- -------------
CAPITAL GROWTH FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 52.92% $.0563 $920,646 1.40% 0.62% 1.65% 0.37%
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(e) SHAREHOLDERS
------------------------- ----------------------------------
NET REALIZED FROM
AND UNREALIZED NET REALIZED
NET ASSET GAIN ON FROM GAIN ON IN EXCESS NET ASSET
VALUE, NET INVESTMENTS, NET INVESTMENT OF NET NET INCREASE VALUE,
BEGINNING INVESTMENT OPTIONS AND INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- ---------- ------------ ---------- ------------ --------- ---------
CORE LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $10.00 $0.01 $1.94 -- -- -- $1.95 $11.95 19.50%(f)
1997--Class B
Shares
(unaudited)..... 10.00 -- 1.94 -- -- -- 1.94 11.94 19.40(f)
1997--
Institutional
Shares
(unaudited)..... 10.00 0.03 1.92 -- -- -- 1.95 11.95 19.50(f)
1997--Service
Shares
(unaudited)..... 10.00 0.02 1.92 -- -- -- 1.94 11.94 19.40(f)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
NET RATIO OF RATIO OF NET RATIO OF NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET AVERAGE TO AVERAGE
RATE RATE(b) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- --------- ------------ ------------- ------------ --------------
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(c)
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 18.14%(f) $0.0292 $29,491 0.90%(d) 0.45%(d) 2.96%(d) (1.61)%(d)
1997--Class B
Shares
(unaudited)..... 18.14(f) 0.0292 3,734 1.65(d) (0.35)(d) 3.46(d) (1.90)(d)
1997--
Institutional
Shares
(unaudited)..... 18.14(f) 0.0292 2 0.65(d) 0.94 (d) 2.46(d) (0.87)(d)
1997--Service
Shares
(unaudited)..... 18.14(f) 0.0292 2 1.15(d) 0.30 (d) 2.96(d) (1.51)(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(c) For the period from May 1, 1997 (commencement of operations) to July 31,
1997.
(d) Annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) Not annualized.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
---------------------------------
NET
REALIZED TOTAL
AND INCOME
NET ASSET UNREALIZED (LOSS)
VALUE, NET GAIN ON FROM
BEGINNING INVESTMENT INVESTMENTS INVESTMENT
OF PERIOD INCOME AND OPTIONS OPERATIONS
--------- ---------- ----------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Institu-
tional Shares... $15.91 $0.24 $3.77 $4.01
FOR THE YEAR ENDED JANUARY 31,
1996--Institu-
tional
Shares(a)....... 15.00 0.13 0.90 1.03
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------
NET
FROM NET ASSETS
REALIZED NET NET AT END
IN EXCESS GAIN ON TOTAL INCREASE ASSET OF
FROM NET OF NET INVESTMENTS DISTRIBUTIONS IN NET VALUE, PORTFOLIO AVERAGE PERIOD
INVESTMENT INVESTMENT AND OPTION TO ASSET END OF TOTAL TURNOVER COMMISSION (IN
INCOME INCOME TRANSACTIONS SHAREHOLDERS VALUE PERIOD RETURN(b) RATE RATE(e) 000'S)
---------- ---------- ------------ ------------- -------- ------ ---------- ---------- ---------- --------
MID CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Institu-
tional Shares... $(0.24) $(0.02) $(0.93) $(1.19) $2.82 $18.73 25.63% 74.03% $.0547 $145,253
FOR THE YEAR ENDED JANUARY 31,
1996--Institu-
tional
Shares(a)....... (0.12) -- -- (0.12) 0.91 15.91 6.89(d) 58.77(d) -- 135,671
<CAPTION>
EXPENSE LIMITATIONS
--------------------
RATIO OF RATIO OF
NET RATIO OF NET
INVESTMENT EXPENSES INVESTMENT
RATIO OF NET INCOME TO TO INCOME TO
EXPENSES TO AVERAGE AVERAGE AVERAGE
AVERAGE NET NET NET NET
ASSETS ASSETS ASSETS ASSETS
------------ ---------- --------- ----------
- --------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Institu-
tional Shares... 0.85% 1.35% 0.91% 1.29%
FOR THE YEAR ENDED JANUARY 31,
1996--Institu-
tional
Shares(a)....... 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(G)
--------------------------------------------------
NET REALIZED
NET REALIZED AND UNREALIZED
NET ASSET AND UNREALIZED GAIN (LOSS) ON
VALUE, NET GAIN (LOSS) ON FOREIGN
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS
--------- ------------- ------------------- ----------------
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28)
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34)
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38)
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11)
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
-----------------------
FROM NET
REALIZED
GAIN ON NET NET RATIO OF
FROM INVESTMENT, INCREASE NET ASSET ASSETS AT NET
NET OPTION AND (DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO
INVESTMENT FUTURES IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET
INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS
---------- ------------ ----------- --------- ----------- --------- ---------- --------- -----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $ -- $(0.21) $2.12 $19.32 13.48% 38.01% $.0318 $536,283 1.69%
1997--Class B
Shares(e)....... -- (0.21) 0.33 19.24 2.83(c) 38.01 .0318 19,198 2.23(d)
1997--Institu-
tional
Shares(e)....... (0.03) (0.21) 1.95 19.40 12.53(c) 38.01 .0318 68,374 1.10(d)
1997--Service
Shares(e)....... -- (0.21) 1.64 19.34 10.42(c) 38.01 .0318 674 1.60(d)
1996--Class A
Shares.......... (0.58) (0.87) 2.68 17.20 28.68 68.48 -- 330,860 1.52
1995--Class A
Shares.......... -- (0.59) (3.58) 14.52 (16.65) 84.54 -- 275,086 1.73
1994--Class A
Shares.......... -- -- 3.75 18.10 26.13 60.04 -- 269,091 1.76
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(b)....... -- -- 0.17 14.35 1.23(c) 0.00 -- 66,063 1.80(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET
INVESTMENT RATIO OF INVESTMENT
INCOME (LOSS) TO EXPENSES INCOME (LOSS)
AVERAGE NET TO AVERAGE TO AVERAGE
ASSETS NET ASSETS NET ASSETS
---------------- ---------- -------------
- -----------------------------------------------------------
<S> <C> <C> <C>
1997--Class A
Shares.......... (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 0.26 1.77 0.01
1995--Class A
Shares.......... 0.40 1.98 0.15
1994--Class A
Shares.......... 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(b)....... (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(g) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON NET
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND (DECREASE) VALUE,
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES IN NET END OF TOTAL
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD RETURN(a)
--------- ---------- ------------------- ---------- -------------- ------------ ----------- --------- ---------
SMALL CAP VALUE FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ -- $ 3.62 $20.91 $ 27.28%
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
-----------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(f) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(c)....... 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
16
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(g) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- ---------
ASIA GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ -- $(0.18) $16.31 (1.01)%
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--Institu-
tional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
17
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
and the equity portion of the Balanced Funds are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
18
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Funds") are
managed using both quantitative and fundamental techniques. CORE is an acronym
for "Computer-Optimized, Research-Enhanced," which reflects the Funds'
investment process. This investment process and the proprietary multifactor
model used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE U.S. Funds"), and a broad universe of
foreign equity securities for the CORE International Equity Fund. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating. In the case of a U.S. equity
security followed by the Goldman Sachs Global Investment Research Department
(the "Research Department"), a second rating is assigned based upon the
Research Department's evaluation. In the discretion of the Investment Adviser,
such ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign equity
security, the Investment Adviser may rely on research from both the Research
Department and other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE U.S. Funds use one Multifactor Model to forecast the
returns of securities held in each Fund's portfolio. The CORE International
Equity Fund uses multiple Multifactor Models to forecast returns. Currently,
the CORE International Equity Fund uses one model to forecast equity market
returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price ratio, price momentum, price volatility, consensus growth
forecasts, earnings estimate revisions, earnings stability, and, in the case
of models for the CORE International Equity Fund, currency momentum and
country political risk ratings). All of the factors used in the Multifactor
Models have been shown to significantly impact the performance of the
securities, currencies and markets they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Funds are derived using a statistical formulation that considers
each factor's historical performance in different market environments. As
such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the
Investment Adviser believes that all the Multifactor Models are broader in
scope and provide a more thorough evaluation than most conventional,
quantitative models. Securities and markets ranked highest by the relevant
Multifactor Model do not have one dominant investment characteristic; rather,
they possess an attractive combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." The ratings reflect
the analyst's judgment as to the investment results of a specific security and
incorporate economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.
19
<PAGE>
BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
20
<PAGE>
CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Investment Adviser emphasizes a company's growth
prospects in analyzing equity securities to be purchased by the Fund. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk,
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style, capitalization and industry characteristics similar to the Russell 2000
Index. The Fund seeks a portfolio comprised of companies with small market
capitalizations, strong expected earnings growth and momentum, and better
valuation and risk characteristics than the Russell 2000 Index. The Fund may
invest only in fixed income securities that are considered cash equivalents.
The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining a risk profile similar to EAFE Index. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
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CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the company's capitalization of an issuer increases above $10
billion after purchase of such issuer's securities, the Fund may, but is not
required to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those
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associated with investing solely in securities of U.S. issuers quoted in U.S.
dollars. To the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Description of Securities,"
"Investment Techniques" and "Risk Factors." Up to 35% of the Fund's total
assets may be invested in fixed income securities.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
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An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
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<PAGE>
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in Asia (other than Japan) to the
extent that foreign investors are permitted by applicable law to make such
investments. Allocation of the Fund's investments will depend upon the
relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities
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<PAGE>
of foreign issuers that are traded in the U.S. and comply with U.S. accounting
standards). Investments in foreign securities may offer potential benefits
that are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). 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 a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign 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 about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than 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), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds, may also invest in European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers
(together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and
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the underlying securities are quoted. However, by investing in Depository
Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund will avoid
currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may have currency exposure independent of their securities
positions, the value of the assets of a Fund as measured in U.S. dollars will
be affected by changes in foreign currency exchange rates. A Fund may, to the
extent it invests in foreign securities, purchase or sell forward foreign
currency exchange contracts for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, the Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies. 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, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by 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 U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps
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or other privately negotiated currency instruments unless the credit quality
of the unsecured senior debt or the claims-paying ability of the counterparty
is considered to be investment grade by the Investment Adviser.
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may also engage in a variety of foreign
currency management techniques. However, due to the limited market for these
instruments with respect to the currencies of many Emerging Countries,
including certain Asian countries, the Investment Advisers do not currently
anticipate that a significant portion of Emerging Markets Equity and Asia
Growth Fund's currency exposure will be covered by such instruments. For a
discussion of such instruments and the risks associated with their use, see
"Investment Objective and Policies" in the Additional Statement.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may invest
in debt obligations of foreign governments and governmental agencies,
including those of Emerging Countries. Investment in sovereign debt
obligations involves special risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, 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.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage 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.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund 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 regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds, which only invest in debt instruments that are cash equivalents)
may invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth and Income, Capital Growth, Small Cap
Value, International Equity, Emerging Markets Equity and Asia Growth Funds may
invest up to 10%,
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10%, 35%, 35%, 35% and 35%, respectively, of their total assets in debt
securities which are unrated or rated in the lowest rating categories by
Standard & Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or
lower by Moody's), including securities rated D by Moody's or Standard &
Poor's. Mid Cap Equity Fund may invest up to 10% of its total assets in below
investment grade debt securities rated B or higher by Standard & Poor's or B
or higher by Moody's. Fixed income securities rated BBB or Baa are considered
medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. Fixed income securities rated BB
or Ba or below (or comparable unrated securities) are commonly referred to as
"junk bonds," are considered predominately speculative and may be questionable
as to principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
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securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of options
transactions, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that a Fund has written is exercised, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to a Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs. In addition
to purchasing call and put options for hedging purposes, the Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call or put options on currency to seek to increase
total return when the Investment Adviser anticipates that the currency will
appreciate or depreciate in value, but the securities quoted or denominated in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use
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of futures may increase the volatility of a Fund's net asset value. The
profitability of a Fund's trading in futures to seek to increase total return
depends upon the ability of the Investment Adviser to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to a Fund. Further, futures
contracts and options on futures may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, a Fund could suffer losses, including
loss of
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interest on or principal of the security and costs associated with delay and
enforcement of the repurchase agreement. The Trustees have reviewed and
approved certain counterparties whom they believe to be creditworthy and have
authorized the Funds to enter into repurchase agreements with such
counterparties. In addition, each Fund, together with other registered
investment companies having management agreements with an Investment Adviser
or 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
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund. A Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
MORTGAGE DOLLAR ROLLS
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) 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 would benefit to
the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for the forward purchase. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets in an amount equal to the forward
purchase price. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
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TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds and Emerging Markets Equity Fund may only
hold up to 35% of their respective total assets) in U.S. Government
securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds only), (iii) mortgage
swaps, index swaps and interest rate swaps, caps, floors and collars (Balanced
Fund only), (iv) yield curve options and inverse floating rate securities
(Balanced Fund only), (v) other investment companies, (vi) unseasoned
companies and (vii) municipal securities (Balanced Fund only) and (viii)
custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, Emerging Markets Equity and
Asia Growth Funds may each invest without limit in the securities of issuers
in Emerging Countries. The CORE International Equity Fund may invest up to
25%, the Balanced, Growth and Income, Small Cap Value and Mid Cap Equity Funds
may each invest up to 15% and the Capital Growth Fund may invest up to 10% of
its total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates
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and their respective clients and other service providers. A Fund may not be
able to sell securities in circumstances where price, trading or settlement
volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, 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 Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the 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. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such 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.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
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Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's (other than the CORE
Small Cap Equity, CORE International Equity and Emerging Markets Equity Funds)
historical portfolio turnover ratio. It is anticipated that the annual
portfolio turnover rates of the CORE Small Cap Equity, CORE International
Equity and Emerging Markets Equity Funds will generally not exceed 70%, 70%
and 100%, respectively. The portfolio turnover rate is calculated by dividing
the lesser of the dollar amount of sales or purchases of portfolio securities
by the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less.
Notwithstanding the foregoing, the Investment Adviser may, from time to time,
make short-term investments when it believes such investments are in the best
interest of a Fund.
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MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity, Growth and Income, Mid Cap Equity and
Small Cap Value Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Funds Management, L.P. registered as an investment
adviser in 1990. Goldman Sachs Asset Management International, 133
Peterborough Court, London EC4A 2BB, England, an affiliate of Goldman Sachs,
serves as the investment adviser to the International Equity, Emerging Markets
Equity and Asia Growth Funds. Goldman Sachs Asset Management International
became a member of the Investment Management Regulatory Organisation Limited
in 1990 and registered as an investment adviser in 1991. As of August 19,
1997, GSAM, GSFM and GSAMI, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $124 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will haveaccess to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
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FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty Investment
Management, Inc. and its
predecessor firm
("Liberty").
- ----------------------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Mid Cap Equity 1997 1992. Prior to 1992, he
Balanced (Equity) 1996 was a research analyst
in the Investment
Research Department of
Goldman, Sachs & Co.
- ----------------------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman jointed the
Vice President Mid Cap Equity 1996 Investment Adviser in
Growth and Income 1996 1993. Prior to 1993, she
Balanced (Equity) 1996 was an equity analyst at
Delphi Management.
- ----------------------------------------------------------------------------------------------------------
Robert Beckwitt Portfolio Manager Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisory at Fidelity
Investments.
- ----------------------------------------------------------------------------------------------------------
Jonathan A. Beinner Portfolio Manager-- Since Mr. Beinner joined the
Vice President and Co-Head Balanced (Fixed Income) 1994 Investment Adviser in
U.S. Fixed Income 1990.
Department
- ----------------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
1996 and is also co-head
of the Japanese Equity
Group in Tokyo. Prior to
1996, he spent 12 years
at CINMAN.
- ----------------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992. Prior to 1992, he
CORE Small Cap Equity 1997 was studying for a Ph.D.
CORE International Equity 1997 in finance at the
University of Chicago.
- ----------------------------------------------------------------------------------------------------------
Robert G. Collins Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- ----------------------------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991.
- ----------------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- ----------------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Growth and Income Investment Adviser in
Mid Cap Equity 1993 1993. Prior to 1993, he
Balanced (Equity) 1995 was a principal of
1994 Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989.
CORE Small Cap Equity 1997
CORE International Equity 1997
- ----------------------------------------------------------------------------------------------------
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- ----------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- ----------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- ----------------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- ----------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
CORE Small Cap Equity 1997
CORE International Equity 1997
- ----------------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
International Equity 1997 1994. Prior to 1994, she
was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed by Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable
40
<PAGE>
law, Goldman Sachs or its affiliates. In effecting purchases and sales of
portfolio securities for the Funds, the Investment Advisers will seek the best
price and execution of a Fund's orders. In doing so, where two or more brokers
or dealers offer comparable prices and execution for a particular trade,
consideration may be given to whether the broker or dealer provides investment
research or brokerage services or sells shares of any Goldman Sachs Fund. See
the Additional Statement for a further description of the Investment Advisers'
brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% n/a
CORE Small Cap Equity........................ 0.85% n/a
CORE International Equity ................... 0.85% n/a
Mid Cap Equity............................... 0.75% 0.75%
Small Cap Value.............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% n/a
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, Mid Cap Equity, International Equity, Small Cap Value and Asia Growth
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The contractual rate set forth
in the table is the rate payable under the Management Agreements and is
identical to the aggregate advisory and administration fees payable by each
Fund under the previous separate investment advisory (including subadvisory in
the case of International Equity Fund) and administration agreements. For the
fiscal year ended January 31, 1997, the annual rate expressed is the combined
advisory and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Advisers may discontinue or modify such voluntary limitations in the future at
their discretion, although they have no current intention to do so.
The Investment Advisers to the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Mid Cap Equity International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of each Fund
other than the Balanced, CORE Small Cap Equity, CORE International Equity,
CORE Large Cap Growth and Mid Cap Equity Funds) to the extent such expenses
exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.25%, 0.10%, 0.20%, 0.16% and 0.24%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
41
<PAGE>
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the CORE U.S. Equity,
International Equity and Asia Growth Funds with respect to Institutional or
Service Shares. Goldman Sachs is entitled to receive a transfer agency fee
from the Capital Growth, Growth and Income, Small Cap Value and Emerging
Markets Equity Funds equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Funds. Goldman Sachs is entitled to
receive a fee from the Balanced, CORE International Equity, CORE Large Cap
Growth, CORE Small Cap Equity and Mid Cap Equity Funds, with respect to
Institutional and Service shares, equal to their proportionate share of the
total transfer agency fees borne by the Fund. Such fees are equal to the fixed
per account charge of $12,000 per year plus $7.50 per account, together with
out-of-pocket and transaction related expenses (including those out-of-pocket
expenses payable to servicing and/or sub-transfer agents) applicable to Class
A, B and C shares plus 0.04% of the average daily net assets of the
Institutional and Service classes.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
42
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Each Fund may also from time to
time advertise total return on a cumulative, average, year-by-year or other
basis for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rates are being calculated.
Each Fund's total return, yield and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the total return, yield and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interests in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes. Information about the Trust's other series and
classes is contained in separate prospectuses.
43
<PAGE>
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of September 5, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 83.72% of Mid Cap Equity
Fund's outstanding shares. As of the same date, Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 64.71% of CORE Large Cap Growth Fund's
outstanding shares. As of the same date, The Goldman Sachs Group LP,
Attention: Elaine King, 85 Broad Street, New York, New York 10004, was
recordholder of 63.63% of CORE Small Cap Equity Fund and 85.42% of CORE
International Equity Fund's outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds intend to elect and each other Fund has elected to be
treated as a regulated investment company and each Fund intends to qualify for
such treatment for each taxable year under Subchapter M of the Code. To
qualify as such, a Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, a Fund will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction,
44
<PAGE>
subject to certain holding period requirements and debt financing limitations
under the Code. Dividends paid by CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds are not generally
expected to qualify, in the hands of corporate shareholders, for the corporate
dividends-received deduction, but a portion of each other Fund's dividends may
generally so qualify. Certain distributions paid by a Fund in January of a
given year may be taxable to shareholders as if received the prior December
31. Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
45
<PAGE>
REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and a quarterly account
statement. A year-to-date statement for any account will be provided upon
request made to Goldman Sachs. The Funds do not generally provide subaccounting
services with respect to beneficial ownership of Institutional Shares.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Institutional Shares will, at the
election of each shareholder, be paid (i) in cash or (ii) in additional
Institutional Shares of such Fund. This election should initially be made on a
shareholder's Account Information Form and may be changed upon written notice
to Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment
income and capital gain distributions will be reinvested in Institutional
Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in
additional Institutional Shares of the Fund will not affect the tax treatment
of such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-term
and short-term capital gains, reduced by available capital losses, at least
annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day through Goldman
Sachs at the net asset value per share next determined after receipt of an
order. No sales load will be charged. If, by the close of regular trading on
the New York Stock Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New
York time), an order is received by Goldman Sachs, the price per share will be
the net asset value per share computed on the day the purchase order is
received. See "Net Asset Value." Purchases of Institutional Shares of the Funds
must be settled within three (3) Business Days of the receipt of a complete
purchase order. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Institutional Shares."
46
<PAGE>
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to the Fund or Goldman
Sachs. An Account Information Form, a copy of which is attached to this
Prospectus, should be used to open such an account. Subsequent purchases may be
made in the manner set forth below.
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring federal funds to State Street
Bank and Trust Company ("State Street") or initiating an ACH transfer.
Purchases may also be made by check (except that the Trust will not accept a
check drawn on a foreign bank or a third party check) or Federal Reserve draft
made payable to "Goldman Sachs Equity Funds--Name of Fund and Class of shares"
and should be directed to "Goldman Sachs Equity Funds--Name of Fund and Class
of shares," c/o National Financial Data Services, Inc. ("NFDS"), P.O. Box
419711, Kansas City, MO 64141-6711.
The minimum initial investment is $1,000,000 in Institutional Shares of a
Fund alone or in combination with other assets under the management of GSAM and
its affiliates. Institutional Shares of the Fund are offered to (a) banks,
trust companies or other types of depository institutions investing for their
own account or on behalf of their clients; (b) pension and profit sharing
plans, pension funds and other company-sponsored benefit plans; (c) qualified
non-profit organizations, charitable trusts, foundations and endowments; (d)
any state, county, city or any instrumentality, department, authority or agency
thereof; (e) corporations and other for-profit business organizations with
assets of at least $100 million or publicly traded securities outstanding; (f)
"wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided that they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards; (g) registered investment advisers investing for
accounts for which they receive asset-based fees; and (h) accounts over which
GSAM or its advisory affiliates have investment discretion. The minimum
investment requirement may be waived at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
OTHER PURCHASE INFORMATION
The Funds reserve the right to redeem the Institutional Shares of any
Institutional Shareholder whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Trust will give sixty (60) days'
prior written notice to Institutional Shareholders whose Institutional Shares
are being redeemed to allow them to purchase sufficient additional
Institutional Shares of a Fund to avoid such redemption.
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
47
<PAGE>
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Equity Funds--Name of Fund
and Class of Shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606 or, if previously elected in the Fund's Account Information
Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago time). A
shareholder should obtain and read the prospectus relating to any other fund
and its shares and consider its investment objective, policies and applicable
fees before making an exchange. Under the telephone exchange privilege,
Institutional Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange request is in writing and is received in accordance with the
procedures set forth under "Redemption of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is treated
as a sale of the Institutional Shares surrendered in the exchange on which an
investor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the corresponding class of any Goldman Sachs Money Market Fund
received in the exchange. Shareholders should consult their own tax adviser
concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Fund. Exchanges are available only in states
where exchanges may legally be made. The exchange privilege may be modified or
withdrawn at any time on sixty (60) days' written notice to Institutional
Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
The Funds will redeem their Institutional Shares upon request of an
Institutional Shareholder on any Business Day at the net asset value next
determined after the receipt by the Transfer Agent of such request in proper
form. See "Net Asset Value." If Institutional Shares to be redeemed were
recently purchased by check, a Fund may delay transmittal of redemption
proceeds until such time as it has assured itself that good funds have been
collected for the purchase of such Institutional Shares. This may take up to
fifteen (15) days. Redemption
48
<PAGE>
requests may be made by writing to or calling the Transfer Agent at the address
or telephone number set forth on the back cover of this Prospectus. An
Institutional Shareholder may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form
accompanying this Prospectus. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. In all other cases, neither the Funds,
the Trust nor Goldman Sachs will be responsible for the authenticity of
redemption or exchange instructions received by telephone.
Written requests for redemptions must be signed by each Institutional
Shareholder whose signature has been guaranteed by a bank, a securities broker
or dealer, a credit union having authority to issue signature guarantees, a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
Institutional Shareholder's Account Information Form or, if the shareholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) Business Days after receipt of a
properly executed redemption request. Wiring of redemption proceeds may be
delayed one additional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would originally be wired. Redemption proceeds paid
by check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. In order to
change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the Funds,
the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries or the Institutional Shareholder's bank in the
transfer process. If a problem with such performance arises, the Institutional
Shareholder should deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper form
until such additional documentation has been received.
--------------------
49
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROINST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
INSTITUTIONAL SHARES
GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
October 1, 1997 GOLDMAN SACHS EQUITY FUNDS
SERVICE SHARES
GOLDMAN SACHS BALANCED FUND GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term capital growth Seeks long-term growth of capital
and current income through in- through diversified investments in eq-
vestments in equity and fixed uity securities of companies that are
income securities. considered to have long-term capital ap-
preciation potential.
GOLDMAN SACHS GROWTH AND INCOME
FUND GOLDMAN SACHS MID CAP EQUITY FUND
Seeks long-term growth of cap- Seeks long-term capital appreciation
ital and growth of income primarily through investments in equity
through investments in equity securities of companies with public
securities that are considered stock market capitalizations of between
to have favorable prospects $500 million and $10 billion at the time
for capital appreciation of investment.
and/or dividend paying abili-
ty.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation
GOLDMAN SACHS CORE U.S. EQUITY through investments in equity securities
FUND of companies that are organized outside
Seeks long-term growth of cap- the U.S. or whose securities are princi-
ital and dividend income pally traded outside the U.S.
through a broadly diversified
portfolio of large cap and
blue chip equity securities
representing all major sectors
of the U.S. economy.
GOLDMAN SACHS SMALL CAP VALUE FUND
Seeks long-term capital growth through
investments in equity securities of com-
panies with public stock market capital-
izations of $1 billion or less at the
time of investment.
GOLDMAN SACHS CORE LARGE CAP
GROWTH FUND
Seeks long-term growth of cap- GOLDMAN SACHS EMERGING MARKETS
ital through a broadly diver- EQUITY FUND
sified portfolio of equity se- Seeks long-term capital appreciation
curities of large cap U.S. is- through investments in equity securities
suers that are expected to of emerging country issuers.
have better prospects for
earnings growth than the
growth rate of the general do-
mestic economy. Dividend in-
come is a secondary considera-
tion.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies related (in the manner de-
scribed herein) to Asian countries.
GOLDMAN SACHS CORE SMALL CAP EQ-
UITY FUND
Seeks long-term growth of cap-
ital through a broadly diver-
sified portfolio of equity se-
curities of U.S. issuers which
are included in the Russell
2000 Index at the time of in-
vestment.
GOLDMAN SACHS CORE INTERNATIONAL
EQUITY FUND
Seeks long term growth of cap-
ital through a broadly diver-
sified portfolio of equity se-
curities of large cap compa-
nies that are organized out-
side the U.S. or whose securi-
ties are principally traded
outside the U.S.
-------------
SERVICE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES
ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF
U.S. ISSUERS QUOTED IN U.S. DOLLARS. IN PARTICULAR, THE SECURITIES MARKETS OF
ASIAN, LATIN AMERICAN, EASTERN EUROPEAN, AFRICAN AND OTHER EMERGING COUNTRIES
IN WHICH THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND ASIA GROWTH
FUNDS MAY INVEST WITHOUT LIMIT, AND IN WHICH OTHER FUNDS CAN INVEST A PORTION
OF THEIR ASSETS, ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. FURTHER,
INVESTMENT IN EQUITY SECURITIES OF ISSUERS LOCATED IN RUSSIA AND CERTAIN OTHER
EMERGING COUNTRIES INVOLVES RISK OF LOSS RESULTING FROM PROBLEMS IN SHARE
REGISTRATION AND CUSTODY, WHICH RISKS ARE NOT NORMALLY ASSOCIATED WITH
INVESTMENT IN MORE DEVELOPED COUNTRIES. THE FUNDS THAT INVEST IN FOREIGN
SECURITIES AND EMERGING MARKETS ARE INTENDED FOR INVESTORS WHO CAN ACCEPT THE
RISKS ASSOCIATED WITH THESE INVESTMENTS AND MAY NOT BE SUITABLE FOR ALL
INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, CORE Large Cap Growth,
CORE Small Cap Equity, CORE International Equity, Mid Cap Equity and Small Cap
Value (formerly "Small Cap Equity") Funds. Goldman Sachs Funds Management, L.P.
("GSFM"), New York, New York, an affiliate of Goldman Sachs, serves as
investment adviser to the CORE U.S. Equity (formerly the "Select Equity Fund")
and Capital Growth Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as investment
adviser to the International Equity, Emerging Markets Equity and Asia Growth
Funds. GSAM, GSFM and GSAMI are each referred to in this Prospectus as the
"Investment Adviser." Goldman Sachs serves as each Fund's distributor and
transfer agent.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated October 1, 1997,
containing further information about the Trust and the Funds which may be of
interest to investors, has been filed with the Securities and Exchange
Commission ("SEC"), is incorporated herein by reference in its entirety, and
may be obtained without charge from Service Organizations (as defined herein),
or Goldman Sachs by calling the telephone number, or writing to one of the
addresses, listed on the back cover of this Prospectus. The SEC maintains a Web
site (http://www.sec.gov) that contains the Additional Statement and other
information regarding the Trust.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights.................... 3
Fees and Expenses.................. 7
Financial Highlights............... 9
Investment Objectives and Policies. 18
Description of Securities.......... 26
Investment Techniques.............. 31
Risk Factors....................... 35
Investment Restrictions............ 37
Portfolio Turnover................. 37
Management......................... 38
Net Asset Value.................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Information....... 43
Shares of the Trust........... 43
Taxation...................... 44
Additional Information........ 45
Additional Services........... 46
Reports to Shareholders....... 46
Dividends..................... 47
Purchase of Service Shares.... 47
Exchange Privilege............ 48
Redemption of Service Shares.. 49
Appendix...................... A-1
</TABLE>
2
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS THE GOLDMAN SACHS TRUST?
The Goldman Sachs Trust is an open-end management investment company
that offers its shares in several investment funds (mutual funds). Each
Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to
achieve that Fund's stated investment objectives.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be
no assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
--------------
-----------------------
------------------------------------------------------
---------------------
BALANCED Long-term Between 45% and 65% of total assets in Lehman Aggregate
FUND capital growth equity securities and at least 25% in Bond Index and
and current fixed income senior securities. the Standard &
income. Poor's Index of
500 Common
Stocks (the "S&P
500 Index")
- ----------------------------------------------------------------------------------------
GROWTH AND Long-term growth At least 65% of total assets in equity S&P 500 Index
INCOME FUND of capital and securities that the Investment Adviser
growth of considers to have favorable prospects
income. for capital appreciation and/or
dividend paying ability.
- ----------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity S&P 500 Index
EQUITY FUND of capital and securities of U.S. issuers. The Fund
dividend income. seeks to achieve its objective through
a broadly diversified portfolio of
large cap and blue chip equity
securities representing all major
sectors of the U.S. economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the S&P 500
Index.
- ----------------------------------------------------------------------------------------
CORE LARGE Long-term growth At least 90% of total assets in equity Russell 1000
CAP GROWTH of capital. securities of U.S. issuers, including Growth Index
FUND Dividend income certain foreign issuers traded in the
is a secondary U.S. The Fund seeks to achieve its
consideration. objective through a broadly diversified
portfolio of equity securities of large
cap U.S. issuers that are expected to
have better prospects for earnings
growth than the growth rate of the
general domestic economy. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
1000 Growth Index.
</TABLE>
(continued)
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT
FUND NAME OBJECTIVES INVESTMENT CRITERIA BENCHMARK
--------------
-----------------------
------------------------------------------------------
----------------------
CORE SMALL Long-term growth At least 90% of total assets in equity Russell 2000
CAP EQUITY of capital. securities of U.S. issuers, including Index
FUND certain foreign issuers traded in the
U.S. The Fund seeks to achieve its
investment objective through a broadly
diversified portfolio of equity
securities of U.S. issuers which are
included in the Russell 2000 Index at
the time of Investments. The Fund's
investments are selected using both a
variety of quantitative techniques and
fundamental research in seeking to
maximize the Fund's expected return,
while maintaining risk, style,
capitalization and industry
characteristics similar to the Russell
2000 Index.
- -------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity EAFE Index
INTERNATIONAL of capital. securities of companies organized (unhedged)
EQUITY FUND outside the United States or whose
securities are principally traded
outside the United States. The Fund
seeks broad representation of large cap
issuers across major countries and
sectors of the international economy.
The Fund's investments are selected
using both a variety of quantitative
techniques and fundamental research in
seeking to maximize the Fund's expected
return, while maintaining risk, style,
capitalization and industry
characteristics similar to the unhedged
Morgan Stanley Capital International
(MSCI) Europe, Australia and Far East
Index (the "EAFE Index"). The Fund may
employ certain currency management
techniques.
- -------------------------------------------------------------------------------------------
CAPITAL Long-term At least 90% of total assets in a S&P 500 Index
GROWTH FUND capital growth. diversified portfolio of equity
securities. The Investment Adviser
considers long-term capital
appreciation potential in selecting
investments.
- -------------------------------------------------------------------------------------------
MID CAP Long-term At least 65% of total assets in Russell Midcap
EQUITY FUND capital equity securities of companies Index
appreciation. with public stock market
capitalizations of between $500 million
and $10 billion at the time of
investment ("Mid-Cap Companies").
- -------------------------------------------------------------------------------------------
INTERNATIONAL Long-term Substantially all, and at least 65%, of FT/Actuaries
EQUITY FUND capital total assets in equity securities Europe and
appreciation. of companies organized outside Pacific Index
the United States or whose securities (unhedged)
are principally traded outside the
United States. The Fund may employ
currency management techniques.
- -------------------------------------------------------------------------------------------
SMALL CAP Long-term At least 65% of total assets in equity Russell 2000
VALUE FUND capital growth. securities of companies with public
stock market capitalizations of $1
billion or less at the time of
investment. The Fund currently
emphasizes investments in companies
with public stock market
capitalizations of $500 million or less
at the time of investment.
- -------------------------------------------------------------------------------------------
EMERGING Long-term Substantially all, and at least 65%, of Morgan Stanley
MARKETS capital its total assets in equity securities Capital
EQUITY FUND appreciation. of emerging country issuers. The Fund International
may employ certain currency management Emerging Markets
techniques. Free Index
- -------------------------------------------------------------------------------------------
ASIA GROWTH Long-term Substantially all, and at least 65%, of Morgan Stanley
FUND capital total assets in equity securities Capital
appreciation. of companies in China, Hong International
Kong, India, Indonesia, Malaysia, All Country Asia
Pakistan, the Philippines, Singapore, Free ex Japan
South Korea, Sri Lanka, Taiwan and Index
Thailand. The Fund may employ certain
currency management techniques.
</TABLE>
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in
any of the Funds may be worth more or less when redeemed than when
purchased. None of the Funds should be relied upon as a complete investment
program. There can be no assurance that a Fund's investment objectives will
be achieved. See "Risk Factors."
Risks of Investing in Small Capitalization Companies. To the extent that
a Fund invests in the securities of small market capitalization companies,
the Fund may be exposed to a higher degree of risk and price volatility.
Securities of such issuers may lack sufficient market liquidity to enable a
Fund to effect sales at an advantageous time or without a substantial drop
in price.
Foreign Risks. Investments in securities of foreign issuers and
currencies involve risks that are different from those associated with
investments in domestic securities. The risks associated with foreign
investments and currencies include changes in relative currency exchange
rates, political and economic developments, the imposition of exchange
controls, confiscation and other governmental restrictions. Generally,
there is less availability of data on foreign companies and securities
markets as well as less regulation of foreign stock exchanges, brokers and
issuers. A Fund's investments in emerging markets and countries ("Emerging
Countries") involves greater risks than investments in the developed
countries of Western Europe, the United States, Canada, Australia, New
Zealand and Japan. In addition, because the CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds invest
primarily outside the United States, these Funds may involve greater risks,
since the securities markets of foreign countries are generally less liquid
and subject to greater price volatility. The securities markets of emerging
countries, including those in Asia, Latin America, Eastern Europe and
Africa are marked by a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number
of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options and futures, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management serves as Investment Adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity,
CORE International Equity, Mid Cap Equity and Small Cap Value Funds.
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
CORE U.S. Equity and Capital Growth Funds. Goldman Sachs Asset Management
International serves as Investment Adviser to the International Equity,
Emerging Markets Equity and Asia Growth Funds. As of August 19, 1997, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $124 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
5
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares,
and may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value without any sales load. See "Purchase of
Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Service Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
HOW DO I SELL MY SERVICE SHARES?
You may redeem Service Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Service Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME DIVIDENDS CAPITAL GAINS
FUND DECLARED AND PAID DISTRIBUTIONS
- ---- ----------------- -------------
<S> <C> <C>
Balanced.............................. Quarterly Annually
Growth and Income..................... Quarterly Annually
CORE U.S. Equity...................... Annually Annually
CORE Large Cap Growth................. Annually Annually
CORE Small Cap Equity................. Annually Annually
CORE International Equity............. Annually Annually
Capital Growth........................ Annually Annually
Mid Cap Equity........................ Annually Annually
International Equity.................. Annually Annually
Small Cap Value....................... Annually Annually
Emerging Markets Equity............... Annually Annually
Asia Growth........................... Annually Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund or you may elect to receive dividends in cash.
For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
CORE CORE
GROWTH CORE LARGE SMALL CORE MID SMALL EMERGING
AND U.S. CAP CAP INTERNATIONAL CAPITAL CAP INT'L CAP MARKETS ASIA
BALANCED INCOME EQUITY GROWTH EQUITY EQUITY GROWTH EQUITY EQUITY VALUE EQUITY GROWTH
FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND/1/ FUND/1/ FUND FUND FUND/1/ FUND/1/ FUND
-------- ------ ------ ------- ------- ------------- ------- ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... None None None None None None None None None None None None
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... None None None None None None None None None None None None
Redemption Fees. None None None None None None None None None None None None
Exchange Fees... None None None None None None None None None None None None
ANNUAL FUND
OPERATING
EXPENSES: (as a
percentage of
average daily
net assets)
Management Fees
(after
applicable
limitations)/2/. 0.65% 0.70% 0.59% 0.60% 0.75% 0.75% 1.00% 0.75% 0.89% 1.00% 1.10% 0.86%
Service Fees/5/. 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses
(after
applicable lim-
itations)/3/... 0.10% 0.12% 0.06% 0.05% 0.20% 0.25% 0.09% 0.10% 0.21% 0.15% 0.20% 0.24%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES
(AFTER FEE AND
EXPENSE
LIMITATIONS)/4/. 1.25% 1.32% 1.15% 1.15% 1.45% 1.50% 1.59% 1.35% 1.60% 1.65% 1.80% 1.60%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period:
Balanced Fund................................. $13 $40 $ 69 $151
Growth and Income Fund........................ $13 $42 $ 72 $159
CORE U.S. Equity Fund......................... $12 $37 $ 63 $140
CORE Large Cap Growth Fund.................... $12 $37 n/a n/a
CORE Small Cap Equity Fund.................... $15 $46 n/a n/a
CORE International Equity Fund................ $15 $47 n/a n/a
Capital Growth Fund........................... $16 $50 $ 87 $189
Mid Cap Equity Fund........................... $14 $43 $ 74 $162
International Equity Fund..................... $16 $50 $ 87 $190
Small Cap Value Fund.......................... $17 $52 $ 90 $195
Emerging Markets Equity Fund.................. $18 $57 n/a n/a
Asia Growth Fund.............................. $16 $50 $ 87 $190
</TABLE>
- ---------------------
/1/Based on estimated amounts for the current fiscal year.
/2/The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the CORE U.S. Equity, CORE Large Cap
Growth, CORE Small Cap Equity, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds equal to 0.16%, 0.15%,
0.10%, 0.10%, 0.11%, 0.10% and 0.14%, respectively. Without such
limitations, management fees would be 0.75%, 0.75%, 0.85%, 0.85%, 1.00%,
1.20% and 1.00% of each Fund's average daily net assets, respectively.
/3/The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, service fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of each Fund other than
Balanced, CORE Small Cap Equity, CORE International Equity, CORE Large Cap
Growth and Mid Cap Equity Funds)) for the following funds to the extent such
expenses exceed the following percentage of average daily net assets:
<TABLE>
<CAPTION>
OTHER
EXPENSES
--------
<S> <C>
Balanced......................................................... 0.10%
Growth and Income................................................ 0.11%
CORE U.S. Equity................................................. 0.06%
CORE Large Cap Growth............................................ 0.05%
CORE Small Cap Equity............................................ 0.20%
CORE International Equity........................................ 0.25%
Mid Cap Equity................................................... 0.10%
International Equity............................................. 0.20%
Emerging Markets Equity.......................................... 0.16%
Asia Growth...................................................... 0.24%
</TABLE>
7
<PAGE>
/4/Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" for the Service Shares of the Growth and Income, CORE
U.S. Equity and International Equity Funds for the fiscal year ended January
31, 1997, would have been as follows:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Growth and Income...................................... 0.12% 1.32%
CORE U.S. Equity....................................... 0.10% 1.35%
International Equity................................... 0.25% 1.75%
In addition, without the limitations described above, "Other Expenses" and
"Total Operating Expenses" of the Service Shares of the Balanced, CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity, Mid Cap Equity,
Emerging Markets Equity and Asia Growth Funds for the current fiscal year are
estimated to be as follows:
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Balanced .............................................. 0.62% 1.77%
CORE Large Cap Growth.................................. 0.65% 1.90%
CORE Small Cap Equity.................................. 0.71% 2.06%
CORE International Equity.............................. 0.86% 2.21%
Mid Cap Equity......................................... 0.26% 1.51%
Emerging Markets Equity................................ 0.82% 2.52%
Asia Growth............................................ 0.26% 1.76%
</TABLE>
/5/Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Each
Fund also offers Institutional Shares and Class A, Class B and Class C Shares,
which are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding Institutional, Class A, Class B and Class C
Shares may be obtained from an investor's sales representative or from Goldman
Sachs by calling the number on the back of this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above is based on each Fund's fees and expenses (actual
or estimated) and should not be considered as representative of future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Additional Services."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the Class specified) of the
Funds (except the CORE Large Cap Growth Fund) outstanding during the period(s)
indicated has been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into the
Additional Statement from the Annual Report to shareholders for the Funds for
the year ended January 31, 1997 (the "Annual Report"). The following data with
respect to a share (of the Class specified) of the CORE Large Cap Growth Fund
during the period ended July 31, 1997 are unaudited. This information should
be read in conjunction with the financial statements and related notes
incorporated by reference and attached to the Additional Statement. The Annual
Report and Semi-Annual Report also contain performance information and are
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus. During
the periods shown, the Trust did not offer the CORE Small Cap Equity, CORE
International Equity and Emerging Markets Equity Funds, Institutional or Service
Shares of the Balanced, Capital Growth or Small Cap Value Funds, Class A and B
for Mid Cap Equity or Class C shares of any Fund. Accordingly, there are no
financial highlights for these Funds or Classes.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(h) SHAREHOLDERS
------------------------------ -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS NET NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT AND FUTURE INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- ------------------- ---------- ------------- ---------- ----------- --------- ---------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.31 $0.66 $2.47 $(0.66) $(1.00) -- $1.47 $18.78 18.59%
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(g) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 208.11(f) $.0587 $81,410 1.00% 3.76% 1.77% 2.99%
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(h) DISTRIBUTIONS TO SHAREHOLDERS
-------------------------- -----------------------------------
NET REALIZED FROM NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENT OF NET ADDITIONAL
BEGINNING INVESTMENT INVESTMENTS INVESTMENT AND OPTION INVESTMENT PAID-IN
OF PERIOD INCOME AND OPTIONS INCOME TRANSACTIONS INCOME CAPITAL
--------- ---------- -------------- ---------- ------------- ---------- ----------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $19.98 $0.35 $5.18 $(0.35) $(1.97) $(0.01) $--
1997--Class B
Shares(f)....... 20.82 0.17 4.31 (0.17) (1.97) (0.06) --
1997--Institu-
tional
Shares(f)....... 21.25 0.29 3.96 (0.30) (1.97) (0.04) --
1997--Service
Shares(f)....... 20.71 0.28 4.50 (0.28) (1.97) (0.07) --
1996--Class A
Shares.......... 15.80 0.33 4.75 (0.30) (0.60) -- --
1995--Class A
Shares.......... 15.79 0.20(b) 0.30(b) (0.20) (0.33) (0.07) 0.11(b)
FOR THE PERIOD ENDED JANUARY 31,
1994--Class A
Shares(c)....... 14.18 0.15 1.68 (0.15) (0.06) (0.01) --
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
NET NET ASSET ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
INCREASE VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES INCOME (LOSS)
IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
ASSET VALUE PERIOD RETURN(a) RATE RATE(g) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- --------- ---------- ----------- ---------- ---------- ----------- ----------- ---------- -------------
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... $3.20 $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60% 1.43% 1.39%
1997--Class B
Shares(f)....... 2.28 23.10 22.23(d) 53.03 .0586 17,346 1.93(e) 0.15(e) 1.93(e) 0.15(e)
1997--Institu-
tional
Shares(f)....... 1.94 23.19 20.77(d) 53.03 .0586 193 0.82(e) 1.36(e) 0.82(e) 1.36(e)
1997--Service
Shares(f)....... 2.46 23.17 23.87(d) 53.03 .0586 3,174 1.32(e) 0.94(e) 1.32(e) 0.94(e)
1996--Class A
Shares.......... 4.18 19.98 32.45 57.93 -- 436,757 1.20 1.67 1.45 1.42
1995--Class A
Shares.......... 0.01 15.80 3.97 71.80 -- 193,772 1.25 1.28 1.58 0.95
FOR THE PERIOD ENDED JANUARY 31,
1994--Class A
Shares(c)....... 1.61 15.79 13.08(d) 102.23(d) -- 41,528 1.25(e) 1.23(e) 3.24(e) (0.76)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Calculated based on the average shares outstanding methodology.
(c) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
(d) Not annualized.
(e) Annualized.
(f) For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(h) SHAREHOLDERS
------------------------- -----------------------------------
NET REALIZED
AND UNREALIZED FROM NET NET
NET ASSET GAIN (LOSS) ON FROM REALIZED GAIN IN EXCESS (DECREASE) NET ASSET
VALUE, NET INVESTMENTS, NET ON INVESTMENT OF NET INCREASE VALUE,
BEGINNING INVESTMENT OPTIONS INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME AND FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- ---------- ------------- ---------- ----------- --------- ---------
CORE U.S. EQUITY FUND
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JANUARY 31,
1997--Class A
Shares.......... $19.66 $0.16 $4.46 $(0.16) $(0.80) -- $3.66 $23.32 23.75%
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--Institu-
tional Shares... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--Institu-
tional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF
RATIO OF NET
NET RATIO OF NET INVESTMENT
ASSETS AT NET INVESTMENT RATIO OF INCOME
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE AVERAGE
RATE RATE(g) (IN 000'S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- ---------- ----------- ----------- ---------- ------------
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 37.28% $.0417 $225,968 1.29% 0.91% 1.53% 0.67%
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--Institu-
tional Shares... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--Institu-
tional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(G) SHAREHOLDERS
------------------------------ ------------------------------------
NET REALIZED FROM NET NET
NET ASSET AND UNREALIZED FROM REALIZED GAIN IN EXCESS INCREASE NET ASSET
VALUE, NET GAIN (LOSS) ON NET ON INVESTMENTS OF NET (DECREASE) VALUE,
BEGINNING INVESTMENT INVESTMENTS, INVESTMENT OPTIONS INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME OPTIONS AND FUTURES INCOME AND FUTURES INCOME ASSET VALUE PERIOD RETURN(A)
--------- ---------- ------------------- ---------- -------------- ---------- ----------- --------- ---------
CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $14.91 $0.10 $3.56 $(0.10) $(1.72) $(0.02) $1.82 $16.73 25.97%
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES
------------------------
RATIO OF
NET RATIO OF
NET RATIO OF INVESTMENT NET
ASSETS AT NET INCOME RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO (LOSS) TO EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET TO AVERAGE TO AVERAGE
RATE RATE(F) IN (000'S) ASSETS ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------ ---------- -------------
CAPITAL GROWTH FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 52.92% $.0563 $920,646 1.40% 0.62% 1.65% 0.37%
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
12
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(e) SHAREHOLDERS
------------------------- ----------------------------------
NET REALIZED FROM
AND UNREALIZED NET REALIZED
NET ASSET GAIN ON FROM GAIN ON IN EXCESS NET ASSET
VALUE, NET INVESTMENTS, NET INVESTMENT OF NET NET INCREASE VALUE,
BEGINNING INVESTMENT OPTIONS AND INVESTMENT AND FUTURES INVESTMENT IN NET END OF TOTAL
OF PERIOD INCOME FUTURES INCOME TRANSACTIONS INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- ---------- ------------ ---------- ------------ --------- ---------
CORE LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $10.00 $0.01 $1.94 -- -- -- $1.95 $11.95 19.50%(f)
1997--Class B
Shares
(unaudited)..... 10.00 -- 1.94 -- -- -- 1.94 11.94 19.40(f)
1997--
Institutional
Shares
(unaudited)..... 10.00 0.03 1.92 -- -- -- 1.95 11.95 19.50(f)
1997--Service
Shares
(unaudited)..... 10.00 0.02 1.92 -- -- -- 1.94 11.94 19.40(f)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF FEES
OR EXPENSE LIMITATIONS
---------------------------
NET RATIO OF RATIO OF NET RATIO OF NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME TO EXPENSES TO INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET AVERAGE NET AVERAGE TO AVERAGE
RATE RATE(b) (IN 000S) ASSETS ASSETS NET ASSETS NET ASSETS
----------- ---------- --------- ------------ ------------- ------------ --------------
- --------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(c)
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 18.14%(f) $0.0292 $29,491 0.90%(d) 0.45%(d) 2.96%(d) (1.61)%(d)
1997--Class B
Shares
(unaudited)..... 18.14(f) 0.0292 3,734 1.65(d) (0.35)(d) 3.46(d) (1.90)(d)
1997--
Institutional
Shares
(unaudited)..... 18.14(f) 0.0292 2 0.65(d) 0.94 (d) 2.46(d) (0.87)(d)
1997--Service
Shares
(unaudited)..... 18.14(f) 0.0292 2 1.15(d) 0.30 (d) 2.96(d) (1.51)(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(c) For the period from May 1, 1997 (commencement of operations) to July 31,
1997.
(d) Annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) Not annualized.
13
<PAGE>
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS
---------------------------------
NET
REALIZED TOTAL
AND INCOME
NET ASSET UNREALIZED (LOSS)
VALUE, NET GAIN ON FROM
BEGINNING INVESTMENT INVESTMENTS INVESTMENT
OF PERIOD INCOME AND OPTIONS OPERATIONS
--------- ---------- ----------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Institu-
tional Shares... $15.91 $0.24 $3.77 $4.01
FOR THE YEAR ENDED JANUARY 31,
1996--Institu-
tional
Shares(a)....... 15.00 0.13 0.90 1.03
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------
NET
FROM NET ASSETS
REALIZED NET NET AT END
IN EXCESS GAIN ON TOTAL INCREASE ASSET OF
FROM NET OF NET INVESTMENTS DISTRIBUTIONS IN NET VALUE, PORTFOLIO AVERAGE PERIOD
INVESTMENT INVESTMENT AND OPTION TO ASSET END OF TOTAL TURNOVER COMMISSION (IN
INCOME INCOME TRANSACTIONS SHAREHOLDERS VALUE PERIOD RETURN(b) RATE RATE(e) 000'S)
---------- ---------- ------------ ------------- -------- ------ ---------- ---------- ---------- --------
MID CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Institu-
tional Shares... $(0.24) $(0.02) $(0.93) $(1.19) $2.82 $18.73 25.63% 74.03% $.0547 $145,253
FOR THE YEAR ENDED JANUARY 31,
1996--Institu-
tional
Shares(a)....... (0.12) -- -- (0.12) 0.91 15.91 6.89(d) 58.77(d) -- 135,671
<CAPTION>
EXPENSE LIMITATIONS
--------------------
RATIO OF RATIO OF
NET RATIO OF NET
INVESTMENT EXPENSES INVESTMENT
RATIO OF NET INCOME TO TO INCOME TO
EXPENSES TO AVERAGE AVERAGE AVERAGE
AVERAGE NET NET NET NET
ASSETS ASSETS ASSETS ASSETS
------------ ---------- --------- ----------
- --------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Institu-
tional Shares... 0.85% 1.35% 0.91% 1.29%
FOR THE YEAR ENDED JANUARY 31,
1996--Institu-
tional
Shares(a)....... 0.85(c) 1.67(c) 0.98(c) 1.54(c)
</TABLE>
- -----------
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Not annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM
INVESTMENT OPERATIONS(G)
--------------------------------------------------
NET REALIZED
NET REALIZED AND UNREALIZED
NET ASSET AND UNREALIZED GAIN (LOSS) ON
VALUE, NET GAIN (LOSS) ON FOREIGN
BEGINNING INVESTMENT INVESTMENTS, CURRENCY RELATED
OF PERIOD INCOME (LOSS) OPTIONS AND FUTURES TRANSACTIONS
--------- ------------- ------------------- ----------------
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.20 $0.10 $3.51 $(1.28)
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34)
1997--Institu-
tional
Shares(e)....... 17.45 0.04 3.39 (1.24)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38)
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11)
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS
-----------------------
FROM NET
REALIZED
GAIN ON NET NET RATIO OF
FROM INVESTMENT, INCREASE NET ASSET ASSETS AT NET
NET OPTION AND (DECREASE) VALUE, PORTFOLIO AVERAGE END OF EXPENSES TO
INVESTMENT FUTURES IN NET END OF TOTAL TURNOVER COMMISSION PERIOD AVERAGE NET
INCOME TRANSACTIONS ASSET VALUE PERIOD RETURN(A) RATE RATE(F) (IN 000S) ASSETS
---------- ------------ ----------- --------- ----------- --------- ---------- --------- -----------
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $ -- $(0.21) $2.12 $19.32 13.48% 38.01% $.0318 $536,283 1.69%
1997--Class B
Shares(e)....... -- (0.21) 0.33 19.24 2.83(c) 38.01 .0318 19,198 2.23(d)
1997--Institu-
tional
Shares(e)....... (0.03) (0.21) 1.95 19.40 12.53(c) 38.01 .0318 68,374 1.10(d)
1997--Service
Shares(e)....... -- (0.21) 1.64 19.34 10.42(c) 38.01 .0318 674 1.60(d)
1996--Class A
Shares.......... (0.58) (0.87) 2.68 17.20 28.68 68.48 -- 330,860 1.52
1995--Class A
Shares.......... -- (0.59) (3.58) 14.52 (16.65) 84.54 -- 275,086 1.73
1994--Class A
Shares.......... -- -- 3.75 18.10 26.13 60.04 -- 269,091 1.76
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(b)....... -- -- 0.17 14.35 1.23(c) 0.00 -- 66,063 1.80(d)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET NET
INVESTMENT RATIO OF INVESTMENT
INCOME (LOSS) TO EXPENSES INCOME (LOSS)
AVERAGE NET TO AVERAGE TO AVERAGE
ASSETS NET ASSETS NET ASSETS
---------------- ---------- -------------
- -----------------------------------------------------------
<S> <C> <C> <C>
1997--Class A
Shares.......... (0.07)% 1.88% (0.26)%
1997--Class B
Shares(e)....... (0.97)(d) 2.38(d) (1.12)(d)
1997--Institu-
tional
Shares(e)....... 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 0.26 1.77 0.01
1995--Class A
Shares.......... 0.40 1.98 0.15
1994--Class A
Shares.......... 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(b)....... (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(g) SHAREHOLDERS
------------------------------ --------------------------------------
IN EXCESS OF
FROM NET REALIZED
NET REALIZED REALIZED GAIN GAINS ON NET
NET ASSET NET AND UNREALIZED FROM ON INVESTMENT, INVESTMENT, INCREASE NET ASSET
VALUE, INVESTMENT GAIN (LOSS) ON NET OPTION AND OPTION AND (DECREASE) VALUE,
BEGINNING INCOME INVESTMENTS, INVESTMENT FUTURES FUTURES IN NET END OF TOTAL
OF PERIOD (LOSS) OPTIONS AND FUTURES INCOME TRANSACTIONS TRANSACTIONS ASSET VALUE PERIOD RETURN(a)
--------- ---------- ------------------- ---------- -------------- ------------ ----------- --------- ---------
SMALL CAP VALUE FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $17.29 $(0.21) $ 4.92 $ -- $(1.09) $ -- $ 3.62 $20.91 $ 27.28%
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) -- 0.01 20.80 5.39(d)
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) -- 1.15 17.29 7.20
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24) (4.53) 16.14 (17.53)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) -- 3.99 20.67 30.13
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- -- 2.50 16.68 17.86(d)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER
OF FEES
-----------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES LOSS
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(f) (IN 000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- ---------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 99.46% $.0461 $212,061 1.60% (0.72)% 1.85% (0.97)%
1997--Class B
Shares(b)....... 99.46 .0461 3,674 2.35(e) (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... 57.58 -- 204,994 1.41 (0.59) 1.66 (0.84)
1995--Class A
Shares.......... 43.67 -- 319,487 1.53 (0.53) 1.78 (0.78)
1994--Class A
Shares.......... 56.81 -- 261,074 1.60 (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
1993--Class A
Shares(c)....... 7.12(e) -- 59,339 1.65(e) 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
16
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS(g) SHAREHOLDERS
-------------------------------------- ---------------------
NET
REALIZED AND
UNREALIZED
GAIN ON NET
NET ASSET NET NET REALIZED FOREIGN FROM IN EXCESS INCREASE NET ASSET
VALUE, INVESTMENT AND UNREALIZED CURRENCY NET OF NET (DECREASE) VALUE,
BEGINNING INCOME GAIN (LOSS) ON RELATED INVESTMENT INVESTMENT IN NET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME ASSET VALUE PERIOD RETURN(a)
--------- ---------- -------------- ------------ ---------- ---------- ----------- --------- ---------
ASIA GROWTH FUND
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ -- $(0.18) $16.31 (1.01)%
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--Institu-
tional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
------------------------
RATIO OF RATIO OF
NET RATIO OF NET NET
ASSETS AT NET INVESTMENT RATIO OF INVESTMENT
PORTFOLIO AVERAGE END OF EXPENSES TO INCOME (LOSS) EXPENSES INCOME (LOSS)
TURNOVER COMMISSION PERIOD AVERAGE NET TO AVERAGE TO AVERAGE TO AVERAGE
RATE RATE(F) (000'S) ASSETS NET ASSETS NET ASSETS NET ASSETS
---------- ---------- --------- ----------- ------------- ---------- -------------
ASIA GROWTH FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares.......... 48.40% $.0151 $263,014 1.67% 0.20% 1.87% 0.00%
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(d) (0.56)(d) 2.37(d) (0.72)(d)
1997--Institu-
tional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- -----------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
17
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
The Investment Advisers may purchase for the Funds common stocks, preferred
stocks, interests in real estate investment trusts, convertible debt
obligations, convertible preferred stocks, equity interests in trusts,
partnerships, joint ventures, limited liability companies and similar
enterprises, warrants and stock purchase rights ("equity securities"). In
choosing a Fund's securities, the Investment Advisers utilize first-hand
fundamental research, including visiting company facilities to assess
operations and to meet decision-makers. The Investment Advisers may also use
macro analysis of numerous economic and valuation variables to anticipate
changes in company earnings and the overall investment climate. The Investment
Advisers are able to draw on the research and market expertise of the Goldman
Sachs Global Investment Research Department and other affiliates of the
Investment Advisers, as well as information provided by other securities
dealers. Equity securities in a Fund's portfolio will generally be sold when
the Investment Adviser believes that the market price fully reflects or
exceeds the securities' fundamental valuation or when other more attractive
investments are identified.
Value Style Funds. The Growth and Income, Mid Cap Equity, Small Cap Value
and the equity portion of the Balanced Funds are managed using a value
oriented approach. The Investment Adviser evaluates securities using
fundamental analysis and intends to purchase equity securities that are, in
its view, underpriced relative to a combination of such companies' long-term
earnings prospects, growth rate, free cash flow and/or dividend-paying
ability. Consideration will be given to the business quality of the issuer.
Factors positively affecting the Investment Adviser's view of that quality
include the competitiveness and degree of regulation in the markets in which
the company operates, the existence of a management team with a record of
success, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on
capital invested in the business. The Funds may also purchase securities of
companies that have experienced difficulties and that, in the opinion of the
Investment Adviser, are available at attractive prices.
Growth Style Funds. The Capital Growth, International Equity, Emerging
Markets Equity and Asia Growth Funds are managed using a growth oriented
approach. Equity securities for these Funds are selected based on their
prospects for above average growth. The Investment Adviser will select
securities of growth companies trading, in the Investment Adviser's opinion,
at a reasonable price relative to other industries, competitors and historical
price/earnings multiples. These Funds will generally invest in companies whose
earnings are believed to be in a relatively strong growth trend, or, to a
lesser extent, in companies in which significant further growth is not
anticipated but whose market value per share is thought to be undervalued. In
order to determine whether a security has favorable growth prospects, the
Investment Adviser ordinarily looks for one or more of the following
characteristics in relation to the security's prevailing price: prospects for
above average sales and earnings growth per share; high return on invested
capital; free cash flow generation; sound balance sheet, financial and
accounting policies, and overall financial strength; strong competitive
advantages; effective research, product development, and marketing; pricing
flexibility; strength of management; and general operating characteristics
that will enable the company to compete successfully in its marketplace.
18
<PAGE>
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Small Cap Equity and CORE International Equity Funds (the "CORE Funds") are
managed using both quantitative and fundamental techniques. CORE is an acronym
for "Computer-Optimized, Research-Enhanced," which reflects the Funds'
investment process. This investment process and the proprietary multifactor
model used to implement it are discussed below.
Investment Process. The Investment Adviser begins with a broad universe of
U.S. equity securities for the CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds (the "CORE U.S. Funds"), and a broad universe of
foreign equity securities for the CORE International Equity Fund. The
Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating. In the case of a U.S. equity
security followed by the Goldman Sachs Global Investment Research Department
(the "Research Department"), a second rating is assigned based upon the
Research Department's evaluation. In the discretion of the Investment Adviser,
such ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign equity
security, the Investment Adviser may rely on research from both the Research
Department and other industry sources.
In building a diversified portfolio for each CORE Fund, the Investment
Adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio is primarily comprised of securities rated highest
by the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Multifactor Models. The Multifactor Models are rigorous computerized rating
systems for forecasting the returns of different equity markets, currencies,
and individual equity securities according to fundamental investment
characteristics. The CORE U.S. Funds use one Multifactor Model to forecast the
returns of securities held in each Fund's portfolio. The CORE International
Equity Fund uses multiple Multifactor Models to forecast returns. Currently,
the CORE International Equity Fund uses one model to forecast equity market
returns, one model to forecast currency returns and 22 separate models to
forecast individual equity security returns in 22 different countries. Despite
this variety, all Multifactor Models incorporate common variables covering
measures of value, growth, momentum and risk (e.g., book/price ratio,
earnings/price ratio, price momentum, price volatility, consensus growth
forecasts, earnings estimate revisions, earnings stability, and, in the case
of models for the CORE International Equity Fund, currency momentum and
country political risk ratings). All of the factors used in the Multifactor
Models have been shown to significantly impact the performance of the
securities, currencies and markets they were designed to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Funds are derived using a statistical formulation that considers
each factor's historical performance in different market environments. As
such, the U.S. Multifactor Model is designed to evaluate each security using
only the factors that are statistically related to returns in the anticipated
market environment. Because they include many disparate factors, the
Investment Adviser believes that all the Multifactor Models are broader in
scope and provide a more thorough evaluation than most conventional,
quantitative models. Securities and markets ranked highest by the relevant
Multifactor Model do not have one dominant investment characteristic; rather,
they possess an attractive combination of investment characteristics.
Research Department. In assigning ratings to equity securities, the
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." The ratings reflect
the analyst's judgment as to the investment results of a specific security and
incorporate economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a
qualitative (i.e., research enhanced) method of selecting securities, each
CORE Fund seeks to capitalize on the strengths of each discipline.
19
<PAGE>
BALANCED FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital growth and current income. The Fund seeks capital
appreciation primarily through the equity component of its portfolio while
investing in fixed income securities primarily to provide income for regular
quarterly dividends.
Primary Investment Focus. The Fund invests, under normal circumstances,
between 45% and 65% of its total assets in equity securities. The Fund also
invests at least 25% of its total assets in fixed income senior securities and
the remainder of its assets in other fixed income securities and cash. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This allocation is subject to the Fund's intention to pay regular
quarterly dividends. The amount of quarterly dividends can also be expected to
fluctuate in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
Other. Although the Fund's equity investments consist primarily of publicly
traded U.S. securities, the Fund may invest up to 10% of its total assets in
the equity securities of foreign issuers, including issuers in Emerging
Countries and equity securities quoted in foreign currencies. A portion of the
Fund's portfolio of equity securities may be selected primarily to provide
current income. Equity securities selected to provide current income may
include interests in real estate investment trusts, convertible securities,
preferred stocks, utility stocks and interests in limited partnerships.
The Fund's fixed income securities primarily include securities issued by
the U.S. Government, its agencies, instrumentalities or sponsored enterprises,
corporations or other entities, mortgage-backed and asset-backed securities,
municipal securities and custodial receipts. The Fund may also invest in debt
obligations (U.S. dollar and non-U.S. dollar denominated) issued or guaranteed
by one or more foreign governments or any of their political subdivisions,
agencies or instrumentalities and foreign corporations or other entities. Such
securities are collectively referred to herein as "fixed income securities."
The Fund's investments in fixed income securities that are issued by foreign
issuers, including issuers in Emerging Countries may not exceed 10% of the
Fund's total assets. The Fund may employ certain currency techniques to seek
to hedge against currency exchange rate fluctuations or to seek to increase
total return. When used to seek to enhance return, these management techniques
are considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. See "Description of Securities," "Investment
Techniques" and "Risk Factors."
GROWTH AND INCOME FUND
Objectives. The Fund's investment objectives are to provide investors with
long-term growth of capital and growth of income.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities that the Investment Adviser
considers to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities that, in the opinion of the Investment Adviser, offer the potential
to further the Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in Emerging Countries and securities quoted in foreign currencies.
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CORE U.S. EQUITY FUND (FORMERLY, THE "SELECT EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital and dividend income. The Fund seeks to achieve its
objective through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers. The Fund
may invest in equity securities of foreign issuers that are traded in the
United States and that comply with U.S. accounting standards. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar
to the S&P 500 Index. The Fund seeks a broad representation in most major
sectors of the U.S. economy and a portfolio comprised of companies with
average long-term earnings growth expectations and dividend yields. The Fund
may invest only in fixed income securities that are considered cash
equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE LARGE CAP GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are expected to have better prospects for earnings growth than the growth
rate of the general domestic economy. Dividend income is a secondary
consideration.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Investment Adviser emphasizes a company's growth
prospects in analyzing equity securities to be purchased by the Fund. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. The Fund seeks a
portfolio comprised of companies with above average capitalizations and
earnings growth expectations and below average dividend yields. The Fund may
invest only in fixed income securities that are considered cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE SMALL CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of U.S. issuers which are
included in the Russell 2000 Index at the time of investment.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of U.S. issuers, including
foreign issuers that are traded in the United States and that comply with U.S.
accounting standards. The Fund's investments are selected using both a variety
of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk,
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<PAGE>
style, capitalization and industry characteristics similar to the Russell 2000
Index. The Fund seeks a portfolio comprised of companies with small market
capitalizations, strong expected earnings growth and momentum, and better
valuation and risk characteristics than the Russell 2000 Index. The Fund may
invest only in fixed income securities that are considered cash equivalents.
The Investment Adviser believes that companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. Investments in small market capitalization issuers
involve special risks. See "Description of Securities" and "Risk Factors." If
the issuer of a portfolio security held by the Fund is no longer included in
the Russell 2000 Index, the Fund may, but is not required to, sell the
security.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
CORE INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital. The Fund seeks to achieve its objective through a
broadly diversified portfolio of large cap equity securities of companies that
are organized outside the United States or whose securities are primarily
traded outside the United States.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining a risk profile similar to EAFE Index. The Fund's
portfolio is designed to have risk, style, capitalization and industry
characteristics similar to the EAFE Index. In addition, the Fund seeks a
portfolio comprised of companies with attractive valuations and stronger
momentum characteristics than the EAFE Index.
The Fund may allocate its assets among countries as determined by the
Investment Adviser from time to time, provided the Fund's assets are invested
in at least three foreign countries. The Fund may invest in securities of
issuers in Emerging Countries which involve certain risks, as described below
under "Risk Factors--Special Risks of Investments in the Asian and Other
Emerging Markets," which are not present in investments in more developed
countries. The Fund may invest only in fixed income securities that are
considered to be cash equivalents.
For a description of the investment process of the Fund, see "Investment
Objectives and Policies--Quantitative Style Funds."
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
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CAPITAL GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term growth of capital.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by the Investment Adviser to have long-term
capital appreciation potential.
Other. Although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
MID CAP EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid Cap Companies with public stock
market capitalizations (based upon shares available for trading on an
unrestricted basis) of between $500 million and $10 billion at the time of
investment. If the company's capitalization of an issuer increases above $10
billion after purchase of such issuer's securities, the Fund may, but is not
required to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. The Fund may invest up to 35% of its total assets in fixed income
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and
securities quoted in foreign currencies.
INTERNATIONAL EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which
the Fund may invest have emerging markets or economies which involve certain
risks, as described below under "Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries.
Other. The Fund may employ certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those
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associated with investing solely in securities of U.S. issuers quoted in U.S.
dollars. To the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. See "Description of Securities,"
"Investment Techniques" and "Risk Factors." Up to 35% of the Fund's total
assets may be invested in fixed income securities.
SMALL CAP VALUE FUND (FORMERLY, THE "SMALL CAP EQUITY FUND")
Objective. The Fund's investment objective is to provide investors with
long-term capital growth.
Primary Investment Focus. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
However, the Fund currently emphasizes investments in companies with public
stock market capitalizations of $500 million or less at the time of
investment. Under normal circumstances, the Fund's investment horizon for
ownership of stocks will be two to three years. Dividend income, if any, is an
incidental consideration.
Small Capitalization Companies. The Fund invests in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of
their life and that the Investment Adviser believes have significant growth
potential. The Investment Adviser believes that the companies in which the
Fund may invest offer greater opportunity for growth of capital than larger,
more mature, better known companies. However, investments in such small market
capitalization companies involve special risks. See "Description of
Securities" and "Risk Factors."
Other. The Fund may invest in the aggregate up to 35% of its total assets in
the equity securities of companies with public stock market capitalizations in
excess of $1 billion and in fixed income securities. In addition, although the
Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
EMERGING MARKETS EQUITY FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Investment Adviser not to be
fully developed. The Investment Adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and
its agencies in determining whether a country is emerging or developed.
Currently, Emerging Countries include among others, most Latin American,
African, Asian and Eastern European nations. The Investment Adviser currently
intends that the Fund's investment focus will be in the following Emerging
Countries: Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech
Republic, Egypt, Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan,
Kenya, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Venezuela and Zimbabwe.
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An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries,
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country, (iii) it maintains 50% or more of its assets in one or more
of the Emerging Countries or (iv) the principal securities trading market for
a class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks as described under
"Risk Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The Fund may purchase privately placed equity securities, equity securities of
companies that are in the process of being privatized by foreign governments,
securities of issuers that have not paid dividends on a timely basis, equity
securities of issuers that have experienced difficulties, and securities of
companies without performance records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
Under normal circumstances, the Fund maintains investments in at least six
Emerging Countries and will not invest more than 35% of its total assets in
securities of issuers in any one Emerging Country. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors
and the portfolio manager's and Goldman Sachs economists' views of the
relative attractiveness of Emerging Countries and currencies are considered in
allocating the Fund's assets among Emerging Countries. Concentration of the
Fund's assets in one or a few Emerging Countries and currencies will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated. See "Description of Securities--Foreign Transactions" and "Risk
Factors." The Fund may invest in the aggregate up to 35% of its total assets
in (i) fixed income securities of private and governmental Emerging Country
issuers, (ii) equity and fixed income securities of issuers in developed
countries and (iii) temporary investments.
ASIA GROWTH FUND
Objective. The Fund's investment objective is to provide investors with
long-term capital appreciation.
Primary Investment Focus. The Fund invests, under normal market
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in
one or more of the Asian countries, (ii) they derive 50% or more of their
total revenue from goods produced, sales made or services performed in one or
more of the Asian countries, (iii) they maintain 50% or more of their assets
in one or more of the Asian countries, or (iv) they are organized under the
laws of one of the Asian countries. The Fund seeks to achieve its objective by
investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described under "Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed
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<PAGE>
countries. The Fund may purchase equity securities of issuers that have not
paid dividends on a timely basis, securities of companies that have
experienced difficulties, and securities of companies without performance
records.
Other. The Fund may employ certain currency management techniques to seek to
hedge against currency exchange rate fluctuations or to seek to increase total
return. When used to seek to enhance return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in securities of U.S.
issuers quoted in U.S. dollars. To the extent that the Fund is fully invested
in foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Description of
Securities," "Investment Techniques" and "Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. For purposes of the Fund's
investment policies, Asian countries are China, Hong Kong, India, Indonesia,
Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan
and Thailand as well as any other country in Asia (other than Japan) to the
extent that foreign investors are permitted by applicable law to make such
investments. Allocation of the Fund's investments will depend upon the
relative attractiveness of the Asian markets and particular issuers.
Concentration of the Fund's assets in one or a few of the Asian countries and
Asian currencies will subject the Fund to greater risks than if the Fund's
assets were not geographically concentrated. See "Description of Securities--
Foreign Investments." The Fund may invest in the aggregate up to 35% of its
total assets in equity securities of issuers in other countries, including
Japan, and in fixed income securities.
DESCRIPTION OF SECURITIES
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all fixed income securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not decline in price to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("Standard &
Poor's") or Moody's Investors Service, Inc. ("Moody's"), or if unrated by such
rating organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities in which the CORE Funds invest are not
subject to any minimum rating criteria. The convertible debt securities in
which the other Funds may invest are subject to the same rating criteria as a
Fund's investments in non-convertible debt securities. Convertible debt
securities are equity investments for purposes of each Fund's investment
policies.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. Each Fund may invest in the securities of foreign
issuers (provided that the CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds may only invest in equity securities
26
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of foreign issuers that are traded in the U.S. and comply with U.S. accounting
standards). Investments in foreign securities may offer potential benefits
that are not available from investments exclusively in equity securities of
domestic issuers quoted in U.S. dollars. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign securities do not necessarily move in a manner parallel to U.S.
markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in equity securities of domestic issuers
quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). 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 a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. Commissions on transactions in
foreign securities may be higher than those for similar transactions on
domestic stock markets. In addition, clearance and settlement procedures may
be different in foreign countries and, in certain markets, such procedures
have on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign 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 about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than 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), limitations on the removal of
funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs") and each
Fund, other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds, may also invest in European Depository Receipts ("EDRs") or
other similar instruments representing securities of foreign issuers
(together, "Depository Receipts"). ADRs represent the right to receive
securities of foreign issuers deposited in a domestic bank or a correspondent
bank. Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the
United States on exchanges or over-the-counter and are sponsored and issued by
domestic banks. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and GDRs are not necessarily quoted in the same currency
as the underlying security. To the extent a Fund acquires Depository Receipts
through banks which do not have a contractual relationship with the foreign
issuer of the security underlying the Depository Receipts to issue and service
such Depository Receipts (unsponsored Depository Receipts), there may be an
increased possibility that the Fund would not become aware of and be able to
respond to corporate actions, such as stock splits or rights offerings
involving the foreign issuer, in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Depository Receipts does not eliminate all the risks inherent in
investing in securities of non-U.S. issuers. The market value of Depository
Receipts is dependent upon the market value of the underlying securities and
fluctuations in the relative value of the currencies in which the Depository
Receipt and
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the underlying securities are quoted. However, by investing in Depository
Receipts, such as ADRs, that are quoted in U.S. dollars, a Fund will avoid
currency risks during the settlement period for purchases and sales.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers will
usually involve currencies of foreign countries, and because the Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may have currency exposure independent of their securities
positions, the value of the assets of a Fund as measured in U.S. dollars will
be affected by changes in foreign currency exchange rates. A Fund may, to the
extent it invests in foreign securities, purchase or sell forward foreign
currency exchange contracts for hedging purposes and to seek to protect
against anticipated changes in future foreign currency exchange rates. In
addition, the Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may enter into such contracts to
seek to increase total return when the Investment Adviser anticipates that the
foreign currency will appreciate or depreciate in value, but securities
denominated or quoted in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When entered into to
seek to enhance return, forward foreign currency exchange contracts are
considered speculative. The Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract. The Fund will incur costs in connection with conversions
between various currencies. 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, based on anticipated changes in the relevant exchange
rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by 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 U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on the contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price. A
Fund will not enter into forward foreign currency exchange contracts, currency
swaps
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or other privately negotiated currency instruments unless the credit quality
of the unsecured senior debt or the claims-paying ability of the counterparty
is considered to be investment grade by the Investment Adviser.
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may also engage in a variety of foreign
currency management techniques. However, due to the limited market for these
instruments with respect to the currencies of many Emerging Countries,
including certain Asian countries, the Investment Advisers do not currently
anticipate that a significant portion of Emerging Markets Equity and Asia
Growth Fund's currency exposure will be covered by such instruments. For a
discussion of such instruments and the risks associated with their use, see
"Investment Objective and Policies" in the Additional Statement.
FIXED INCOME SECURITIES
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises. U.S. Government securities also
include Treasury receipts and other stripped U.S. Government securities, where
the interest and principal components of stripped U.S. Government securities
are traded independently. A Fund may also invest in zero coupon U.S. Treasury
securities and in zero coupon securities issued by financial institutions,
which represent a proportionate interest in underlying U.S. Treasury
securities. A zero coupon security pays no interest to its holder during its
life and its value consists of the difference between its face value at
maturity and its cost. The market prices of zero coupon securities generally
are more volatile than the market prices of securities that pay interest
periodically. See "Taxation" in the Additional Statement.
FOREIGN GOVERNMENT SECURITIES. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may invest
in debt obligations of foreign governments and governmental agencies,
including those of Emerging Countries. Investment in sovereign debt
obligations involves special risks not present in debt obligations of
corporate issuers. The issuer of the debt or the governmental authorities that
control the repayment of the debt may be unable or unwilling to repay
principal or interest when due in accordance with the terms of such debt, and
a Fund may have limited recourse in the event of a default. Periods of
economic uncertainty may result in the volatility of market prices of
sovereign debt, and in turn a Fund's net asset value, 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.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the CORE
Funds) may invest in mortgage-backed securities ("Mortgage-Backed
Securities"), which represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
Each Fund (other than the CORE Funds) may also invest in asset-backed
securities ("Asset-Backed Securities"). The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
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The Balanced Fund may also invest in stripped Mortgage-Backed Securities
("SMBS") (including interest only and principal only securities), which are
derivative multiple class Mortgage-Backed Securities. SMBS are usually
structured with two different classes: one that receives 100% of the interest
payments and the other that receives 100% of the principal payments from a
pool of mortgage loans. If the underlying mortgage loans experience different
than anticipated prepayments of principal, a Fund may fail to fully recoup its
initial investment in these securities. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from mortgage 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.
CORPORATE DEBT OBLIGATIONS. Each Fund may invest in corporate debt
obligations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations.
BANK OBLIGATIONS. Each Fund 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 regulation. Banks are
subject to extensive but different governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. In addition, the profitability of the banking industry is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. General
economic conditions as well as exposure to credit losses arising from possible
financial difficulties of borrowers play an important part in the operation of
this industry.
STRUCTURED SECURITIES. Each Fund may invest in structured securities. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal
is due at maturity and, therefore, result in the loss of a Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multiple
of changes in the value of the Reference. Consequently, structured securities
may entail a greater degree of market risk than other types of fixed-income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
RATING CRITERIA. Except as noted below, each Fund (other than the CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds, which only invest in debt instruments that are cash equivalents)
may invest in debt securities rated at least investment grade at the time of
investment. Investment grade debt securities are securities rated BBB or
higher by Standard & Poor's or Baa or higher by Moody's. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. The Balanced Fund may invest up to 10% of
its total assets on debt securities that are rated BB or B by Standard &
Poor's or Ba or B by Moody's. The Growth and Income, Capital Growth, Small Cap
Value, International Equity, Emerging Markets Equity and Asia Growth Funds may
invest up to 10%,
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10%, 35%, 35%, 35% and 35%, respectively, of their total assets in debt
securities which are unrated or rated in the lowest rating categories by
Standard & Poor's or Moody's (i.e., BB or lower by Standard & Poor's or Ba or
lower by Moody's), including securities rated D by Moody's or Standard &
Poor's. Mid Cap Equity Fund may invest up to 10% of its total assets in below
investment grade debt securities rated B or higher by Standard & Poor's or B
or higher by Moody's. Fixed income securities rated BBB or Baa are considered
medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. Fixed income securities rated BB
or Ba or below (or comparable unrated securities) are commonly referred to as
"junk bonds," are considered predominately speculative and may be questionable
as to principal and interest payments. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater
speculative risks than those associated with investment in investment grade
bonds. Also, to the extent that the rating assigned to a security in a Fund's
portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by Standard & Poor's and Moody's.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest in REITs, which are pooled investment vehicles that
invest primarily in either real estate or real estate related loans. The value
of a REIT is affected by changes in the value of the properties owned by the
REIT or securing mortgage loans held by the REIT. REITs are dependant upon
cash flow from their investments to repay financing costs and the ability of
the REITs' manager. REITs are also subject to risks generally associated with
investments in real estate. A Fund will indirectly bear its proportionate
share of any expenses, including management fees, paid by a REIT in which it
invests.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the CORE U.S. Equity and CORE Large Cap Growth Funds)
may write (sell) covered call and put options and purchase call and put
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The writing and purchase of
options is a highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES
A Fund may, to the extent it invests in foreign securities, purchase and
sell (write) call and put options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
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securities and anticipated dividends on such securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against
changes in exchange rates for a different currency, if there is a pattern of
correlation between the two currencies. As with other kinds of options
transactions, however, the writing of an option on a foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If
an option that a Fund has written is exercised, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to a Fund's position, the Fund may forfeit
the entire amount of the premium plus related transaction costs. In addition
to purchasing call and put options for hedging purposes, the Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call or put options on currency to seek to increase
total return when the Investment Adviser anticipates that the currency will
appreciate or depreciate in value, but the securities quoted or denominated in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies written or purchased by the Funds are traded on U.S. and foreign
exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To seek to increase total return or to hedge against changes in interest
rates, securities prices or currency exchange rates, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. Each Fund may also enter into
closing purchase and sale transactions with respect to any such contracts and
options. The futures contracts may be based on various securities (such as
U.S. Government securities), foreign currencies, securities indices and other
financial instruments and indices. The CORE U.S. Equity and CORE Large Cap
Growth Funds may enter into such transactions only with respect to the S&P 500
Index in the case of the CORE U.S. Equity Fund and a representative index in
the case of the CORE Large Cap Growth Fund. A Fund will engage in futures and
related options transactions for bona fide hedging purposes as defined in
regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on the Fund's outstanding positions in futures and related
options entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets. These transactions
involve brokerage costs, require margin deposits and, in the case of contracts
and options obligating a Fund to purchase securities or currencies, require
the Fund to segregate and maintain cash or liquid assets with a value equal to
the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and a Fund
may be exposed to risk of loss. The loss incurred by a Fund in entering into
futures contracts and in writing call options on futures is potentially
unlimited and may exceed the amount of the premium received. Futures markets
are highly volatile and the use
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of futures may increase the volatility of a Fund's net asset value. The
profitability of a Fund's trading in futures to seek to increase total return
depends upon the ability of the Investment Adviser to correctly analyze the
futures markets. In addition, because of the low margin deposits normally
required in futures trading, a relatively small price movement in a futures
contract may result in substantial losses to a Fund. Further, futures
contracts and options on futures may be illiquid, and exchanges may limit
fluctuations in futures contract prices during a single day.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond the customary three-day settlement period. A Fund is
required to hold and maintain in a segregated account with the Fund's
custodian until three days prior to the settlement date, cash or liquid assets
in an amount sufficient to meet the purchase price. Alternatively, each Fund
may enter into offsetting contracts for the forward sale of other securities
that it owns. The purchase of securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Although a Fund would
generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, a Fund may
dispose of when-issued securities or forward commitments prior to settlement
if its Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES
A Fund will not invest more than 15% of its net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, swap transactions, certain SMBS, repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, and certain restricted securities, unless it is
determined, based upon the continuing review of the trading markets for a
specific restricted security, that such restricted security is eligible for
resale under Rule 144A under the Securities Act of 1933 and, therefore, is
liquid. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of
portfolio securities. The Trustees, however, retain oversight focusing on
factors such as valuation, liquidity and availability of information and are
ultimately responsible for each determination. Investing in restricted
securities eligible for resale pursuant to Rule 144A may decrease the
liquidity of a Fund's portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. The purchase price and subsequent valuation of restricted and
illiquid securities normally reflect a discount, which may be significant,
from the market price of comparable securities for which a liquid market
exists.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may also
enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, a Fund could suffer losses, including
loss of
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interest on or principal of the security and costs associated with delay and
enforcement of the repurchase agreement. The Trustees have reviewed and
approved certain counterparties whom they believe to be creditworthy and have
authorized the Funds to enter into repurchase agreements with such
counterparties. In addition, each Fund, together with other registered
investment companies having management agreements with an Investment Adviser
or 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
Each Fund may also seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as certain broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, or U.S. Government
securities maintained on a current basis in an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents. If an Investment Adviser determines to make securities loans, the
value of the securities loaned may not exceed 33 1/3% of the value of the
total assets of a Fund. A Fund may experience a loss or delay in the recovery
of its securities if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Fund.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the CORE Funds) may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further
consideration, for an equal amount of the securities of the same issuer as the
securities sold short (a short sale against-the-box). Not more than 25% of a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. As a result of recent tax legislation, short sales may not
generally be used to defer the recognition of gain for tax purposes with
respect to appreciated securities in a Fund's portfolio.
MORTGAGE DOLLAR ROLLS
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities for delivery in the current month and simultaneously
contracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) 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 would benefit to
the extent of any difference between the price received for the securities
sold and the lower forward price for the future purchase or fee income plus
the interest earned on the cash proceeds of the securities sold until the
settlement date for the forward purchase. Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of
the Fund. The Fund will hold and maintain in a segregated account until the
settlement date cash or liquid assets in an amount equal to the forward
purchase price. Successful use of mortgage dollar rolls depends upon the
Investment Adviser's ability to predict correctly interest rates and mortgage
prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. For financial reporting and tax purposes, the Fund
treats mortgage dollar rolls as two separate transactions; one involving the
purchase of a security and a separate transaction involving a sale. The Fund
does not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
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TEMPORARY INVESTMENTS
Each Fund may, for temporary defensive purposes, invest 100% of its total
assets (except that the CORE Funds and Emerging Markets Equity Fund may only
hold up to 35% of their respective total assets) in U.S. Government
securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by Standard & Poor's or P-2 by
Moody's, certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year or, subject to certain tax
restrictions, foreign currencies. When a Fund's assets are invested in such
instruments, the Fund may not be achieving its investment objective.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) warrants and stock purchase rights,
(ii) currency swaps (Balanced, CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds only), (iii) mortgage
swaps, index swaps and interest rate swaps, caps, floors and collars (Balanced
Fund only), (iv) yield curve options and inverse floating rate securities
(Balanced Fund only), (v) other investment companies, (vi) unseasoned
companies and (vii) municipal securities (Balanced Fund only) and (viii)
custodial receipts.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information see the Additional Statement.
RISK FACTORS
RISKS OF INVESTING IN SMALL CAPITALIZATION COMPANIES. Investing in the
securities of such companies involves greater risk and the possibility of
greater portfolio price volatility. Historically, small market capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger market capitalization stocks included in the S&P 500
Index. Among the reasons for the greater price volatility of these small
company and unseasoned stocks are the less certain growth prospects of smaller
firms and the lower degree of liquidity in the markets for such stocks.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in Emerging Countries involves
risks in addition to those discussed under "Description of Securities--
Foreign Investments." The International Equity, Emerging Markets Equity and
Asia Growth Funds may each invest without limit in the securities of issuers
in Emerging Countries. The CORE International Equity Fund may invest up to
25%, the Balanced, Growth and Income, Small Cap Value and Mid Cap Equity Funds
may each invest up to 15% and the Capital Growth Fund may invest up to 10% of
its total assets in securities of issuers in Emerging Countries. Emerging
Countries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain Emerging Countries may be constrained by limitations as
to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates
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and their respective clients and other service providers. A Fund may not be
able to sell securities in circumstances where price, trading or settlement
volume limitations have been reached.
Foreign investment in the securities markets of certain Emerging Countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain Emerging Countries is subject to restrictions such as
the need for governmental consents. Due to restrictions on direct investment
in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies" in the
Additional Statement.
Many Emerging Countries may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States, Canada, Australia, New Zealand and Japan. Many Emerging
Countries do not have fully democratic governments. For example, 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 Asian and other Emerging Countries.
Unanticipated political or social developments may affect the values of a
Fund's investments. Investing in Emerging Countries involves the 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. Economies in individual Emerging Countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of inflation, currency valuation, capital
reinvestment, resource self-sufficiency and balance of payments positions.
Many Emerging Countries have experienced currency devaluations and substantial
and, in some cases, extremely high rates of inflation, which have a negative
effect on the economies and securities markets of such 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.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. A Fund's investment in Emerging Countries may also
be subject to withholding or other taxes, which may be significant and may
reduce the return from an investment in such country to the Fund. Settlement
procedures in Emerging Countries are frequently less developed and reliable
than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
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Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the Emerging Countries. Consequently, there can be no
assurance that suitable instruments for hedging currency and market-related
risks will be available at the times when a Fund wishes to use them.
RISKS OF INVESTING IN FIXED INCOME SECURITIES. When interest rates decline,
the market value of fixed income securities tends to increase. Conversely,
when interest rates increase, the market value of fixed income securities
tends to decline. Volatility of a security's market value will differ
depending upon the security's duration, the issuer and the type of instrument.
Investments in fixed income securities are subject to the risk that the issuer
could default on its obligations and a Fund could sustain losses on such
investments. A default could impact both interest and principal payments.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, structured securities and currency forward
contracts involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
(if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund. Each Fund's
investment objectives and all policies not specifically designated as
fundamental are non-fundamental and may be changed without shareholder
approval. If there is a change in a Fund's investment objectives, shareholders
should consider whether that Fund remains an appropriate investment in light
of their then current financial positions and needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders. See
"Financial Highlights" for a statement of each Fund's (other than the CORE
Small Cap Equity, CORE International Equity and Emerging Markets Equity Funds)
historical portfolio turnover ratio. It is anticipated that the annual
portfolio turnover rates of the CORE Small Cap Equity, CORE International
Equity and Emerging Markets Equity Funds will generally not exceed 70%, 70%
and 100%, respectively. The portfolio turnover rate is calculated by dividing
the lesser of the dollar amount of sales or purchases of portfolio securities
by the average monthly value of a Fund's portfolio securities, excluding
securities having a maturity at the date of purchase of one year or less.
Notwithstanding the foregoing, the Investment Adviser may, from time to time,
make short-term investments when it believes such investments are in the best
interest of a Fund.
37
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise the Funds' daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004, a separate operating division of Goldman Sachs, serves
as the investment adviser to the Balanced, CORE Large Cap Growth, CORE Small
Cap Equity, CORE International Equity, Growth and Income, Mid Cap Equity and
Small Cap Value Funds. Goldman Sachs registered as an investment adviser in
1981. Goldman Sachs Funds Management, L.P., One New York Plaza, New York, New
York 10004, a Delaware limited partnership which is an affiliate of Goldman
Sachs, serves as the investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Funds Management, L.P. registered as an investment
adviser in 1990. Goldman Sachs Asset Management International, 133
Peterborough Court, London EC4A 2BB, England, an affiliate of Goldman Sachs,
serves as the investment adviser to the International Equity, Emerging Markets
Equity and Asia Growth Funds. Goldman Sachs Asset Management International
became a member of the Investment Management Regulatory Organisation Limited
in 1990 and registered as an investment adviser in 1991. As of August 19,
1997, GSAM, GSFM and GSAMI, together with their affiliates, acted as
investment adviser or distributor for assets in excess of $124 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices. In addition, the Investment Advisers will haveaccess to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b)
the preparation and submission of reports to existing shareholders, (c) the
periodic updating of prospectuses and statements of additional information and
(d) the preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
38
<PAGE>
FUND MANAGERS
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
George D. Adler Portfolio Manager-- Since Mr. Adler joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty Investment
Management, Inc. and its
predecessor firm
("Liberty").
- ----------------------------------------------------------------------------------------------------------
G. Lee Anderson Portfolio Manager-- Since Mr. Anderson joined the
Vice President Growth and Income 1996 Investment Adviser in
Mid Cap Equity 1997 1992. Prior to 1992, he
Balanced (Equity) 1996 was a research analyst
in the Investment
Research Department of
Goldman, Sachs & Co.
- ----------------------------------------------------------------------------------------------------------
Eileen A. Aptman Portfolio Manager-- Since Ms. Aptman jointed the
Vice President Mid Cap Equity 1996 Investment Adviser in
Growth and Income 1996 1993. Prior to 1993, she
Balanced (Equity) 1996 was an equity analyst at
Delphi Management.
- ----------------------------------------------------------------------------------------------------------
Robert Beckwitt Portfolio Manager Since Mr. Beckwitt joined the
Vice President Emerging Markets Equity 1997 Investment Adviser in
1996. Prior to 1996, he
was Chief Investment
Strategist--Portfolio
Advisory at Fidelity
Investments.
- ----------------------------------------------------------------------------------------------------------
Jonathan A. Beinner Portfolio Manager-- Since Mr. Beinner joined the
Vice President and Co-Head Balanced (Fixed Income) 1994 Investment Adviser in
U.S. Fixed Income 1990.
Department
- ----------------------------------------------------------------------------------------------------------
Guy P. de C. Bennett Portfolio Manager-- Since Mr. Bennett joined the
Vice President International Equity 1997 Investment Adviser in
1996 and is also co-head
of the Japanese Equity
Group in Tokyo. Prior to
1996, he spent 12 years
at CINMAN.
- ----------------------------------------------------------------------------------------------------------
Kent A. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large-Cap Growth 1997 1992. Prior to 1992, he
CORE Small Cap Equity 1997 was studying for a Ph.D.
CORE International Equity 1997 in finance at the
University of Chicago.
- ----------------------------------------------------------------------------------------------------------
Robert G. Collins Portfolio Manager-- Since Mr. Collins joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Herbert E. Ehlers Senior Portfolio Manager-- Since Mr. Ehlers joined the
Managing Director Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was the Chief Investment
Officer of Liberty.
- ----------------------------------------------------------------------------------------------------------
Gregory H. Ekizian Portfolio Manager-- Since Mr. Ekizian joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------------
Paul D. Farrell Senior Portfolio Manager-- Since Mr. Farrell joined the
Vice President Small Cap Value 1992 Investment Adviser in
1991.
- ----------------------------------------------------------------------------------------------------------
Ivor H. Farman Portfolio Manager-- Since Mr. Farman joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was responsible for
originating and
marketing French equity
ideas at Exane in Paris.
- ----------------------------------------------------------------------------------------------------------
Ronald E. Gutfleish Senior Portfolio Manager-- Since Mr. Gutfleish joined the
Vice President Growth and Income Investment Adviser in
Mid Cap Equity 1993 1993. Prior to 1993, he
Balanced (Equity) 1995 was a principal of
1994 Sanford C. Bernstein &
Co. in its Investment
Management Research
Department.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
YEARS
PRIMARILY
NAME AND TITLE FUND RESPONSIBILITY RESPONSIBLE FIVE YEAR EMPLOYMENT HISTORY
---------------------- -------------------------- ----------- ----------------------------
<C> <C> <C> <S>
Robert C. Jones Senior Portfolio Manager-- Since Mr. Jones joined the
Managing Director CORE U.S. Equity 1991 Investment Adviser in
CORE Large Cap Growth 1997 1989.
CORE Small Cap Equity 1997
CORE International Equity 1997
- ----------------------------------------------------------------------------------------------------
Richard C. Lucy Portfolio Manager-- Since Mr. Lucy joined the
Vice President and Balanced (Fixed Income) 1994 Investment Adviser in
Co-Head U.S. 1992. Prior to 1992, he
Fixed Income managed fixed income
Department assets at Brown Brothers
Harriman & Co.
- ----------------------------------------------------------------------------------------------------
Alice Lui Portfolio Manager-- Since Ms. Lui joined the
Vice President Asia Growth 1994 Investment Adviser in
1990.
- ----------------------------------------------------------------------------------------------------
Alessandro P.G. Lunghi Portfolio Manager-- Since Mr. Lunghi joined the
Executive Director International Equity 1996 Investment Adviser in
1996. Prior to 1996, he
was at CINMan for five
years.
- ----------------------------------------------------------------------------------------------------
Shogo Maeda Portfolio Manager-- Since Mr. Maeda joined the
Vice President International Equity 1994 Investment Adviser in
1994. Prior to 1994, he
worked at Nomura
Investment Management
Incorporated and for a
period at Manufacturers
Hanover Bank in New
York.
- ----------------------------------------------------------------------------------------------------
Matthew B. McLennan Portfolio Manager-- Since Mr. McLennan joined the
Associate Small Cap Value 1996 Investment Adviser in
1995. Prior to 1995, he
worked in the Investment
Banking Division of
Goldman, Sachs & Co. in
Australia. Prior to
that, Mr. McLennan
worked at Queensland
Investment Corporation
in Australia.
- ----------------------------------------------------------------------------------------------------
Warwick M. Negus Senior Portfolio Manager-- Since Mr. Negus joined the
Managing Director Asia Growth 1994 Investment Adviser in
Portfolio Manager-- 1994. Prior to 1994, he
International Equity 1994 was a vice president of
Emerging Markets Equity 1997 Bankers Trust Australia
Ltd.
- ----------------------------------------------------------------------------------------------------
Victor H. Pinter Portfolio Manager-- Since Mr. Pinter joined the
Vice President CORE U.S. Equity 1996 Investment Adviser in
CORE Large Cap Growth 1997 1990.
CORE Small Cap Equity 1997
CORE International Equity 1997
- ----------------------------------------------------------------------------------------------------
Ramakrishna Shanker Portfolio Manager-- Since Mr. Shanker joined the
Vice President Asia Growth 1997 Investment Adviser in
1997. Prior to 1997, he
worked for the
Investment Banking
Division of Goldman,
Sachs & Co. in
Singapore.
- ----------------------------------------------------------------------------------------------------
David G. Shell Portfolio Manager-- Since Mr. Shell joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Ernest C. Segundo, Jr. Portfolio Manager-- Since Mr. Segundo joined the
Vice President Capital Growth 1997 Investment Adviser in
1997. Prior to 1997, he
was a portfolio manager
at Liberty.
- ----------------------------------------------------------------------------------------------------
Karma Wilson Portfolio Manager-- Since Ms. Wilson joined the
Vice President Asia Growth 1995 Investment Adviser in
International Equity 1997 1994. Prior to 1994, she
was an investment
analyst with Bankers
Trust Australia Ltd.
Before 1992 she was
employed by Arthur
Andersen LLP.
</TABLE>
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable
40
<PAGE>
law, Goldman Sachs or its affiliates. In effecting purchases and sales of
portfolio securities for the Funds, the Investment Advisers will seek the best
price and execution of a Fund's orders. In doing so, where two or more brokers
or dealers offer comparable prices and execution for a particular trade,
consideration may be given to whether the broker or dealer provides investment
research or brokerage services or sells shares of any Goldman Sachs Fund. See
the Additional Statement for a further description of the Investment Advisers'
brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR ENDED
RATE* JANUARY 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
Balanced..................................... 0.65% 0.65%
Growth and Income............................ 0.70% 0.70%
CORE Large Cap Growth........................ 0.75% n/a
CORE Small Cap Equity........................ 0.85% n/a
CORE International Equity ................... 0.85% n/a
Mid Cap Equity............................... 0.75% 0.75%
Small Cap Value.............................. 1.00% 1.00%
GSFM
CORE U.S. Equity............................. 0.75% 0.59%
Capital Growth............................... 1.00% 1.00%
GSAMI
International Equity......................... 1.00% 0.89%
Emerging Markets Equity...................... 1.20% n/a
Asia Growth.................................. 1.00% 0.86%
</TABLE>
- ---------------------
*With respect to the Balanced, Growth and Income, CORE U.S. Equity, Capital
Growth, Mid Cap Equity, International Equity, Small Cap Value and Asia Growth
Funds, a Management Agreement combining both advisory and administrative
services was adopted effective April 30, 1997. The contractual rate set forth
in the table is the rate payable under the Management Agreements and is
identical to the aggregate advisory and administration fees payable by each
Fund under the previous separate investment advisory (including subadvisory in
the case of International Equity Fund) and administration agreements. For the
fiscal year ended January 31, 1997, the annual rate expressed is the combined
advisory and administration fees paid (after voluntary fee limitations). The
difference, if any, between the stated fees and the actual fees paid by the
Funds reflects that the applicable Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Advisers may discontinue or modify such voluntary limitations in the future at
their discretion, although they have no current intention to do so.
The Investment Advisers to the Balanced, Growth and Income, CORE U.S.
Equity, CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Mid Cap Equity International Equity, Emerging Markets Equity and Asia
Growth Funds have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses (and transfer agency fees in the case of each Fund
other than the Balanced, CORE Small Cap Equity, CORE International Equity,
CORE Large Cap Growth and Mid Cap Equity Funds) to the extent such expenses
exceed 0.10%, 0.11%, 0.06%, 0.05%, 0.20%, 0.25%, 0.10%, 0.20%, 0.16% and 0.24%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
41
<PAGE>
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same type of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. From time to time, a Fund's activities may be limited because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See
"Management--Activities of Goldman Sachs and its Affiliates and Other Accounts
Managed by Goldman Sachs" in the Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding a Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a transfer agency fee from the CORE U.S. Equity,
International Equity and Asia Growth Funds with respect to Institutional or
Service Shares. Goldman Sachs is entitled to receive a transfer agency fee
from the Capital Growth, Growth and Income, Small Cap Value and Emerging
Markets Equity Funds equal to 0.04% of the average daily net assets of the
Institutional and Service Shares of such Funds. Goldman Sachs is entitled to
receive a fee from the Balanced, CORE International Equity, CORE Large Cap
Growth, CORE Small Cap Equity and Mid Cap Equity Funds, with respect to
Institutional and Service shares, equal to their proportionate share of the
total transfer agency fees borne by the Fund. Such fees are equal to the fixed
per account charge of $12,000 per year plus $7.50 per account, together with
out-of-pocket and transaction related expenses (including those out-of-pocket
expenses payable to servicing and/or sub-transfer agents) applicable to Class
A, B and C shares plus 0.04% of the average daily net assets of the
Institutional and Service classes.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each
Business Day (as such term is defined under "Additional Information"). Net
asset value per share of each class is calculated by determining the net
assets attributable to each class and dividing by the number of outstanding
shares of that class. Portfolio securities are valued based on market
quotations or, if accurate quotations are not readily available, at fair value
as determined in good faith under procedures established by the Trustees.
42
<PAGE>
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return and the
Balanced and Growth and Income Funds may publish their yield and distribution
rates in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Each Fund may also from time to
time advertise total return on a cumulative, average, year-by-year or other
basis for various specified periods by means of quotations, charts, graphs or
schedules. In addition, each Fund may furnish total return calculations based
on investments at various sales charge levels or at net asset value. Any
performance data which are based on the net asset value per share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds' quotations of
distribution rate are calculated by annualizing the most recent distribution
of net investment income for a monthly, quarterly or other relevant period and
dividing this amount by the net asset value per share on the last day of the
period for which the distribution rates are being calculated.
Each Fund's total return, yield and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the total return, yield and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Equity Portfolios, Inc., a Maryland corporation, and
were reorganized into the Trust as of April 30, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interests in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify and reclassify any series or portfolio of shares
into one or more classes. Information about the Trust's other series and
classes is contained in separate prospectuses.
43
<PAGE>
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares, are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that, at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
As of September 5, 1997, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was recordholder of 83.72% of Mid Cap Equity
Fund's outstanding shares. As of the same date, Fluor Corporation, Master
Retirement Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA
92698-0010 was recordholder of 64.71% of CORE Large Cap Growth Fund's
outstanding shares. As of the same date, The Goldman Sachs Group LP,
Attention: Elaine King, 85 Broad Street, New York, New York 10004, was
recordholder of 63.63% of CORE Small Cap Equity Fund and 85.42% of CORE
International Equity Fund's outstanding shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of Trustees holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. The CORE Large
Cap Growth, CORE Small Cap Equity, CORE International Equity and Emerging
Markets Equity Funds intend to elect and each other Fund has elected to be
treated as a regulated investment company and each Fund intends to qualify for
such treatment for each taxable year under Subchapter M of the Code. To
qualify as such, a Fund must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, a Fund will not be
subject to federal income or excise tax on any net investment income and net
realized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends such Fund receives from U.S. domestic
corporations may be eligible, in the hands of such corporate shareholders, for
the corporate dividends-received deduction,
44
<PAGE>
subject to certain holding period requirements and debt financing limitations
under the Code. Dividends paid by CORE International Equity, International
Equity, Emerging Markets Equity and Asia Growth Funds are not generally
expected to qualify, in the hands of corporate shareholders, for the corporate
dividends-received deduction, but a portion of each other Fund's dividends may
generally so qualify. Certain distributions paid by a Fund in January of a
given year may be taxable to shareholders as if received the prior December
31. Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution will pay a per share price that includes the
value of the anticipated distribution and will be taxed on the distribution
even though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications required by the Internal Revenue Service or if they
are otherwise subject to backup withholding. Individuals, corporations and
other shareholders that are not U.S. persons under the Code are subject to
different tax rules and may be subject to nonresident alien withholding at the
rate of 30% (or a lower rate provided by an applicable tax treaty) on amounts
treated as ordinary dividends from the Funds.
Each Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. The Funds do not anticipate
that they will elect to pass such foreign taxes through to their shareholders,
who therefore will generally not take such taxes into account on their own tax
returns. The Funds will generally deduct such taxes in determining the amounts
available for distribution to shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangible property taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
45
<PAGE>
ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect to
the Service Shares which authorizes a Fund to compensate certain institutions
("Service Organizations") for providing account administration and personal and
account maintenance services to their customers who are beneficial owners of
such Shares. The Trust, on behalf of the Funds, enters into agreements with
Service Organizations which purchase Service Shares on behalf of their custom-
ers ("Service Agreements"). The Service Agreements provide for compensation to
the Service Organizations in an amount up to 0.50% (on an annualized basis) of
the average daily net assets of the Service Shares of the Fund attributable to
or held in the name of the Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services shall
not exceed 0.25% of such average daily net assets. The services provided by the
Service Organizations may include acting, directly or through an agent, as the
sole shareholder of record, maintaining account records for customers, process-
ing orders to purchase, redeem or exchange Service Shares for customers, re-
sponding to inquiries from prospective and existing shareholders and assisting
customers with investment procedures.
Normally, purchase, exchange and redemption orders processed by a Service
Organization on behalf of its customers will not be effective until received by
Goldman Sachs as described herein. The Trust may, however, authorize certain
Service Organizations that provide recordkeeping, reporting and processing
services to qualified employee benefit plans to accept on the Trust's behalf
orders placed by such plans and, if approved by the Trust, to designate other
intermediaries to accept such orders. In these cases, a Fund will be deemed to
have received an order in proper form from a plan when the order is accepted by
the authorized Service Organization or intermediary on a Business Day, and the
order will be priced at a Fund's net asset value per share next determined
after such acceptance. The Service Organization or intermediary will be
responsible for transmitting accepted orders to the Trust within the period
agreed upon by them. An employee benefit plan may contact its Service
Organization to learn whether the Service Organization is authorized to accept
orders.
For the fiscal year ended January 31, 1997, the Trust paid the Service
Organizations fees at the annual rate of 0.50% of each Fund's average daily net
assets attributable to Service Shares outstanding during the period.
Holders of Service Shares of a Fund bear all expenses and fees paid to Serv-
ice Organizations for their services with respect to such Shares as well as any
other expenses which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service Organi-
zation under a Service Agreement and may affect the return earned on an invest-
ment in a Fund. The Trust, on behalf of the Funds, accrues payments made pursu-
ant to a Service Agreement daily. All inquiries of beneficial owners of Service
Shares should be directed to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Service Shares of the Funds will receive an annual report
containing audited financial statements and a semi-annual report. Each
recordholder of Service Shares will also be provided with a printed confirma-
tion for each transaction in its account and a quarterly account statement. A
year-to-date statement for any account will be provided to a Service Organiza-
tion upon request made to Goldman Sachs. The Funds do not generally provide
subaccounting services with respect to beneficial ownership of Service Shares.
46
<PAGE>
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each trans-
action.
DIVIDENDS
Each dividend from net investment income and capital gain distributions, if
any, declared by a Fund on its outstanding Service Shares will, at the election
of each shareholder, be paid (i) in cash or (ii) in additional Service Shares
of such Fund. This election should initially be made on a shareholder's Account
Information Form and may be changed upon written notice to Goldman Sachs at any
time prior to the record date for a particular dividend or distribution. If no
election is made, all dividends from net investment income and capital gain
distributions will be reinvested in Service Shares of the applicable Fund.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Service Shares of the Fund will not affect the tax treatment of such
dividends and distributions, which will be treated as received by the share-
holder and then used to purchase Service Shares of a Fund.
Each Fund intends that all or substantially all its net investment income and
net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-term
and short-term capital gains, reduced by available capital losses, at least
annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such shares from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the cost
of such shares and the distributions (or portions thereof) represent a return
of a portion of the purchase price.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
Service Organizations. Service Shares may be purchased on any Business Day at
the net asset value per share next determined after receipt of an order by
Goldman Sachs from a Service Organization. (See "Additional Services" for a de-
scription of limited situations where a Service Organization or other interme-
diary may be authorized to accept orders for the Funds.) No sales load will be
charged. Currently, each Fund's net asset value is determined as of the close
of regular trading on the New York Stock Exchange (normally 3:00 p.m. Chicago
time, 4:00 p.m. New York time), as described under "Net Asset Value." Purchases
of Service Shares of the Fund must be settled within three (3) Business Days of
the receipt of a complete purchase order. Payment of the proceeds of redemption
of shares purchased by check may be delayed for a period of time as described
under "Redemption of Service Shares."
47
<PAGE>
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to State Street. In order to
facilitate timely transmittal, the Service Organizations have established times
by which purchase orders and payments must be received by them.
PURCHASE PROCEDURES
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street Bank and Trust Company ("State Street") or initiating an ACH
transfer. Purchases may also be made by a Service Organization by check (except
that the Trust will not accept a check drawn on a foreign bank or a third party
check) or Federal Reserve draft made payable to "Goldman Sachs Equity Funds--
Name of Fund and Class of shares" and should be directed to "Goldman Sachs
Equity Funds--Name of Fund and Class of shares," c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Service
Organization may effect redemptions of noncomplying accounts, and may impose a
charge for any special services rendered to its customers. Customers should
contact their Service Organization for further information concerning such
requirements and charges.
The Funds reserve the right to redeem Service Shares of any Service Organiza-
tion whose account balance is less than $50 as a result of earlier redemptions.
Such redemptions will not be implemented if the value of such shareholder's ac-
count falls below the minimum account balance solely as a result of market con-
ditions. The Trust will give sixty (60) days' prior written notice to Service
Organizations whose Service Shares are being redeemed to allow them to purchase
sufficient additional Service Shares to avoid such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by a
particular purchaser (or group of related purchasers). This may occur, for ex-
ample, when a purchaser or group of purchaser's pattern of frequent purchases,
sales or exchanges of Service Shares of a Fund is evident, or if purchases,
sales, or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities instead
of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and des-
ignated as an eligible fund for this purpose and (ii) the
48
<PAGE>
corresponding class of any Goldman Sachs Money Market Fund at the net asset
value next determined either by writing to Goldman Sachs, Attention: Goldman
Sachs Equity Funds--Name of Fund and Class of shares, c/o GSAM Shareholder
Services, 4900 Sears Tower, Chicago, Illinois 60606 or, if previously elected
in the Fund's Account Information Form, by telephone at 800-621-2550 (7:00 a.m.
to 5:30 p.m. Chicago time). A shareholder should obtain and read the prospectus
relating to any other fund and its shares and consider its investment objec-
tive, policies and applicable fees before making an exchange. Service Shares
acquired by telephone exchange must be registered in the same name(s) and have
the same address as Service Shares of the Fund for which the exchange is being
made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes the telephone exchange privilege may be dif-
ficult to implement. For federal income tax purposes, an exchange is treated as
a sale of the Service Shares surrendered in the exchange, on which an investor
may realize a gain or loss, followed by a purchase of Service Shares or the
corresponding class of any Goldman Sachs Money Market Fund received in the ex-
change. Shareholders should consult their own tax advisers concerning the tax
consequences of an exchange. Exchanges are available only in states where ex-
changes may legally be made. The exchange privilege may be modified or with-
drawn at any time on sixty (60) days' written notice to recordholders of Serv-
ice Shares and is subject to certain limitations. See "Purchase of Service
Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of the recordholder
of such Shares on any Business Day at the net asset value next determined after
the receipt of such request in proper form by Goldman Sachs from a Service Or-
ganization. (See "Additional Services" for a description of limited situations
where a Service Organization or other intermediary may be authorized to accept
requests for the Funds.) If Service Shares to be redeemed were recently pur-
chased by check, a Fund may delay transmittal of redemption proceeds until such
time as it has assured itself that good funds have been collected for the pur-
chase of such Service Shares. This may take up to fifteen (15) days. Redemption
requests may be made by a Service Organization by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
of this Prospectus. A Service Organization may request redemptions by telephone
if the optional telephone redemption privilege is elected on the Account Infor-
mation Form. It may be difficult to implement redemptions by telephone in times
of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified by
the Trust to confirm that such instructions are genuine. Among other things,
any redemption request that requires money to go to an account or address other
than that designated on the Account Information Form must be in writing and
signed by an authorized person designated on the Account Information Form. Any
such written request is also confirmed by telephone with both the requesting
party and the designated bank account to verify instructions. Exchanges among
accounts with different names, addresses and social security or other taxpayer
identification numbers must be in writing and signed by an authorized person
designated on the Account Information Form. Other procedures may be implemented
from time to time concerning telephone redemptions and exchanges. If reasonable
procedures are not implemented,
49
<PAGE>
the Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Funds, the Trust nor Goldman
Sachs will be responsible for the authenticity of redemption or exchange
instructions received by telephone.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Service Shares, or if the recordholder
elects in writing, by check. Redemption proceeds paid by wire transfer will
normally be wired on the next Business Day in federal funds (for a total one-
day delay), but may be paid up to three (3) days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. Once wire
transfer instructions have been given by Goldman Sachs, neither the Funds, the
Trust nor Goldman Sachs assumes any further responsibility for the performance
of intermediaries or the customer's Service Organization in the transfer
process. If a problem with such performance arises, the customer should deal
directly with such intermediaries or Service Organizations.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Service Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
--------------------
50
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could also apply to payments
relating to your account prior to the Fund's receipt of your TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02110
ARTHUR ANDERSEN, LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
EQPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS EQUITY FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(EQUITY PORTFOLIOS OF GOLDMAN SACHS TRUST)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the prospectus for the Class A Shares, Class B Shares and Class C Shares of
Goldman Sachs Balanced Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs
CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
CORE Small Cap Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs Capital Growth Fund, Goldman Sachs Mid Cap Equity Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Small Cap Value Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia Growth Fund and Goldman
Sachs Real Estate Securities Fund dated October 1, 1997 as amended and/or
supplemented from time to time (the "Prospectus"), which may be obtained without
charge from Goldman, Sachs & Co. by calling the telephone number, or writing to
one of the addresses, listed below.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
====
<S> <C>
Introduction.................................................. B-3
Investment Policies........................................... B-4
Investment Restrictions....................................... B-33
Management.................................................... B-36
Portfolio Transactions and Brokerage.......................... B-49
Net Asset Value............................................... B-55
Performance Information....................................... B-57
Shares of the Trust........................................... B-63
Taxation...................................................... B-67
Financial Statements.......................................... B-73
Distribution and Authorized Dealer Service Plans.............. B-75
Other Information Regarding Maximum Sales Charge, Purchases,
Redemptions, Exchanges and Dividends........................ B-81
Appendix A:................................................... 1-A
Appendix B:................................................... 1-B
</TABLE>
The date of this Additional Statement is October 1, 1997.
<PAGE>
<TABLE>
<S> <C>
GOLDMAN SACHS FUNDS MANAGEMENT, L.P. GOLDMAN, SACHS & CO.
Adviser to: Distributor
Goldman Sachs CORE U.S. Equity Fund 85 Broad Street
Goldman Sachs Capital Growth Fund New York, New York 10004
One New York Plaza
New York, New York 10004
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
Adviser to: MANAGEMENT INTERNATIONAL
Goldman Sachs Balanced Fund Adviser to:
Goldman Sachs Growth and Income Fund Goldman Sachs International Equity Fund
Goldman Sachs CORE Large Cap Growth Fund Goldman Sachs Emerging Markets Equity
Goldman Sachs CORE Small Cap Equity Fund Fund
Goldman Sachs CORE International Equity Fund Goldman Sachs Asia Growth Fund
Goldman Sachs Mid Cap Equity Fund 133 Peterborough Court
Goldman Sachs Small Cap Value Fund London, England EC4A 2BB
Goldman Sachs Real Estate Securities Fund
One New York Plaza
New York, New York 10004
</TABLE>
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free...........800-526-7384
2
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), CORE U.S. Equity Fund ("CORE U.S.
Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"), Goldman
Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs CORE
International Equity Fund ("CORE International Equity Fund"), Goldman Sachs Mid
Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small Cap
Value Fund"), Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets
Equity Fund"), Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman
Sachs Real Estate Securities Fund ("Real Estate Securities Fund") (collectively
referred to herein as the "Funds").
The Funds were initially organized as a series of a corporation formed
under the laws of the State of Maryland on September 27, 1989 and were
reorganized as a Delaware business trust as of April 30, 1997. The Trustees
have authority under the Trust's charter to create and classify shares into
separate series and to classify and reclassify any series or portfolio of shares
into one or more classes without further action by shareholders. Pursuant
thereto, the Trustees have created the Funds and other series. Additional
series may be added in the future from time to time. The Balanced, Growth and
Income, CORE U.S. Equity, CORE Large Cap Growth, Mid Cap Equity, CORE Small Cap
Equity Fund, CORE International Equity Fund, Capital Growth Fund, International
Equity, Small Cap Value, Emerging Markets Equity, Asia Growth and Real Estate
Securities Funds currently offer five classes of shares: Class A Shares, Class B
Shares, Class C Shares, Institutional Shares and Service Shares. See "Shares of
the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Emerging Markets Equity and Asia Growth Funds. GSAM, GSFM and GSAMI
are sometimes referred to collectively herein as the "Advisers." Goldman Sachs
serves as each Fund's distributor and transfer agent. Each Fund's custodian is
State Street Bank and Trust Company ("State Street").
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectus. See the Prospectus
for a fuller description of the Funds' investment objectives and policies.
There is no assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
BALANCED FUND
=============
The investment objective of the Balanced Fund is to provide shareholders
with long-term capital growth and current income. The Balanced Fund seeks to
achieve its investment objective by investing in a balanced portfolio
diversified among both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio seeks to provide high returns relative to a market benchmark, the
Lehman Brothers Aggregate Bond Index, while also seeking to provide high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways.
These include diversifying the fixed income portion of the Balanced Fund's
portfolio among various types of fixed income securities and utilizing
sophisticated quantitative models to understand how the fixed income portion of
the portfolio will perform under a variety of market and economic scenarios.
In addition, GSAM uses extensive credit analysis to select and to monitor any
investment-grade or non-investment grade bonds that may be included in the
Balanced Fund's portfolio. In employing this and other investment strategies,
the GSAM team has access to extensive fundamental research and analysis
available through Goldman Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Adviser de-emphasizes interest rate anticipation by monitoring the duration of
the portfolio within a narrow range of the Adviser's target duration, and
instead focuses on seeking to add value through sector selection, security
selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities,
B-4
<PAGE>
mortgage-backed securities and asset-backed securities). GSAM may decide to
overweight or underweight a given market sector or subsector (e.g., within the
corporate sector, industrials, financial issuers and utilities) based on, among
other things, expectations of future yield spreads between different sectors or
subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers - those with low but
stable credit - is intended to enhance total returns by providing incremental
yield. Selecting securities from the second type of issuers - those with low
and intermediate but improving credit quality - is intended to enhance total
returns in two stages. Initially, these securities are expected to provide
incremental yield. Eventually, price appreciation should occur relative to
alternative securities as credit quality improves, the nationally recognized
statistical rating organizations upgrade credit ratings, and credit spreads
narrow. Securities from the third type of issuers - issuers with deteriorating
credit quality - will be avoided, since total returns are typically enhanced by
avoiding the widening of credit spreads and the consequent relative price
depreciation. Finally, total returns can be enhanced by focusing on securities
that are rated differently by different rating organizations. If the securities
are trading in line with the higher published quality rating while GSAM concurs
with the lower published quality rating, the securities would generally be sold
and any potential price deterioration avoided. On the other hand, if the
securities are trading in line with the lower published quality rating while the
higher published quality rating is considered more realistic, the securities may
be purchased in anticipation of the expected market reevaluation and relative
price appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
=======================================================================
INTERNATIONAL EQUITY FUNDS
===========================
Under normal circumstances, the Funds will invest at least 90% of their
total assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap Growth,
CORE Small Cap Equity and CORE International Equity Funds will be implemented to
the extent it is consistent with maintaining a Fund's qualification as a
regulated investment company under the Internal Revenue Code. A Fund's strategy
may be limited, in particular, by the requirement for such qualification that
less than 30% of the Fund's gross income for its taxable year be derived from
the sale or other disposition of stocks or securities or certain other
investments (generally including options and futures contracts) held for less
than three months.
Since normal settlement for equity securities is three trading days (for
certain international markets settlement may be longer), the Funds will need to
hold cash balances to satisfy shareholder redemption requests. Such cash
balances will normally range from 2% to 5% of a Fund's net assets. The Funds
may purchase futures contracts only with respect to the S&P 500 Index (in the
case of CORE U.S. Equity Fund) and a representative index (in the case of CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) in
order to keep a Fund's effective equity exposure close to 100%. For exam-
B-5
<PAGE>
ple, if cash balances are equal to 10% of the net assets, the Fund may enter
into long futures contracts covering an amount equal to 10% of the Fund's net
assets. As cash balances fluctuate based on new contributions or withdrawals, a
Fund may enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous computerized
=====================
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, growth, momentum, risk (e.g. price/earnings ratio,
book/price ratio, growth forecasts, earning estimate revisions, price momentum,
volatility and earnings stability). All of these factors have been shown to
significantly impact the performance of equity securities.
Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a
variety of relevant factors to select securities, the Adviser believes that the
Fund will be better balanced and have more consistent performance than an
investment portfolio that uses only one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the Multifactor Model or the
method of applying the Multifactor Model) may include: (i) evolutionary changes
to the structure of the Multifactor Model (e.g., the addition of new factors or
a new means of weighting the factors); (ii) changes in trading procedures (e.g.,
trading frequency or the manner in which the Fund uses futures); or (iii)
changes in the method by which securities are weighted in the Fund. Any such
changes will preserve the Fund's basic investment philosophy of combining
qualitative and quantitative methods of selecting securities using a disciplined
investment process.
INTERNATIONAL EQUITY FUND
=========================
International Equity Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAMI's equity team in London, Singapore and Tokyo seeks to
identify companies that may achieve superior long-term returns. Stocks are
carefully selected for International Equity Fund's portfolio through a three-
stage investment process. Because International Equity Fund is a long-term
holder of stocks, the portfolio managers adjust International Equity Fund's
portfolio only when expected returns fall below acceptable levels or when the
portfolio managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the Adviser seeks to
identify attractive industries around the world. Such industries are expected
to have favorable underlying economics and allow companies to generate
sustainable and predictable high returns. As a rule, they are less economically
sensitive, relatively free of regulation and favor strong franchises.
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Within these industries the Adviser seeks to identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry. This stage includes analyzing the current
and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
==========================
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small
Cap Value, Emerging Markets Equity, Asia Growth and Real Estate Securities Funds
to dispose of a particular security when necessary to meet their redemption
requests or other liquidity needs. Under adverse market or economic conditions,
the secondary market for junk bonds could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisers could find it difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated
securities, under such circumstances, may be less than the prices used in
calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Mid Cap Equity, Small Cap Value, Emerging Markets
Equity, Asia Growth and Real Estate Securities Funds may invest, the yields and
prices of such securities may tend to fluctuate more than those for higher rated
securities. In the
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lower quality segments of the fixed-income securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the fixed-
income securities market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
ZERO COUPON BONDS
=================
A Fund's investments in fixed income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the period until maturity. Zero
coupon bonds do not require the periodic payment of interest. Such investments
benefit the issuer by mitigating its need for cash to meet debt service but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which provide for regular payments of
interest. In addition, if an issuer of zero coupon bonds held by a Fund
defaults, the Fund may obtain no return at all on its investment. Each Fund
will accrue income on such investments for each taxable year which (net of
deductible expenses, if any) is distributable to shareholders and which, because
no cash is generally received at the time of accrual, may require the
liquidation of other portfolio securities to obtain sufficient cash to satisfy
the Fund's distribution obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
=====================================
The interest rates payable on certain fixed income securities in which a
Fund may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
CUSTODIAL RECEIPTS
==================
Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by
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various names, including "Treasury Receipts," "Treasury Investors Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATs"). For certain securities law purposes, custodial receipts are not
considered U.S. Government securities.
MUNICIPAL SECURITIES
====================
Balanced Fund may invest up to 5% of its net assets in municipal
securities. Municipal securities consist of bonds, notes and other instruments
issued by or on behalf of states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
==========================
GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower
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<PAGE>
than expected prepayments will reduce yield to maturity and market values. To
the extent that a Fund invests in mortgage-backed securities, the Advisers may
seek to manage these potential risks by investing in a variety of mortgage-
backed securities and by using certain hedging techniques.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is autho rized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conven tional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to distrib
ute to holders of Certificates an amount equal to the full principal balance of
any foreclosed Mortgage Loan, whether or not such principal balance is actually
recovered. The obligations of Fannie Mae under its guaranty of the Fannie Mae
Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection
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<PAGE>
of all principal of the related mortgage loans, without any offset or deduction,
but does not, generally, guarantee the timely payment of scheduled principal.
The obligations of Freddie Mac under its guaranty of Freddie Mac Certificates
are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S. Equity
, CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) may invest in both government guaranteed and privately issued mortgage
pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or adjustable
rate mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one
or more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--------
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
--------
such mortgage loan when paid by the mortgagor in subsequent monthly payments or
at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-
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<PAGE>
holders under the agreements pursuant to which such certificates are issued. A
rating organization's ratings take into consideration the credit quality of the
related mortgage pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which the
payment stream on such mortgage pool is adequate to make payments required by
such certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which generally declines over time) of all principal payments
received during the preceding prepayment period ("shifting interest credit
enhancement"). This will have the effect of accelerating the amortization of
the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due them and will
protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event the Reserve Fund is depleted before the
subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
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certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
--------
all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments
on the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees
to make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mort gage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual
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<PAGE>
interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the
"Mortgage Assets"). The obligations of Fannie Mae or Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae or Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate
Securities Funds may invest in stripped mortgage-backed securities ("SMBS"),
which are derivative multiclass mortgage securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
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<PAGE>
INVERSE FLOATING RATE SECURITIES
================================
Balanced Fund may invest up to 5% of its net assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed . An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
ASSET-BACKED SECURITIES
=======================
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
A Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
==================================================
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds may only enter into such transactions with respect
to the S&P 500 Index, for the CORE U.S. Equity Fund and a representative index
in the case of the CORE Large Cap Growth and CORE Small Cap Equity Funds. The
other Funds may purchase and sell futures contracts based on various securities
(such as U.S.
B-15
<PAGE>
Government securities), securities indices, foreign currencies and other
financial instruments and indices. Each Fund will engage in futures and related
options transactions, only for bona fide hedging purposes as defined below or
for purposes of seeking to increase total return to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). All futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) can sell futures contracts on
a specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price, rate of return or currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. A Fund may, for example,
take a "short" position in the futures market by selling futures contracts to
seek to hedge against an anticipated rise in interest rates or a decline in
market prices or (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) foreign currency rates that would adversely affect the
dollar value of such Fund's portfolio securities. Similarly, each Fund (other
than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds)
may sell futures contracts on a currency in which its portfolio securities are
quoted or denominated or in one currency to seek to hedge against fluctuations
in the value of securities quoted or denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the applicable Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
B-16
<PAGE>
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract if the option is exercised, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, a Fund
becomes obligated to purchase a futures contract if the option is exercised,
which may have a value lower than the exercise price. Thus, the loss incurred
by a Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions and
will engage in related options transactions only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase. As evidence of this hedging intent, each
Fund expects that on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets quoted or denominated in the related
currency) in the cash market at the time when the futures or options position is
closed out. However, in particular cases, when it is economically advantageous
for a Fund to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account
B-17
<PAGE>
unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase. A Fund will
engage in transactions in currency forward contracts futures contracts and, for
a Fund permitted to do so, related options transactions only to the extent such
transactions are consistent with the requirements of the Code for maintaining
its qualification as a regulated investment company for federal income tax
purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts available to hedge a Fund's portfolio are various
futures on U.S. Government securities, securities indices and foreign
currencies. In addition, it is not possible for a Fund to hedge fully or
perfectly against currency fluctuations affecting the value of securities quoted
or denominated in foreign currencies because the value of such securities is
likely to fluctuate as a result of independent factors not related to currency
fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
============================================
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options on any securities in which it may invest (other than CORE U.S. Equity
and CORE Large Cap Growth Funds). A call option written by a Fund obligates
such Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund are covered, which means that such
Fund will own the securities subject to the option as long as the option is
outstanding or such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund.
B-18
<PAGE>
In addition, a written call option or put option may be covered by
maintaining cash or liquid assets (either of which may be quoted or denominated
in any currency) in a segregated account, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid assets with a value equal to the
exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and CORE
Large Cap Growth Funds) may purchase put and call options on any securities in
which it may invest or options on any securities index composed of securities in
which it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise
such a Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend
to be offset by countervailing changes in the value of the underlying portfolio
securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
B-19
<PAGE>
YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its net
assets, 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.
Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, Balanced Fund may
purchase a call option on the yield spread between two securities if it owns one
of the securities and anticipates purchasing the other security and wants to
hedge against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid assets sufficient to cover
the Balanced Fund's net liability under the two options. Therefore, the
Balanced Fund's liability for such a covered option is generally limited to the
difference between the amount of the Balanced Fund's liability under the option
written by the Balanced Fund less the value of the option held by the Balanced
Fund. Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded
over-the-counter, and because they have been only recently introduced, estab
lished trading markets for these options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
B-20
<PAGE>
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the Securities and Exchange
Commission ("SEC") changes its position, each Fund will treat purchased over-
the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
=============================
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the
expenses paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
==================================
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants
and rights only if such equity securities are deemed appropriate by the Adviser
for investment by the Fund. CORE
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<PAGE>
U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds have no present intention of acquiring warrants or rights. Warrants
and rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
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<PAGE>
FOREIGN SECURITIES
==================
Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of the applicable Adviser,
to offer better opportunity for long-term growth of capital and income than
investments in U.S. securities, the opportunity to invest in foreign countries
with economic policies or business cycles different from those of the United
States and the opportunity to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not necessarily move in a manner
parallel to U.S. markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may be subject to currency
exposure independent of their securities positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for CORE
B-23
<PAGE>
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may also
invest in European Depository Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited
in a domestic bank or a correspondent bank. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may invest in securities of issuers domiciled in a country
other than the country in whose currency the instrument is denominated or
quoted. The Funds may also invest in securities quoted or denominated in the
European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain of the member states of the European
Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community from time to time
to reflect changes in relative values of the underlying currencies. In
addition, the Funds may invest in securities quoted or denominated in other
currency "baskets."
INVESTING IN EMERGING MARKETS , INCLUDING ASIA. CORE International
Equity, International Equity, Asia Growth and Emerging Markets Equity Funds are
intended for long-term investors who can accept the risks associated with
investing primarily in equity and equity-related securities of foreign issuers,
including Emerging Countries issuers (in the case of Emerging Markets Equity and
International Equity Funds) and Asian Companies (as defined in the Prospectus)
(in the case of Asia Growth Fund), as well as the risks associated with
investments quoted or denominated in foreign currencies. Balanced, Growth and
Income, CORE International Equity, Small Cap Value, Mid Cap Equity and Capital
Growth Funds may invest, to a lesser extent, in equity and equity-related
securities of foreign issuers; including Emerging Countries issuers. In
addition, certain of Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Fund's potential investment and
management techniques entail special risks. Asia Growth Fund concentrates on
companies that the Advisers believe are taking full advantage of the region's
growth and that have the potential for long-term capital appreciation. The
Advisers believe that Asia offers an attractive investment environment and that
new opportunities will continue to emerge in the years ahead.
B-24
<PAGE>
The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less liquid
and subject to greater price volatility and has a smaller market capitalization
than the U.S. securities markets. Issuers and securities markets in such
countries are not subject to as extensive and frequent accounting, financial and
other reporting requirements or as comprehensive government regulations as are
issuers and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.
Certain of the Emerging Country securities markets are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country markets may also affect a Fund's ability to accurately value
its portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions
may limit a Fund's investment in certain of the Asian countries and may increase
the expenses of the Fund. Certain Emerging Countries require governmental
approval prior to investments by foreign persons or limit investment by foreign
persons to only a specified percentage of an issuer's outstanding securities or
a specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds. A Fund may
be required to establish special custodial or other arrangements before
investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring
B-25
<PAGE>
countries; and (v) ethnic, religious and racial disaffection or conflict. Such
economic, political and social instability could disrupt the principal financial
markets in which the Funds may invest and adversely affect the value of the
Funds' assets.
The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid Cap
Equity, Capital Growth and Small Cap Value Funds may enter into forward foreign
currency exchange contracts for hedging purposes. Balanced, CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds may
enter into forward foreign currency exchange contracts for hedging purposes and
to seek to increase total return. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are generally charged
at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an
B-26
<PAGE>
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may also purchase and sell forward contracts to
seek to increase total return when GSAM or GSAMI anticipates that the foreign
currency will appreciate or depreciate in value, but securities quoted or
denominated in that currency do not present attractive investment opportunities
and are not held in the Fund's portfolio.
A Fund's custodian will place cash or liquid assets into a segregated
account of such Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or, in the case of Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds forward contracts entered into to seek to increase total
return. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will equal the amount of a Fund's
commitments with respect to such contracts. The segregated account will be
marked-to-market on a daily basis. Although the contracts are not presently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
these contracts. In such event, a Fund's ability to utilize forward foreign
currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
B-27
<PAGE>
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund (except
CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may
write covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If and when a Fund seeks to
close out an option, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency with a pattern of correlation. In
addition, Balanced, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call options on currency to seek to increase total
return when the Adviser anticipates that the currency will appreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates a Fund to sell specified currency
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. A put option written by a Fund would
obligate a Fund to purchase specified currency from the option holder at a
specified price if the option is exercised at any time before the expiration
date. The writing of currency options involves a risk that a Fund will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
For a description of how to cover written put and call options, see "Written
Covered Options" above.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the U.S. dollar value of currency in which securities in its portfolio are
quoted or denominated ("protective puts"). The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell specified currency at
a specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains
B-28
<PAGE>
and losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying currency or portfolio
securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to seek to increase
total return. Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may write (sell) covered put and
call options on any currency in order to realize greater income than would be
realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may forego
the opportunity to profit from an increase in the market value of the
underlying currency. Also, when writing put options, Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds accept, in return for the option premium, the risk that they may be
required to purchase the underlying currency at a price in excess of the
currency's market value at the time of purchase.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds would normally purchase call options to seek to
increase total return in anticipation of an increase in the market value of a
currency. Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds would realize either no gain or a loss on the purchase of the call
option. Put options may be purchased by a Fund for the purpose of benefiting
from a decline in the value of currencies which it does not own. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs. Otherwise the Fund would realize
either no gain or a loss on the purchase of the put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
B-29
<PAGE>
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
==========================================================================
FLOORS AND COLLARS
==================
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may, with respect to up to 5% of their net
assets, enter into currency swaps for both hedging purposes and to seek to
increase total return. In addition, the Balanced and Real Estate Securities
Funds may, with respect to 5% of its net assets, enter into mortgage, index and
interest rate swaps and other interest rate swap arrangements such as rate caps,
floors and collars, for hedging purposes or to seek to increase total return.
Currency swaps involve the exchange by a Fund with another party of their
respective rights to make or receive payments in specified currencies. Interest
rate swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Mortgage swaps are similar to interest
rate swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. Index swaps involve the exchange by a Fund with another party of the
respective amounts payable with respect to a notional principal amount at
interest rates equal to two specified indices. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payment of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling the interest rate floor.
An interest rate collar is the combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a
net basis, which means that the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and the
Advisers believe that swaps do not constitute senior securities under the Act
and, accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party
thereto is considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The staff of the SEC currently take
the position that swaps, caps, floors and collars are illiquid and thus subject
to a Fund's 15% limitation on investments in illiquid securities.
B-30
<PAGE>
LENDING OF PORTFOLIO SECURITIES
===============================
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund
would be required to have the right to call a loan and obtain the securities
loaned at any time on five days' notice. For the duration of a loan, a Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and would also receive compensation from
investment of the collateral. A Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Advisers to be of good standing,
and when, in the judgment of the Advisers, the consideration which can be
earned currently from securities loans of this type justifies the attendant
risk. If the Advisers determine to make securities loans, it is intended that
the value of the securities loaned would not exceed one-third of the value of
the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
==============================================
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually purchasing or selling the securities. If deemed advisable as a matter
of investment strategy, however, a Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to the settlement date,
cash and liquid assets in an amount sufficient to meet the purchase price.
Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns. Securities purchased or sold on a when-issued
or forward commitment basis involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
==================================
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
B-31
<PAGE>
OTHER INVESTMENT COMPANIES
==========================
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
the Fund invests in a money market fund for which an Adviser or any of its
affiliates acts as adviser, the advisory and administration fees payable by the
Fund to an Adviser will be reduced by an amount equal to the Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds." Country
funds have portfolios consisting primarily of securities of issuers located in
one foreign country or region. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) may invest in World Equity
Benchmark Shares ("WEBS") and similar securities that invest in securities
included in foreign securities indices.
REPURCHASE AGREEMENTS
=====================
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities
B-32
<PAGE>
and the seller agrees to repurchase the securities within a particular time and
at a specified price. Custody of the securities is maintained by a Fund's
custodian. The repurchase price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase prices may be
the same, with interest at a stated rate due to a Fund together with the
repurchase price on repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the security subject to the repurchase
agreement.
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, a Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers
seek to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, if the market
value of the security subject to the repurchase agreement becomes less than the
repurchase price (including accrued interest), a Fund will direct the seller of
the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement equals or exceeds the repurchase
price. Certain repurchase agreements which provide for settlement in more than
seven days can be liquidated before the nominal fixed term on seven days or less
notice. Such repurchase agreements will be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
B-33
<PAGE>
A Fund may not:
(1) make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act of
1940, as amended (the "Act"). This restriction does not, however,
apply to any Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund may, notwithstanding any other fundamental investment restriction
or policy, invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same investment objective,
restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
B-34
<PAGE>
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-35
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
Ashok N. Bakhru, 53 Chairman Executive Vice President -- Finance and
1325 Ave. of Americas & Trustee Administration and Chief Financial Officer, Coty
New York, NY 10019 Inc. (since April 1996); President, ABN
Associates (June 1994 through March
1996); Senior Vice President of Scott Paper
Company until June 1994; Director of
Arkwright Mutual Insurance Company; Trustee
of International House of Philadelphia;
Member of Cornell University
Council; Trustee of the Walnut Street
Theater.
*David B. Ford, 51 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner, Goldman Sachs (1986-1996);
New York, NY 10004 Co-Head of Goldman Sachs Asset Management
(since December 1994).
*Douglas C. Grip, 35 Trustee Vice President, Goldman Sachs (since May 1996);
One New York Plaza & President President, MFS Retirement Services Inc., of
New York, NY 10004 Massachusetts Financial Services (prior thereto).
*John P. McNulty, 44 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner of Goldman Sachs (1990-1994
New York, NY 10004 and 1995-1996); Co-Head of Goldman Sachs Asset
Management (since November 1995); Limited Partner
of Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 60 Trustee President of Bryn Mawr College (since 1978);
Taylor Hall Director of Josiah Macy, Jr, Foundation (since
Bryn Mawr, PA 19010 1977); Director of the Philadelphia
Contributionship (since 1985); Director of Amherst College
(since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of the
Spencer Foundation (since 1993); and member
of PNC Advisory Board (since 1993).
</TABLE>
B-36
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -----------------------
<S> <C> <C>
*Alan A. Shuch, 48 Trustee Limited Partner, Goldman Sachs (since 1994);
One New York Plaza Director and Vice President of Goldman Sachs
New York, NY 10004 Funds Management Inc. (from April 1990 to
November 1994); President and Chief Operating
Officer, GSAM (from September 1988 to November 1994).
Jackson W. Smart, 66 Trustee Chairman, Executive Committee, First
One Northfield Plaza # 218 Commonwealth, Inc. (a managed dental care
Northfield, IL 60093 company, since January 1996); Chairman and
Chief Executive Officer, MSP Communications Inc.
(a company engaged in radio broadcasting) (since
November 1988), Director, Federal Express Corpo-
ration (since 1976), Evanston Hospital Corporation
(since 1980), First Commonwealth, Inc. (since
1988) and North American Private Equity Group
(a venture capital fund).
William H. Springer, 67 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer, (February 1987 to June
Lake Forest, IL 60045 1991) of Ameritech (a telecommunications holding
company; Director,Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management invest-
ment company) (April 1992 to present).
Richard P. Strubel, 57 Trustee Managing Director, Tandem Partners, Inc. (since
70 West Madison St. Ste 1400 1990); President and Chief Executive Officer,
Chicago, IL 60602 Microdot, Inc. (a diversified manufacturer of
fastening systems and connectors)(January 1984
to October 1994).
*Scott M. Gilman, 37 Treasurer Director, Mutual Funds Administration, Goldman
One New York Plaza Sachs Asset Management (since April 1994);
New York, NY 10004 Assistant Treasurer, Goldman Sachs Funds
Management, Inc. (since March 1993); Vice President,
Goldman Sachs (since March 1990).
*John M. Perlowski, 32 Assistant Vice President, Goldman Sachs (since July
One New York Plaza Treasurer 1995); Director, Investors Bank and Trust,
New York, NY 10004 November 1993 to July 1995); Audit Manager
of Arthur Andersen LLP (prior thereto).
</TABLE>
B-37
<PAGE>
<TABLE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
*John W. Mosior, 58 Vice Vice President, Goldman Sachs and Manager
4900 Sears Tower President of Shareholder Servicing of GSAM (since
Chicago, IL 60606 November 1989).
*Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs (since April
4900 Sears Tower President 1985); Manager of Shareholder Servicing of
Chicago, IL 60606 GSAM since November 1989).
*Michael J. Richman, 36 Secretary Associate General Counsel of
85 Broad Street Goldman Sachs Asset Manage-
New York, NY 10004 ment (since February 1994);
Vice President and Assistant General Counsel
of Goldman Sachs (since June 1992); Counsel
to the Funds Group, GSAM (since June 1992);
Partner, Hale and Dorr (September 1991 to
June 1992).
*Howard B. Surloff, 31 Assistant Assistant General Counsel and Vice President,
85 Broad Street Secretary Goldman Sachs (since November 1993 and May
New York, NY 10004 1994 respectively); Counsel to the Funds Group,
Goldman Sachs Asset Management (since
November 1993); Associate of Shereff Friedman,
Hoffman & Goodman (prior thereto).
*Valerie A. Zondorak, 31 Assistant Vice President, Goldman Sachs (since March
85 Broad Street Secretary 1997); Counsel to the Funds Group, Goldman
New York, New York 10004 Sachs Asset Management (since >March 1997);
Associate of Shereff Friedman, Hoffman &
Goodman (prior thereto).
*Steven E. Hartstein, 33 Assistant Legal Products Analyst, Goldman Sachs (June
85 Broad Street Secretary 1993 to present); Funds Compliance Officer,
New York, NY 10004 Citibank Global Asset Management (August 1991
to June 1993).
*Deborah Farrell, 25 Assistant Administrative Assistant, Goldman Sachs since
85 Broad Street Secretary January 1994. Formerly at Cleary Gottlieb, Steen
New York, NY 10004 and Hamilton.
*Kaysie P. Uniacke, 36 Assistant Vice President and Senior Portfolio Manager,
One New York Plaza Secretary Goldman Sachs Asset Management (since
New York, NY 10004 1988).
</TABLE>
B-38
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
*Elizabeth D. Assistant Portfolio Manager, GSAM (since April 1996);
Anderson, 27 Secretary Junior Portfolio Manager, Goldman Sachs Asset
One New York Plaza Management (since 1993); Funds Trading
New York, NY 10004 Assistant, GSAM (1993-1995); Compliance
Analyst, Prudential Insurance (1991-1993).
</TABLE>
As of July 24, 1997, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of beneficial interest of each
Fund.
The Trust pays each Trustee, other than those who are "interested persons"
of Goldman Sachs, a fee for each Trustee meeting attended and an annual fee.
Such Trustees are also reimbursed for travel expenses incurred in connection
with attending such meetings.
B-39
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1997:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Goldman Sachs
Aggregate Accrued as Mutual Funds
Compensation Part of (including the
Name of Trustee from the Funds*** Funds' Expenses Funds)*
- --------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Paul C. Nagel, Jr.** $3,775 $0 $62,450
Ashok N. Bakhru 3,969 0 69,299
Marcia L. Beck 0 0 0
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart 3,388 0 58,954
William H. Springer 3,388 0 58,954
Richard P. Strubel 3,388 0 58,954
</TABLE>
______________
* The Goldman Sachs Funds consisted of 29 mutual funds on January 31,
1997.
** Retired as of June 30, 1996.
*** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-40
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Emerging Markets Equity and Asia
Growth Funds. See "Management" in the Funds' Prospectus for a description of the
applicable Adviser's duties to the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds),
the Advisers will have access to the Global Asset Allocation Model. The
B-41
<PAGE>
model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
Advisers will estimate the total returns from each currency sector which are
consistent with the average investor holding a portfolio equal to the market
capitalization of the financial assets among those currency sectors. These
estimated equilibrium returns are then combined with the expectations of Goldman
Sachs' research professionals to produce an optimal currency and asset
allocation for the level of risk suitable for a Fund given its investment
objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
The CORE Small Cap Equity, CORE International Equity and Real Estate
Securities Funds management agreements were initially approved by the Trustees,
including a majority of the non-interested Trustees (as defined below) who are
not parties to the management agreement, on July 22, 1997. The CORE Large Cap
Growth and Emerging Markets Equity Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on April 23,
1997. The other Funds' management agreements were most recently approved by the
Trustees, including a majority of the Trustees who are not parties to the
management agreement or "interested persons" (as such term is defined in the
Act) of any party thereto (the "non-interested Trustees"), on April 23, 1997.
These arrangements were most recently approved by the shareholders of each Fund
(other than CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Real Estate Securities and Emerging Markets Equity Funds) on April 21,
1997. The sole shareholder of the CORE Large Cap Growth Fund approved these
arrangements on April 30, 1997. The sole shareholders of the CORE Small Cap
Equity and CORE International Equity Funds approved these arrangements on August
13, 1997. Each management agreement will remain in effect until June 30, 1998
from year to year thereafter provided such continuance is specifically approved
at least annually by (a) the vote of a majority of the outstanding voting
securities of such Fund or a majority of the Trustees, and (b) the vote of a
majority of the non-interested Trustees, cast in person at a meeting called for
the purpose of voting on such approval. Each management agreement will
terminate automatically if assigned (as defined in the Act) and is terminable at
any time without penalty by the Trustees or by vote of a majority of the
outstanding voting securities of the affected Fund on 60 days' written notice to
the Adviser and by the Adviser on 60 days' written notice to the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
<TABLE>
<CAPTION>
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ---- ----------- -----------
<S> <C> <C>
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
</TABLE>
B-42
<PAGE>
<TABLE>
<S> <C> <C>
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.89% 1.00%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
</TABLE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
============= ============= =============
<S> <C> <C> <C>
Balanced Fund $ 402,183 $ 193,041 $ 8,858
Growth and Income Fund 3,541,318 2,225,553 790,893
CORE U.S. Equity Fund 1,667,381/3/ 817,563/3/ 693,383/2/
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 8,697,265 9,335,745 8,724,828
Mid Cap Equity Fund/4/ 964,945 489,043 N/A
International Equity Fund 4,124,076/3/ 2,794,872/2/ 3,186,509/2/
Small Cap Value Fund 2,130,703 2,908,839 3,385,899
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 2,221,857/3/ 1,563,641/2/ 553,084/2/
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
- ---------------
1 Not Operational.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.89% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.89% and 0.86%, respectively, of
the CORE U.S. Equity, International Equity and Asia Growth Fund's average
daily net assets. For the fiscal year ended January 31, 1996, had
limitations not been in effect, CORE U.S. Equity Fund would have paid
$1,019,639 in investment management fees. For the fiscal year ended
January 31, 1997, had
B-43
<PAGE>
limitations not been in effect, CORE U.S. Equity, International Equity and
Asia Growth Funds would have paid $2,119,552, $4,638,203 and $2,583,555,
respectively, in investment management fees.
4 Commenced operations on August 1, 1995.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek
to purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the
B-44
<PAGE>
management of the Funds and it is not anticipated that the Advisers will have
access to such information for the purpose of managing the Funds. The
proprietary activities or portfolio strategies of Goldman Sachs and its
affiliates or the activities or strategies used for accounts managed by them or
other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund in which customers of Goldman Sachs serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
B-45
<PAGE>
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal years
ended January 31, 1995 and 1996. No Class C Shares were outstanding during the
fiscal years ended January 31, 1995, 1996 and 1997.
Goldman Sachs retained the following commissions on sales of Class A and
Class B Shares during the following periods:
<TABLE>
<CAPTION>
1997 1996 1995
========== ======== ========
<S> <C> <C> <C>
Balanced Fund $ 94,000 $ 28,000 $ 14,000
Growth and Income Fund 555,000 771,000 361,000
CORE U.S. Equity Fund 380,000 108,000 58,000
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 323,000 523,000 815,000
International Equity Fund 1,563,000 211,000 660,000
Small Cap Value Fund 219,000 202,000 868,000
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 1,397,000 507,000 829,000
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
- ---------------
B-46
<PAGE>
1 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
<TABLE>
<CAPTION>
Class A & B Class A Class A
1997 1996 1995
============== ==================== ========
<S> <C> <C> <C>
Balanced Fund $148,576 $ 72,067 $ 20,000
Growth and Income Fund 870,527 542,671 262,158
CORE U.S. Equity Fund 319,246 103,682 151,230
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 908,310 549,844 694,014
International Equity Fund 586,243 129,313 481,169
Small Cap Value Fund 511,883 254,292 600,618
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 385,114 192,097 120,000
Real Estate Securities Fund/1/ N/A N/A N/A
<CAPTION>
Institutional Service Institutional
Shares Shares Shares
1997 1997 1996
======== ======== ========
<S> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A
Growth and Income Fund 15 488 N/A
CORE U.S. Equity Fund/2/ N/A N/A 11,571
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund/1/ N/A N/A N/A
Mid Cap Equity Fund/3/ 51,464 N/A 26,082
International Equity Fund/2/ N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund/2/ N/A N/A N/A
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
B-47
<PAGE>
1 Not operational.
2 Contractually set to 0.
3 Commenced operations on August 1, 1995.
The Trust's distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit
certain "Other Expenses" (excluding management, distribution and authorized
dealer service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees in
the case of each Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity and Mid Cap Equity Funds) for the following
funds to the extent such expenses exceed the following percentage of average
daily net assets:
Other
Expenses
--------
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
B-48
<PAGE>
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
======== ======== ========
<S> <C> <C> <C>
Balanced Fund $319,552 $192,405 $ 95,906
Growth and Income Fund 0 0 106,725
CORE U.S. Equity Fund 104,833 110,581 N/A
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund N/A N/A N/A
Mid Cap Equity Fund/2/ 72,441 85,515 N/A
International Equity Fund 144,265 N/A N/A
Small Cap Value Fund N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 50,407 0 35,905
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
________________________________
1 Not operational.
2 Commenced operations on August 1, 1995.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
Arthur Andersen LLP, independent public accountants, 225 Franklin Street,
Boston, Massachusetts 02110, have been selected as auditors of the Trust. In
addition to audit services, Arthur Andersen LLP prepares the Trust's federal and
state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
B-49
<PAGE>
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the applicable Adviser in the manner it considers to be equitable and
consistent with its fiduciary obligations to such Fund
B-50
<PAGE>
and such other customers. In some instances, this procedure may adversely
affect the price and size of the position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-51
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================== =================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1997:
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/ 3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ====================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1996:
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3 / N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Emerging Markets Equity Fund/3 / N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ==================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995:
Balanced Fund $ 9,652 $ 1,522(16%)/1/ $ 7,216,224(10%)/2/ $0
Growth and Income Fund 637,080 77,404(12%)/1/ 468,165,610(7%)/2/ 0
CORE U.S. Equity Fund 119,192 0(0%)/1/ 99,616,396(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,427,413 273,076(19%)/1/ 786,135,073(13%)/2/ 0
Mid Cap Equity Fund N/A N/A N/A N/A
International Fund 1,799,525 0(0%)/1/ 546,364,113(0%)/2/ 0
Small Cap Value Fund 555,667 23,137(4%)/1/ 392,235,715(2%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,002,148 67,754(7%)/1/ 171,880,775(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-54
<PAGE>
During the fiscal year ended January 31, 1997, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1997, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ------------------------ ---------------- -------
<S> <C> <C>
Balanced Fund Bear Stearns $ 6,679
Lehman Brothers 2,098
Chase Securities 490
Growth and Income Fund Chase Securities $ 6,003
Lehman Brothers 11,099
Bear Stearns 19,457
Core US Equity Fund Chase Securities 1,193
Smith Barney 6,439
Merrill Lynch 4,423
Morgan Stanley 2,188
Salomon Brothers 4,249
Bear Stearns 2,614
Lehman Brothers 659
Capital Growth Fund Bear Stearns 13,286
Lehman Brothers 3,349
Mid Cap Equity Fund Lehman Brothers 2,151
Bear Stearns 2,977
Small Cap Value Fund Bear Stearns 12,052
Lehman Brothers 3,038
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good
faith the fair value of securities of each Fund. In accordance with procedures
adopted by the Trustees, the net value per share of each class of each Fund is
calculated by determining the value of the net assets attributable to each class
of that Fund and dividing by the number of outstanding shares of that class.
All securities are valued as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. New York time) on each Business Day (as
defined in the Prospectus).
In the event that the New York Stock Exchange or the national
securities exchange on which stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Trustees will reconsider the
time at which net asset value is computed. In addition, each Fund may compute
its net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations
are available are valued as follows: (a) securities listed on any U.S. or
foreign stock exchange or on the National Association of
B-55
<PAGE>
Securities Dealers Automated Quotations System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the mean
between the closing bid and asked prices; and (ii) on a foreign exchange will be
valued at the last sale price (also referred to as the close price). The last
sale price for securities traded principally on a foreign exchange will be
determined as of the close of the London Stock Exchange or, for securities
traded on exchanges located in the Asia Pacific region, noon London time; (b)
debt securities will be valued using a pricing service approved by the Trustees
if such prices are believed by the investment adviser to accurately represent
market value; (c) overnight repurchase agreements will be valued by the
investment adviser at cost; (d) term repurchase agreements (i.e., those whose
maturity exceeds seven days) and interest rate swaps, caps, collars and floors
will be valued at the average of the bid quotations obtained daily from at least
two dealers or, for term repurchase agreements, recognized counterparties; (e)
debt securities with a remaining maturity of 60 days or less are valued by the
investment adviser at amortized cost, which the Trustees have determined to
approximate fair value; (e) spot and forward foreign currency exchange contracts
will be valued using a pricing service such as Reuters then calculating the mean
between the last bid and asked quotations supplied by certain independent
dealers in such contracts; (g) exchange-traded options and futures contracts
will be valued by the custodian bank at the last sale price on the exchange
where such contracts and options are principally traded; and (h) over-the-
counter options will be valued by an independent unaffiliated broker identified
by the portfolio manager/trader and contacted by the custodian bank; and (i) all
other securities, including those for which a pricing service supplies no
exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate; will be valued at fair value as stated in the
valuation procedures which were approved by the Board of Trustees. For all
brokers used in this process, the custodian bank will send a letter to the
broker furnishing the quotation. If accurate quotations are not readily
available, such contracts will be valued by an independent unaffiliated broker
identified by the portfolio manager/trader and contacted by the custodian bank.
If broker quotes are used, the portfolio manager/trader will identify one
independent unaffiliated broker from whom the custodian bank will obtain prices
daily and another independent unaffiliated broker from whom the custodian bank
will obtain quotes at least weekly. The custodian bank will promptly notify the
portfolio manager/trader and a member of the GSAM Valuation Committee or a
designee thereof of any deviations equal to or greater than 3% between the
weekly quote and the daily quotes for the date that the weekly quotes were
obtained. The investment adviser will promptly provide instructions to the
custodian bank. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation.
Generally, trading in securities on European and Far Eastern
securities exchanges and on over-the-counter markets is substantially completed
at various times prior to the close of business on each Business Day in New York
(i.e., a day on which the New York Stock Exchange is open for trading). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all Business Days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not Business Days in New York and days on which the Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust
from the issue or sale of its shares, and all net investment income, realized
and unrealized gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Fund and constitute the
underlying assets of that Fund or series. The underlying assets of each Fund
will be segregated on the books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general
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<PAGE>
liabilities of the Trust. Expenses of the Trust with respect to the Funds and
the other series of the Trust are generally allocated in proportion to the net
asset values of the respective Funds or series except where allocations of
direct expenses can otherwise be fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return,
yield and/or distribution rate information in advertisements, shareholder
reports or sales literature. Average annual total return and yield are computed
pursuant to formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a
recent thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by
annualizing distributions of net investment income for such period and dividing
this amount by the net asset value per share or maximum public offering price on
the last day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Occasionally statistics may be used to specify Fund volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also
B-57
<PAGE>
advertise information which has been provided to the NASD for publication in
regional and local newspapers. In addition, the Trust may from time to time
advertise a Fund's performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or
its component indices; (g) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (h) the
J.P. Morgan Global Government Bond Index; (i) other taxable investments
including certificates of deposit (CDs), money market deposit accounts (MMDAs),
checking accounts, savings accounts, money market mutual funds and repurchase
agreements; (j) Donoghues' Money Fund Report (which provides industry averages
for 7-day annualized and compounded yields of taxable, tax-free and U.S.
Government money funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the
NASDAQ OTC Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell
2000 Index - Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the
Value-Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-
Actuaries Europe and Pacific Index, and (s) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, the Morgan Stanley Capital
International Emerging Markets Free Index, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (t) the FT-
Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger Investment Companies
Services or Wiesenberger Investment Companies Service; (v) The Goldman Sachs
Commodities Index; and (w) information produced by Micropal, Inc.. The
composition of the investments in such indices and the characteristics of such
benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Fund to calculate its
performance figures.
Information used in advertisements and materials furnished to present
and prospective investors may include statements or illustrations relating to
the appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
B-58
<PAGE>
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to Class A Shares (the class into which the separate account
transferred) to reflect the expenses expected to be incurred by the Fund as
stated in the expense table in the Prospectus. These expenses include any sales
charges and asset-based charges (i.e., fees under Distribution and Authorized
Dealer Service Plans) imposed and other operating expenses. Total return
quotations will be calculated pursuant to SEC approved methodology. Prior to May
1, 1997, the separate account was a separate investment advisory account under
discretionary management by the Adviser and had substantially similar investment
objectives, policies and strategies as the Fund. Unlike the Fund, the separate
account was not registered as an investment company under the Act and therefore
was not subject to certain investment restrictions and operational requirements
that are imposed on investment companies by the Act. If the separate account had
been registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account
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<PAGE>
(based on Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
B-60
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming no
voluntary waiver
of fees and no
expense reimburse-
ments
--------------------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ------------------------- ------------- ---------------------------------- ----- ----- ----- -------
Balanced Fund A 10/12/94-1/31/97 - Since inception 17.41% 20.32% 15.50% 18.27%
Balanced Fund A 2/1/96-1/31/97 - One year 12.07% 18.59% 11.22% 17.69%
Balanced Fund B 5/1/96-1/31/97 - Since inception* N/A 16.22% N/A 15.79%
Growth and Income A 2/5/93-1/31/97 - Since inception 17.31% 18.98% 16.50% 18.17%
Growth and Income A 2/1/96-1/31/97 - One year 21.39% 28.42% 21.13% 28.14%
Growth and Income B 5/1/96-1/31/97 - Since inception* N/A 22.23% N/A 22.23%
Growth and Income Institutional 6/3/96-1/31/97 - Since inception* N/A 20.77% N/A 20.77%
Growth and Income Service 3/6/96-1/31/97 - Since inception* N/A 23.87% N/A 23.87%
CORE U.S. Equity A 5/24/91-1/31/97 - Since inception 13.54% 14.67% 13.25% 14.38%
CORE U.S. Equity A 2/1/92-1/31/97 - Five year 13.99% 15.29% 13.70% 15.00%
CORE U.S. Equity A 2/1/96-1/31/97 - One year 16.98% 23.75% 16.69% 23.44%
CORE U.S. Equity B 5/1/96-1/31/97 - Since inception* N/A 18.59% N/A 18.47%
CORE U.S. Equity Institutional 6/15/95-1/31/97 - Since inception N/A 28.04% N/A 27.74%
CORE U.S. Equity Institutional 2/1/96-1/31/97 - One year N/A 24.63% N/A 24.39%
CORE U.S. Equity Service 6/7/96-1/31/97 - Since inception* N/A 15.92% N/A 15.71%
CORE Large Cap Growth A 11/1/91-7/31/97 - Since inception 21.00% 22.23% N/A N/A
CORE Large Cap Growth A 6/1/92-7/31/97 - Five year 23.44% 24.74% N/A N/A
CORE Large Cap Growth A 6/1/96-7/31/97 - One year 46.72% 55.50% N/A N/A
CORE Large Cap Growth B 5/1/97-7/31/97 - Since inception* N/A 19.40% N/A N/A
CORE Large Cap Growth Institutional 11/1/91-7/31/97 - Since inception N/A 22.23% N/A N/A
Institutional 6/1/92-7/31/97 - Five year N/A 24.74% N/A N/A
Institutional 6/31/96-7/31/97 - One Year N/A 55.50% N/A N/A
CORE Large Cap Growth Service 5/1/97-7/31/97 - Since inception* N/A 19.40% N/A N/A
Capital Growth A 4/20/90-1/31/97 - Since inception 15.57% 16.54% 15.24% 16.21%
Capital Growth A 2/1/92-1/31/97 - Five year 15.42% 16.73% 15.14% 16.44%
</TABLE>
B-61
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming no voluntary
waiver of fees and no
expense reimbursements
-------------------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ------------------------- ------------- ---------------------------------- ----- ----- ----- -------
Capital Growth A 2/1/96-1/31/97 - One year 19.04% 25.97% 18.75% 25.66%
Capital Growth B 5/1/96-1/31/97 - Since inception* N/A 19.39% N/A 19.39%
Mid Cap Equity Institutional 8/1/95-1/31/97 - Since inception N/A 21.65% N/A 21.55%
Mid Cap Equity Institutional 2/1/96-1/31/97 - One year N/A 25.63% N/A 25.55%
International Equity A 12/1/92-1/31/97 - Since inception 9.66% 11.15% 9.40% 10.90%
International Equity A 2/1/96-1/31/97 - One year 7.26% 13.48% 7.05% 13.26%
International Equity B 5/1/96-1/31/97 - Since inception* N/A 2.83% N/A 2.75%
International Equity Institutional 2/7/96-1/31/97 - Since inception* N/A 12.53% N/A 12.38%
International Equity Service 3/6/96-1/31/97 - Since inception* N/A 10.42% N/A 10.28%
Small Cap Value A 10/22/92-1/31/97- Since inception 12.12% 13.61% 11.79% 13.28%
Small Cap Value A 2/1/96-1/31/97 - One year 20.27% 27.28% 19.98% 26.97%
Small Cap Value B 5/1/96-1/31/97 - Since inception* N/A 5.39% N/A 5.39%
Asia Growth A 7/8/94-1/31/97 - Since inception 4.46% 6.78% 4.15% 6.47%
Asia Growth A 2/1/96-1/31/97 - One year -6.44% -1.01% -6.59% -1.17%
Asia Growth B 5/1/96-1/31/97 - Since inception * N/A -6.02% N/A -6.06%
Asia Growth Institutional 2/2/96-1/31/97 - Since inception * N/A -1.09% N/A -1.24%
- --------------------------
</TABLE>
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
B-62
<PAGE>
From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the adviser's
views as to markets, the rationale for a Fund's investments and discussions of a
Fund's current asset allocation.
In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed by GSAM and/or its
affiliates, certain attributes or benefits to be derived from asset allocation
strategies and the Goldman Sachs mutual funds that may be offered as investment
options for the strategic asset allocations. Such advertisements and
information may also include GSAM's current economic outlook and domestic and
international market views to suggest periodic tactical modifications to current
asset allocation strategies. Such advertisements and information may include
other materials which highlight or summarize the services provided in support of
an asset allocation program.
A Fund's performance data will be based on historical results and will
not be intended to indicate future performance. A Fund's total return and yield
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an
investor's shares may be worth more or less than their original cost upon
redemption. The Trust may also, at its discretion, from time to time make a
list of a Fund's holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds were reorganized from series of a Maryland corporation as
part of Goldman Sachs Trust, a Delaware business trust, by a Declaration of
Trust dated January 28, 1997, on April 30, 1997.
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect of assets specifically allocated to such class or series. The
Trustees also have authority to classify and reclassify any series of shares
into one or more classes of shares. As of the date of this Additional
Statement, the Trustees have classified the shares of the Funds into five
classes: Institutional Shares, Service Shares, Class A Shares, Class B Shares
and Class C Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
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<PAGE>
Institutional Shares may be purchased at net asset value without a
sales charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of account administration fees at the annual rate of up to
0.50% of the average daily net assets of the Fund attributable to Service
Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. Class A Shares also bear the
cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of
the average daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 5.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class B Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class B Shares. Class B
Shares also bear the cost of an Authorized Dealer Service Plan at an annual rate
of up to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 1.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class C Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class C Shares. Class C
Shares also bear the cost of an Authorized Dealer Service Plan at an annual rate
of up to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer
different classes of shares (i.e., Institutional, Service, Class A Shares, Class
B Shares and Class C Shares) to its customers and thus receive different
compensation with respect to different classes of shares of each Fund.
Dividends paid by each Fund, if any with respect to each class of shares will be
calculated in the same manner, at the same time on the same day and will be the
same amount, except for differences caused by the differences in expenses
discussed above. Similarly, the net asset value per share may differ depending
upon the class of shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event
of liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of July 24, 1997, State Street Bank & Trust Company as Trustee (GS
Profit Sharing Master Trust), Attn. Louis Pereira, P.O. Box 1992, Boston, MA
02105-1992, was recordholder of 95.80% of Mid
B-64
<PAGE>
Cap Equity Fund's outstanding shares; Fluor Corporation, Master Retirement
Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA 92698-0010 was
recordholder of 64.71% and GS & Co. FBO William C. Strutt IRA, 455 Coconut Palm
Road, Vero Beach, FL 32963-3710 was recordholder of 5.36% of CORE Large Cap
Growth Fund's outstanding shares; State Street Bank and Trust Company as Trustee
for Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O.
Box 1992, Boston, MA 02105-1992 was recordholder of 12.27% and Marine Midland
Bank as Trustee for Mark IV Ind. & Subs Employees Retirement Income Fund, P.O.
Box 1329, Attention: Mutual Fund Processing, Buffalo, NY 14240-1329 was
recordholder of 7.30% of CORE U.S. Equity Fund's outstanding shares; Frontier
Trust Co., FBO Dade County Public Schools, Attention: Agnes R. McMurray; 1720 S.
Gadsden Street, Tallahassee, FL 32301-5547 was recordholder of 5.22% and Trukan
and Co., Attention: K. Ufford, P.O. Box 3699, Wichita, KS 67201-3699 was
recordholder of 5.15% of Balanced Fund's outstanding shares; The Goldman Sachs
Group LP, Attention: Elaine King, 85 Broad Street, New York, New York 10004, was
recordholder of 63.63% of CORE Small Cap Equity Fund and 85.42% of CORE
International Equity Fund's outstanding shares.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise, to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of directors from the separate voting
requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees, either to one vote for each share or to one vote for each dollar
of net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The shareholders of the Trust will
have voting rights only with respect to the limited number of matters specified
in the Declaration of Trust and such other matters as the Trustees may determine
or may be required by law.
The Declaration of Trust provides for indemnification of Trustees,
officers and agents of the Trust unless the recipient is adjudicated (i) to be
liable by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such person's office or (ii)
not to have acted in good faith in the reasonable belief that such person's
actions were in the best interest of the Trust. The Declaration of Trust
provides that, if any shareholder or former shareholder of any series is held
personally liable solely by reason of being or having been a shareholder and not
because of the shareholder's acts or omissions or for some other reason, the
shareholder or former shareholder (or heirs, executors, administrators, legal
representatives or general successors) shall be held harmless from and
indemnified against all loss and expense arising form such liability. The Trust,
acting on behalf of any affected series, must, upon request by such shareholder,
assume the defense of any claim made against such shareholder for any act or
obligation of the series and satisfy any judgment thereon from the assets of the
series.
The Declaration of Trust permits the termination of the Trust or of
any series or class of the Trust (i) by a majority of the affected shareholders
at a meeting of shareholders of the Trust, series or class;
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or (ii) by a majority of the Trustees without shareholder approval if the
Trustees determine that such action is in the best interest of the Trust or its
shareholders. The factors and events that the Trustees may take into account in
making such determination include (i) the inability of the Trust or any
successor series or class to maintain its assets at an appropriate size; (ii)
changes in laws or regulations governing the Trust, series or class or affecting
assets of the type in which it invests; or (iii) economic developments or trends
having a significant adverse impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or their organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally
subject to liability for the debts or obligations of the Trust. Similarly,
Delaware law provides that a series of the Trust will not be liable for the
debts or obligations of any other series of the Trust. However, no similar
statutory or other authority limiting business trust shareholder liability
exists in other states. As a result, to the extent that a Delaware business
trust or a shareholder is subject to the jurisdiction of courts of such other
states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of a Fund. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification
by the relevant Fund for all loss suffered by a shareholder as a result of an
obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders
of a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of
Trust provides that shareholders of a series may bring a derivative action on
behalf of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
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<PAGE>
The Declaration of Trust further provides that the Trustees will not
be liable for error of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Trust. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. CORE Large Cap Growth, CORE
Small Cap Equity, CORE International Equity, Real Estate Securities and Emerging
Markets Equity Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its gross
income for its taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"); and (b) such Fund diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of such
Fund's total (gross) assets is comprised of cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of such Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses. For purposes
of the 90% gross income test, income that a Fund earns from equity interests in
certain entities that are not treated as corporations (e.g., partnerships or
trusts) for U.S. tax purposes will generally have the same character for such
Fund as in the hands of such an entity; consequently, a Fund may be required to
limit its equity investments in
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such entities that earn fee income, rental income, or other nonqualifying
income. In addition, future Treasury regulations could provide that qualifying
income under the 90% gross income test will not include gains from foreign
currency transactions that are not directly related to a Fund's principal
business of investing in stock or securities or options and futures with respect
to stock or securities. Using foreign currency positions or entering into
foreign currency options, futures and forward or swap contracts for purposes
other than hedging currency risk with respect to securities in a Fund's
portfolio or anticipated to be acquired may not qualify as "directly-related"
under these tests.
If a Fund complies with such provisions, then in any taxable year in
which such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, Emerging Markets Equity or Asia Growth Funds and may therefore make it
more difficult for such a Fund to satisfy the distribution requirements
described above, as well as the excise tax distribution requirements described
below. However, each Fund generally expects to be able to obtain sufficient
cash to satisfy such requirements from new investors, the sale of securities or
other sources. If for any taxable year a Fund does not qualify as a regulated
investment company, it will be taxed on all of its investment company taxable
income and net capital gain at corporate rates, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current
and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute
(or be deemed to have distributed) by December 31 of each calendar year at least
98% of its taxable ordinary income for such year, at least 98% of the excess of
its capital gains over its capital losses (generally computed on the basis of
the one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31,
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1997 of capital loss carry forwards expiring in 2002, 2003, and 2004,
respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options
and futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and instruments that may affect the
amount, timing and character of income, gain or loss recognized by a Fund.
Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign currency-
denominated debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed a Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foregoing currency transactions or
instruments could exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of a Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark to market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
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Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) anticipates that it will be subject to foreign taxes on
its income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds make this election, its respective
shareholders may then deduct such pro rata portions of qualified foreign taxes
in computing their taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their U.S. federal income
taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of foreign
taxes paid by a Fund, although such shareholders will be required to include
their shares of such taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed
paid by such shareholder as a result of any such election by CORE International
Equity, International Equity, Emerging Markets Equity or Asia Growth Funds, the
amount of the credit that may be claimed in any year may not exceed the same
proportion of the U.S. tax against which such credit is taken which the
shareholder's taxable income from foreign sources (but not in excess of the
shareholder's entire taxable income) bears to his entire taxable income. For
this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by a Fund will generally not be treated as income from
foreign sources. This foreign tax credit limitation may also be applied
separately to certain specific categories of foreign-source income and the
related foreign taxes. As a result of these rules, which have different effects
depending upon each shareholder's particular tax situation, certain shareholders
of CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may not be able to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by such Fund even if the election
is made by such a Fund.
Shareholders who are not liable for U.S. federal income taxes,
including tax-exempt shareholders, will ordinarily not benefit from this
election. Each year, if any, that the CORE International Equity, International
Equity, Emerging Markets Equity or Asia Growth Funds files the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes paid by a Fund and (ii)
the portion of Fund dividends which represents income from each foreign country.
The other Funds will not be entitled to elect to pass foreign taxes and
associated credits or deductions through to their shareholders because they will
not satisfy the 50% requirement described above. If a Fund cannot or does not
make this election, it may deduct such taxes in computing the amount it is
required to distribute.
If a Fund acquires stock (including, under proposed regulations, an
option to acquire stock such as is inherent in a convertible bond) in certain
foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents, royalties or capital gain)
or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not
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be able to pass through to its shareholders any credit or deduction for such a
tax. In some cases, elections may be available that would ameliorate these
adverse tax consequences, but such elections would require the Fund to include
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. Each Fund may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues
for a Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from a
Fund's dividend income, if any, that would be eligible for the dividends
received deduction if such Fund were not a regulated investment company may be
eligible, for the dividends received deduction for corporations. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by CORE
International Equity, International Equity, Asia Growth and Emerging Markets
Equity Funds will qualify for the dividends-received deduction. The entire
dividend, including the deducted amount, is considered in determining the
excess, if any, of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Fund. Capital gain dividends (i.e., dividends from net capital
gain) if designated as such in a written notice to shareholders mailed not later
than 60 days after a Fund's taxable year closes, will be taxed to shareholders
as long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends received deduction for
corporations. Distributions, if any, that are in excess of a Fund's current and
accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will generally constitute
capital gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
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TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed
of in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. Shareholders should consult their own tax advisers with
reference to their particular circumstances to determine whether a redemption
(including an exchange) or other disposition of Fund shares is properly treated
as a sale for tax purposes, as is assumed in this discussion. If a shareholder
receives a capital gain dividend with respect to shares and such shares have a
tax holding period of six months or less at the time of a sale or redemption of
such shares, then any loss the shareholder realizes on the sale or redemption
will be treated as a long-term capital loss to the extent of such capital gain
dividend. All or a portion of any sales load paid upon the purchase of shares
of a Fund will not be taken into account in determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent the redemption proceeds are reinvested, or the exchange is effected,
without payment of an additional sales load pursuant to the reinvestment or
exchange privilege. The load not taken into account will be added to the tax
basis of the newly-acquired shares. Additionally, any loss realized on a sale
or redemption of shares of a Fund may be disallowed under "wash sale" rules to
the extent the shares disposed of are replaced with other shares of the same
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a dividend reinvestment in
shares of such Fund. If disallowed, the loss will be reflected in an adjustment
to the basis of the shares acquired.
Each Fund may be required to withhold, as "backup withholding,"
federal income tax at a rate of 31% from dividends (including capital gain
dividends) and share redemption and exchange proceeds to individuals and other
non-exempt shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as
it applies to "U.S. persons" subject to tax under such law. Shareholders who, as
to the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
a Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable
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year and certain other conditions are met. Non-U.S. shareholders may also be
subject to U.S. federal withholding tax on deemed income resulting from any
election by CORE International Equity, International Equity, Emerging Markets
Equity or Asia Growth Funds to treat qualified foreign taxes it pays as passed
through to shareholders (as described above), but they may not be able to claim
a U.S. tax credit or deduction with respect to such taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in
which such Fund may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of such Fund and
its shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent
Public Accountants, contained in the 1997 Annual Report of each of the Funds
(except CORE Large Cap Growth Fund), are incorporated herein by reference into
this Additional Statement and attached hereto. Unaudited financial statements
for the CORE Large Cap Growth Fund for the period ended July 31, 1997 are also
attached hereto and incorporated by reference into this Statement of Additional
Information. No other part of the Annual or Semi-Annual Report is incorporated
by reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by
each Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the
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value of its net assets; or for such other period as the SEC may by order permit
for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
B-74
<PAGE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
CLASS A DISTRIBUTION PLANS. As described in the Prospectus, the Trust with
respect to Class A Shares of each Fund has adopted a distribution plan (the
"Class A Plans") pursuant to Rule 12b-1 under the Act. See "Distribution and
Authorized Dealer Service Plan" in the Prospectus.
The Class A Plans for each Fund (other than the CORE Small Cap Equity, CORE
International Equity and Real Estate Securities Funds, which were approved on
July 22, 1997) were most recently approved on April 23, 1997 by a majority vote
of the Trustees, including a majority of the non-interested Trustees who have no
direct or indirect financial interest in the Class A Plans, cast in person at a
meeting called for the purpose of approving the Class A Plans. The compensation
payable under the Class A Plans may not exceed 0.25% per annum of each Fund's
average daily net assets.
Currently, Goldman Sachs has voluntarily agreed to waive the entire amount
of such fee for the Balanced, CORE Large Cap Growth, Capital Growth and Small
Cap Value Funds and to limit the amount of such fee to 0.21% of average daily
net asset attributable to Class A Shares of CORE U.S. Equity, International
Equity and Asia Growth Funds; and to limit the amount of such fee to 0.04% of
the average daily net asset attributable to Class A shares of the Growth and
Income Fund. Goldman Sachs has no current intention of modifying or
discontinuing such waiver but may do so in the future at its discretion.
Each Class A Plan was amended effective April 30, 1997 for each of the Funds
then in existence to reduce the fee payable under the Plan from 0.50% of average
daily net assets attributable to Class A Shares. At the time of such amendment
the Trustees approved the Authorized Dealer Service Plan pursuant to which
personal and account maintenance services are provided. See "Management --
Authorized Dealer Service Plans."
For the fiscal year ended January 31, 1997 the amounts paid to Goldman Sachs
pursuant to its Class A Plan by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1997
========
<S> <C>
Balanced Fund $ 0
Growth and Income Fund 139,025
CORE U.S. Equity Fund 363,264
CORE Large Cap Growth Fund/1/ N/A
CORE Small Cap Equity Fund/1/ N/A
CORE International Equity Fund/1/ N/A
Capital Growth Fund 0
Mid Cap Equity Fund/1/ N/A
International Equity Fund 900,274
Small Cap Value Fund 0
Emerging Markets Equity Fund/1/ N/A
Asia Growth Fund 526,448
Real Estate Securities Fund/1/ N/A
</TABLE>
________________________________
1 Not operational.
Had Goldman Sachs' voluntary limitations not been in effect the Funds
would have paid Goldman Sachs the following fees during the fiscal year ended
1997 pursuant to their respective Class A Plans:
B-75
<PAGE>
<TABLE>
1997
==========
<S> <C>
Balanced Fund $ 153,392
Growth and Income Fund 1,252,257
CORE U.S. Equity Fund 432,457
CORE Large Cap Growth Fund/1/ N/A
CORE Small Cap Equity Fund/1/ N/A
CORE International Equity Fund/1/ N/A
Capital Growth Fund 2,171,462
Mid Cap Equity Fund/1/ N/A
International Equity Fund 1,071,755
Small Cap Value Fund 529,684
Emerging Markets Equity Fund/1/ N/A
Asia Growth Fund 626,724
Real Estate Securities Fund/1/ N/A
</TABLE>
________________________________
1 Not operational.
B-76
<PAGE>
During the fiscal year ended January 31, 1997, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan of
each applicable Fund then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
To Dealers Personnel Expenses Shareholders Advertising
============ ============ ============ ============ ==============
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1997:
Balanced Fund/1/ $0 $ 0 $ 0 $ 0 $ 0
Growth and Income Fund/1/ 0 897,444 823,000 64,500 158,500
CORE U.S. Equity Fund 0 714,665 684,000 51,000 281,000
CORE Large Cap Growth Fund/2/ N/A N/A N/A N/A N/A
CORE Small Cap Equity Fund/2/ N/A N/A N/A N/A N/A
CORE International Equity Fund/2/ N/A N/A N/A N/A N/A
Capital Growth Fund/1/ N/A N/A N/A N/A N/A
Mid Cap Equity/2/ N/A N/A N/A N/A N/A
International Equity Fund/1/ 0 1,124,203 952,000 70,500 363,955
Small Cap Value Fund/1/ N/A N/A N/A N/A N/A
Asia Growth Fund/1/ 0 558,465 343,000 37,000 155,500
Emerging Market Equity Fund/2/ N/A N/A N/A N/A N/A
Real Estate Securities Fund/2/ N/A N/A N/A N/A N/A
</TABLE>
The table above reflects amounts expended by Goldman Sachs, which amounts are in
excess of the compensation received by Goldman Sachs under the Class A Plans.
The payments under the Class A Plans were used by Goldman Sachs to compensate it
for the expenses shown above on a pro-rata basis.
1 COMMENCING JUNE 1, 1995, GOLDMAN SACHS IS NOT IMPOSING THE 0.25% 12B-1 FEE
FOR THESE FUNDS. AS NO DISTRIBUTION REVENUE HAS BEEN EARNED AFTER THIS DATE
FOR THESE FUNDS, NO EXPENSES ARE REFLECTED ABOVE.
2 NOT OPERATIONAL.
B-77
<PAGE>
The Class A Plans are compensation plans which provide for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. If the Class A Plans were terminated by the Trustees
and no successor plans were adopted, each Fund would cease to make payments to
Goldman Sachs under the Class A Plans and Goldman Sachs would be unable to
recover the amount of any of its unreimbursed distribution expenditures.
Under the Class A Plans, Goldman Sachs, as distributor of each Fund's Class
A shares, will provide to the Trustees for their review, and the Trustees will
review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class A Plans and the purposes for which
such services were performed and expenditures were made.
The Class A Plans will remain in effect until May 1, 1998 and from year to
year thereafter, provided that such continuance is approved annually by a
majority vote of the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Class A Plans.
A Class A Plan may not be amended to increase materially the amount to be spent
for the services described therein as to a Fund without approval of a majority
of the outstanding voting securities of the affected Fund. All material
amendments of the Class A Plan must also be approved by the Trustees in the
manner described above. A Class A Plan may be terminated at any time as to any
Fund without payment of any penalty by a vote of a majority of the non-
interested Trustees or by vote of a majority of the Class A Shares of the
applicable Fund. So long as the Class A Plans are in effect, the selection and
nomination of non-interested Trustees shall be committed to the discretion of
the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class A Plans will benefit
the Funds and their Class A shareholders.
CLASS B DISTRIBUTION PLANS. As described in the Prospectus, the Trust has
adopted on behalf of the Funds distribution plans (the "Class B Plans") pursuant
to Rule 12b-1 under the Act with respect to the Class B shares. See
"Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class B Plans were most recently approved for the Funds (except CORE
Small Cap Equity, CORE International Equity, Real Estate Securities and Emerging
Markets Equity Funds) on April 23, 1997 and for the Emerging Markets Equity Fund
on January 28, 1997 and for the CORE Small Cap Equity, CORE International Equity
and Real Estate Securities Funds on July 22, 1997, by a majority vote of the
Trustees, including a majority of the non-interested Trustees who have no direct
or indirect financial interest in the Class B Plans, cast in person at a meeting
called for the purpose of approving the Class B Plans.
With respect to each Fund, the compensation payable under the Class B Plans
is equal to 0.75% per annum of the average daily net assets attributable to
Class B Shares of that Fund. The fees received by Goldman Sachs under the Class
B Plans and contingent deferred sales charge on Class B Shares may be sold by
Goldman Sachs as distributor to entities which provide financing for payments to
Authorized Dealers in respect of sales of Class B Shares. To the extent such
fee is not paid to such dealers, Goldman Sachs may retain such fee as
compensation for its services and expenses of distributing the Funds' Class B
Shares. If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize
a profit from these arrangements.
B-78
<PAGE>
During the fiscal year ended January 31, 1997, Goldman Sachs incurred the
following fees under the Class B Plan of each applicable Fund then in existence:
<TABLE>
<CAPTION>
<S> <C>
Balanced Fund $ 3,861
Growth and Income Fund 28,075
CORE U.S. Equity Fund 36,508
CORE Large Cap Growth Fund/1/ N/A
CORE Small Cap Equity Fund/1/ N/A
CORE International Equity Fund/1/ N/A
Capital Growth Fund 7,632
Mid Cap Equity Fund/1/ N/A
International Equity Fund 44,148
Small Cap Value Fund 8,973
Emerging Markets Equity Fund/1/ N/A
Asia Growth Fund 10,229
Real Estate Securities Fund/1/ N/A
</TABLE>
________________________________
1 Not operational.
The Class B Plans are compensation plans which provide for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class B Plans were terminated by the Trustees
and no successor plan were adopted, the Funds would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures.
Under the Class B Plans, Goldman Sachs, as distributor of the Funds'
shares, will provide to the Board of Trustees for its review, and the Board will
review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class B Plans and the purposes for which
such services were performed and expenditures were made.
The Class B Plans will remain in effect until May 1, 1998 and from year to
year, provided such continuance is approved annually by a majority vote of the
Trustees, including a majority of the non-interested Trustees. A Class B Plan
may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class B Shares of that Fund. All material amendments of the Class B
Plans must also be approved by the Trustees in the manner described above. With
respect to any Fund, a Class B Plan may be terminated at any time without
payment of any penalty by a vote of the majority of the non-interested Trustees
or by vote of a majority of the outstanding voting securities of the Class B
Shares of that Fund. So long as a Class B Plans are in effect, the selection
and nomination of non-interested Trustees shall be committed to the discretion
of the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class B Plans will benefit
each Fund and their respective Class B shareholders.
CLASS C DISTRIBUTION PLANS. As described in the Prospectus, the Trust has
adopted on behalf of the Funds distribution plans (the "Class C Plans") pursuant
to Rule 12b-1 under the Act with respect to the Class C shares. See
"Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class C Plans of each Fund were approved for the Funds on July 22,
1997, on behalf of the Trust by a majority vote of the Trustees, including a
majority of the non-interested Trustees who have no
B-79
<PAGE>
direct or indirect financial interest in the Class C Plans, cast in person at a
meedting called for the purpose of approving the Class C Plans.
With respect to each Fund, the compensation payable under the Class C Plans
is equal to 0.75% per annum of the average daily net assets attributable to
Class C Shares of that Fund. To the extent such fee is not paid to such
dealers, Goldman Sachs may retain such fee as compensation for its services and
expenses of distributing the Funds' Class C Shares.
No fees were paid to Goldman Sachs under the Class C Plans during the
fiscal year ended January 31, 1997.
The Class C Plans are compensation plans which provide for the payment of a
specified distribution fee without regard to the distribution expenses actually
incurred by Goldman Sachs. If the Class C Plans were terminated by the Trustees
and no successor plan were adopted, the Funds would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures.
Under the Class C Plans, Goldman Sachs, as distributor of the Funds'
shares, will provide to the Board of Trustees for its review, and the Board will
review at least quarterly, a written report of the services provided and amounts
expended by Goldman Sachs under the Class C Plans and the purposes for which
such services were performed and expenditures were made.
The Class C Plans will remain in effect until May 1, 1998 and from year to
year, provided such continuance is approved annually by a majority vote of the
Trustees, including a majority of the non-interested Trustees. A Class C Plan
may not be amended to increase materially the amount to be spent for the
services described therein as to any Fund without approval of a majority of the
outstanding Class C Shares of that Fund. All material amendments of the Class C
Plans must also be approved by the Trustees in the manner described above. With
respect to any Fund, a Class C Plan may be terminated at any time without
payment of any penalty by a vote of the majority of the non-interested Trustees
or by vote of a majority of the outstanding voting securities of the Class C
Shares of that Fund. So long as a Class C Plans are in effect, the selection
and nomination of non-interested Trustees shall be committed to the discretion
of the non-interested Trustees. The Trustees have determined that in their
judgment there is a reasonable likelihood that the Class C Plans will benefit
each Fund and their respective Class C shareholders.
AUTHORIZED DEALER SERVICE PLANS. As described in the prospectus, each
Fund's Class A, Class B and Class C Shares have adopted a non-Rule 12b-1
Authorized Dealer Service Plan (each a "Service Plan") pursuant to which Goldman
Sachs and Authorized Dealers are compensated for the provision of personal and
account maintenance services. The Service Plan of CORE Small Cap Equity, CORE
International Equity and Real Estate Securities Funds were initially approved on
July 22, 1997, Emerging Markets Equity Fund was initially approved on January
28, 1997 and the Service Plans of CORE Large Cap Growth Fund were initially
approved on April 23, 1997 by a majority vote of the Trustees, including a
majority of the non-interested Trustees who have no direct or indirect financial
interest in the Service Plan. Each Service Plan of each other Fund was most
recently approved by the Trustees, including a majority of the non-interested
Trustees who have no direct or indirect financial interest in the Service Plan,
at a meeting held on April 23, 1997. Each Fund's Service Plan provides for the
compensation for personal and account maintenance services at an annual rate of
up to 0.25% of the Fund's average daily net assets attributable to Class A or
Class B shares.
For the fiscal year ended January 31, 1997 and for the period June 1, 1995
(commencement of each Service Plan) through January 31, 1996, each Fund that was
operational paid Authorized Dealer
B-80
<PAGE>
Service fees at the foregoing rate for each Fund's Class A shares. During the
period May 1, 1996 (commencement of each Class B Service Plan) through January
31, 1997, Authorized Dealer Service fees were paid with respect to each Fund's
Class B shares which were then in operation at the foregoing rate.
For the fiscal year ended January 31, 1997 and for the period June 1, 1995
through January 31, 1996, the amounts paid to Goldman Sachs pursuant to its
Class A Authorized Dealer Service Plan and for the period May 1, 1996
(commencement of Class B Service Plan) through January 31, 1997, the amounts
paid to Goldman Sachs pursuant to its Class B Service Plan was:
<TABLE>
<CAPTION>
Class A Class B Class A
1997 1997 1996
========== ======= ==========
<S> <C> <C> <C>
Balanced Fund $ 153,392 $ 1,294 $ 64,145
Growth and Income Fund 1,252,257 9,358 603,426
CORE U.S. Equity Fund 432,457 12,169 182,881
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 2,171,462 2,854 1,563,448
Mid Cap Equity Fund/1/ N/A N/A N/A
International Equity Fund 1,071,755 14,733 470,027
Small Cap Value Fund 569,684 2,992 454,857
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 626,724 3,410 276,754
Real Estate Securities Fund/1/ N/A N/A N/A
- --------------------------------------------------------------------
</TABLE>
1 Not operational
The Service Plans of each Fund will remain in effect until May 1,
1998, and from year to year thereafter, provided that the continuance of each
service plan is approved annually by a majority vote of the Trustees, including
a majority of the non-interested Trustees who have no direct or indirect
financial interest in the Service Plans. All material amendments of the Service
Plans must also be approved by the Trustees in the manner described above. The
Service Plans may be terminated at any time as to any Fund without payment of
any penalty by a vote of a majority of the non-interested Trustees or by vote of
a majority of the outstanding voting securities of the affected Fund. The
Trustees have determined that in their judgment there is a reasonable likelihood
that the Service Plans will benefit the Funds and their shareholders.
OTHER INFORMATION REGARDING MAXIMUM SALES CHARGE, PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS
MAXIMUM SALES CHARGES
=====================
Class A Shares of each Fund are sold at a maximum sales charge of
5.5%. Using the initial offering price per share, as of January 31, 1997 and
July 31, 1997 for the CORE Large Cap Growth Fund, the maximum offering price of
each Fund's Class A shares would be as follows:
B-81
<PAGE>
<TABLE>
<CAPTION>
Maximum Offering
Net Asset Sales Price to
Value Charge Public
--------- -------- --------
<S> <C> <C> <C>
Balanced Fund $18.78 $1.09 $19.87
Growth and Income Fund 23.18 1.35 24.53
CORE U.S. Equity Fund 23.32 1.36 24.68
CORE Large Cap Growth Fund N/A N/A N/A
CORE Small Cap Equity Fund N/A N/A N/A
CORE International Equity Fund N/A N/A N/A
Capital Growth Fund 16.73 0.97 17.70
Mid Cap Equity N/A N/A N/A
International Equity Fund 19.32 1.12 20.44
Small Cap Value Fund 20.91 1.22 22.13
Emerging Markets Equity Fund N/A N/A N/A
Asia Growth Fund 16.31 0.95 17.26
Real Estate Securities Fund N/A N/A N/A
</TABLE>
The following information supplements the information in the
Prospectus under the captions "How to Invest," "How to Sell Shares of the Funds"
and "Dividends." Please see the Prospectus for more complete information.
OTHER PURCHASE INFORMATION
==========================
If shares of a Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the
Funds will have no record of the beneficial owner's transactions, a beneficial
owner should contact the Authorized Dealer to purchase, redeem or exchange
shares, to make changes in or give instructions concerning the account or to
obtain information about the account. The transfer of shares in a "street name"
account to an account with another dealer or to an account directly with the
Fund involves special procedures and will require the beneficial owner to obtain
historical purchase information about the shares in the account from the
Authorized Dealer.
RIGHT OF ACCUMULATION (CLASS A)
===============================
A Class A shareholder qualifies for cumulative quantity discounts if
the current purchase price of the new investment plus the shareholder's current
holdings of existing Class A shares (acquired by purchase or exchange) of the
Funds and Class A shares of any other Goldman Sachs Fund (as defined in the
Prospectus) total the requisite amount for receiving a discount. For example,
if a shareholder owns shares with a current market value of $35,000 and
purchases additional Class A shares of any Fund with a purchase price of
$25,000, the sales charge for the $25,000 purchase would be 4.75% (the rate
applicable to a single purchase of more than $60,000). Class A shares purchased
without the imposition of a sales charge may not be aggregated with Class A
shares purchased subject to a sales charge. Class A shares of the Funds and any
other Goldman Sachs Fund purchased (i) by an individual, his spouse and his
children, and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales charge level. For purposes of applying the
right of accumulation, shares of the Funds and any other Goldman Sachs Fund
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A shares held by
B-82
<PAGE>
any other Private Client Services account. In addition, Class A shares of the
Funds and Class A shares of any other Goldman Sachs Fund purchased by partners,
directors, officers or employees of the same business organization, groups of
individuals represented by and investing on the recommendation of the same
accounting firm, certain affinity groups or other similar organizations
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation and,
if qualifying, the applicable sales charge level. This right of accumulation is
subject to the following conditions: (i) the business organization's, group's
or firm's agreement to cooperate in the offering of the Funds' shares to
eligible persons; and (ii) notification to the Funds at the time of purchase
that the investor is eligible for this right of accumulation.
STATEMENT OF INTENTION (CLASS A)
================================
If a shareholder anticipates purchasing at least $50,000 of Class A
shares of a Fund alone or in combination with Class A shares of any other
Goldman Sachs Fund within a 13-month period, the shareholder may purchase shares
of the Fund at a reduced sales charge by submitting a Statement of Intention
(the "Statement"). Shares purchased pursuant to a Statement will be eligible
for the same sales charge discount that would have been available if all of the
purchases had been made at the same time. The shareholder or his Authorized
Dealer must inform Goldman Sachs that the Statement is in effect each time
shares are purchased. There is no obligation to purchase the full amount of
shares indicated in the Statement. A shareholder may include the value of all
Class A shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified on the Statement, the gross amount
of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
=================================================
A Fund shareholder should obtain and read the prospectus relating to
any other Fund, Goldman Sachs Fund or ILA Portfolio (as defined in the
Prospectus) and its shares or units and consider its investment objective,
policies and applicable fees before electing cross-reinvestment into that Fund
or Portfolio. The election to cross-reinvest dividends and capital gain
distributions will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends
and distributions in shares of other Goldman Sachs Funds or in units of ILA
Portfolios is available only in states where such reinvestment may legally be
made.
AUTOMATIC EXCHANGE PROGRAM
==========================
A Fund shareholder may elect cross-reinvestment into an identical
account or an account registered in a different name or with a different
address, social security or other taxpayer identification number, provided that
the account in the acquired fund has been established, appropriate signatures
have been obtained and the minimum initial investment requirement has been
satisfied. A Fund shareholder should obtain and read the prospectus relating to
any other Goldman Sachs Portfolio and its shares and consider its investment
objective, policies and applicable fees and expenses before electing an
automatic exchange into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
==========================
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $5,000. The
Systematic Withdrawal Plan provides for monthly
B-83
<PAGE>
payments to the participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. The maintenance of a withdrawal plan concurrently with purchases of
additional Class A or Class B shares would be disadvantageous because of the
sales charge imposed on purchases of Class A shares or the imposition of a CDSC
on redemptions of Class A and Class B shares. The CDSC applicable to Class B
shares redeemed under a systematic withdrawal plan may be waived. See "How to
Invest -- Waiver or Reduction of Continent Deferred Sales Charge" in the
Prospectus. In addition, each withdrawal constitutes a redemption of shares,
and any gain or loss realized must be reported for federal and state income tax
purposes. A shareholder should consult his or her own tax adviser with regard
to the tax consequences of participating in the Systematic Withdrawal Plan. For
further information or to request a Systematic Withdrawal Plan, please write or
call the Transfer Agent.
B-84
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are pleased to have the opportunity to discuss the performance and holdings
of the Goldman Sachs Mid-Cap Equity Fund for the 12 months ended January 31,
1997. The U.S. equity market rewarded investors with excellent returns once
again in 1996, with the Goldman Sachs Mid-Cap Equity Fund outperforming its
benchmark by a wide margin during the period under review. To help put the
fund's performance in perspective, we will also provide a brief overview of the
economic and investment environment.
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Mid-Cap Equity Fund seeks long-term capital growth primarily
by investing at least 65% of its total assets in equities with market
capitalizations of between $500 million and $7 billion at the time of
investment. However, the fund currently intends to emphasize investments in
companies with market capitalizations of under $5 billion at the time of
investment. The fund is managed with a value style, which means we focus on
companies whose stocks we believe are inexpensive relative to their expected
long-term earnings growth and their asset value. Investments may include well-
known companies that are temporarily out of favor due to cyclical economic
conditions or are experiencing near-term difficulties the portfolio managers
judge to be temporary in nature. In-depth fundamental research of a company's
financial structure, its competitive position in the market and its management's
commitment to increasing shareholder value are all critical parts of the fund's
investment approach. Though we are not sector investors, we closely monitor the
fund's sector and industry exposures compared with the benchmark in an effort to
avoid unintentional over- or underweightings.
MID-CAPS PERFORMED WELL, BUT LAGGED LARGE-CAPS
The U.S. stock market surged to record levels during the period under review,
rising an impressive 26.3% (as measured by the Standard & Poor's 500 stock
index). After a run-up from January through mid-February, market volatility
notably increased, as investor sentiment vacillated between two contradictory
concerns. With some economic news, investors feared that the economy was growing
too quickly, making higher inflation a possibility, while other news caused them
to worry that the economy was slowing, putting earnings at risk. In May,
investors briefly overcame their fears and sent the market higher, but their
concerns quickly reemerged and caused the market to settle into another choppy
trading range that culminated in a sharp sell-off in July. However, stock
prices rebounded throughout the second half of the period, as investors became
more confident that the environment of low inflation, moderate economic growth
and healthy corporate earnings would persist. Though small-cap stocks led the
market during the first half of the year, the post-July rally was dominated by a
handful of large-cap, growth companies.
During the period, the mid-cap sector of the stock market recorded a total
return of 20.9% (as measured by the Russell Midcap index), lagging its larger
peers but slightly outperforming small-cap stocks, which rose 19.0% (as measured
by the Russell 2000 index). The divergence between the performance of the
different stock capitalizations was primarily a reflection of investors "flight
to quality" in the uncertain market, with investors favoring large-cap growth
companies that were highly liquid.
1
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
ECONOMIC GROWTH REBOUNDED AFTER A WEAK START, THEN MODERATED
When the period began, lackluster consumer spending, harsh winter weather and
the General Motors strike restrained economic growth. Despite these adverse
conditions, the economy advanced faster than expected, with first-quarter real
GDP growth reported at 2.0% (annualized). Momentum accelerated even more
dramatically during the second quarter, as industrial activity, automobile sales
and home sales all showed significant improvement. As a result, second-quarter
GDP rose a robust 4.7% (annualized), its highest rate in two years.
The economy's torrid growth cooled markedly during the third quarter, with
annualized real GDP slowing to 2.1%, largely due to lackluster consumer spending
and a widening U.S. trade deficit. This slowdown proved to be temporary,
however, as a wide range of economic reports pointed toward renewed strength
from October through December. Fourth-quarter real GDP growth was revised to
3.9% (annualized), reflecting a narrowing trade deficit, rising consumer
spending and accelerating manufacturing activity. In January 1997, the economic
data suggested that the economy's advance was continuing. Despite firm growth,
underlying inflation remained surprisingly mild. For all of 1996, consumer
prices rose only 2.9%.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis points in
January 1996, just prior to the start of the period. Though stronger than
expected growth shifted investor expectations from further Federal Reserve
interest rate cuts to potential tightening, the Fed then left rates unchanged.
As of January 31, 1997, the Federal funds rate remained at 5.25%.
PERFORMANCE REVIEW: STRONG OUTPERFORMANCE, LED BY OUR TECHNOLOGY, FINANCIAL AND
ENERGY STOCKS
For the 12-month period ended January 31, 1997, the Goldman Sachs Mid-Cap
Equity Fund had a total return of 25.63% based on net asset value, significantly
outperforming the 20.90% total return of the fund's benchmark, the Russell
Midcap Index. We are also pleased to note that the fund fared very well
compared with its peers. For the 12-month period ended January 31, 1997, the
fund ranked within the top 20% of the Lipper mid-cap fund category (30th of
157), according to Lipper Analytical Services, Inc. (Please note that Lipper
rankings do not take sales charges into account and that past performance is not
a guarantee of future results.)
The fund's strong results came primarily during the second half of the period,
and can be attributed to successful stock selection. The best performing stocks
came from a wide range of sectors, with technology, financial and energy-related
investments performing particularly well. In addition, the fund benefited from
several of its positions in consumer nondurables, a sector that had been
underweighted early in the period and subsequently increased.
The fund's top performers included a number of manufacturers of computer-
related components. For example, we took advantage of the slump in technology
stocks in early 1996 by establishing a position in TERADYNE, INC., a
manufacturer of semiconductor testing equipment, at an extremely inexpensive
price. The stock then rebounded much faster than we anticipated in advance of
the turnaround of the semiconductor cycle. Other successful holdings in the
sector were the best performing initial public offering of 1996, CYMER, INC., a
producer of excimer lasers used to etch semiconductors, and SEAGATE TECHNOLOGY,
INC., the world's largest independent disk-drive maker. Seagate Technology
spent much of the past year
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
integrating its acquisition of Conner Peripherals, Inc., which gave it a
dominant market share and made it the most vertically integrated hard disk-drive
manufacturer. By the end of the period, we sold the fund's position in Cymer and
reduced Teradyne and Seagate Technology as they appreciated and became less
undervalued.
In the financial sector, several of our bank and insurance holdings performed
extremely well. Bank stocks included GREENPOINT FINANCIAL CORP., which reported
strong demand for its "no-documentation" and "low-documentation" mortgages;
REPUBLIC BANK OF NEW YORK CORP., which achieved an earnings improvement due to
better than expected revenues and non-interest expense control; and STANDARD FED
BANCORPORATION, a Michigan-based thrift that is in the process of being
acquired, which we sold after it reached our target price. In the insurance
industry, OLD REPUBLIC INTERNATIONAL CORP. enhanced shareholder value in a slow
premium growth environment by improving its capital management, which included a
stock buyback program; USLIFE CORP. surged amid takeover speculation, and
ALLMERICA FINANCIAL CORP. announced a restructuring that would combine its four
units.
The fund also benefited from several of its energy and consumer nondurable
investments. TOSCO CORP., an oil refiner and distributor, continued to
consolidate its market position through an ambitious acquisition strategy, and
LONG ISLAND LIGHTING CO., a New York-based utility, agreed to be acquired by
Brooklyn Union Gas Co. at a very attractive price. In the consumer nondurable
sector, SUNBEAM CORP., a leading consumer products company, surged due to the
aggressive restructuring program initiated by its new CEO; and FRUIT OF THE
LOOM, INC. performed well due to increased investor recognition of its ability
to improve future cash flow.
DIFFICULT INDUSTRY CONDITIONS IMPACTED SEVERAL HOLDINGS
Fund holdings that did not fulfill our expectations included several companies
that were affected by difficult industry conditions. These included GEON CORP.,
VISHAY INTERTECHNOLOGY, INC. and STONE CONTAINER CORP., which all suffered when
their respective businesses -- chemicals, electronic capacitors, and pulp and
paper products -- came under pressure due to increased competition and
overcapacity. Another disappointment was CENTRAL MAINE POWER CO., which was
impacted by continuing uncertainty in the regulatory environment for electric
utilities. We believe that the market has overreacted to the short-term
problems facing these companies and the fund continued to hold them as of the
end of the period.
NEW INVESTMENTS ADDED DIVERSIFICATION
After many holdings performed extremely well and were sold upon reaching our
price targets, we initiated several new investments that we determined were very
undervalued. These included two stocks that were among the fund's 10 largest
positions as of the end of the period under review: INTERNATIONAL MULTIFOODS
CORP. and UNICOM CORP. International Multifoods Corp., a distributor of
specialty foods, has a relatively low valuation, a high degree of operating
leverage and new management that is expected to improve profitability,
particularly in its vending distribution business. Unicom Corp., an electric
utility that operates 12 nuclear units at six sites, generates excess capital
and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects.
We established a major position in PERRIGO CO., the largest manufacturer of
store-brand health and
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
beauty aids, over-the-counter pharmaceuticals and nutritional products. We
expect Perrigo to benefit from stricter cost controls as well as its "over-the-
counter switch" business, where it produces drugs that are equivalent to brand-
name products after the original drug patents expire. These products are a
significant new source of revenues because they command higher margins and have
higher unit growth. Another new position was IMATION CORP., a spin-off of 3M
Co., which manufactures products for data storage, printing and publishing,
medical imaging and photography. Imation has a strong balance sheet and is using
the cash flow generated by its older businesses to develop new products such as
high-capacity disks.
We significantly increased the fund's existing position in THIOKOL CORP., a
defense/aerospace company that has a debt-free balance sheet, trades at a very
low earnings multiple and is reducing its dependence on the federal government.
As part of this strategy, Thiokol formed a joint venture to manufacture
components for commercial aircraft, which will enable it to benefit from an
expected upturn in the aircraft cycle.
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS AS OF JANUARY 31, 1997
COMPANY LINE OF BUSINESS PERCENTAGE OF TOTAL NET ASSETS
<S> <C> <C>
Thiokol Corp. Defense/Aerospace 3.0%
Shopko Stores, Inc. Discount Retailer 2.5%
Goodyear Tire & Rubber Co. Tire and Rubber Products 2.5%
Republic Bank of New York Corp. Bank 2.5%
Long Island Lighting Co. Electric Utilities 2.5%
International Multi-foods Corp. Food Distributor 2.4%
Avnet, Inc. Electronic Components Distributor 2.4%
USLife Corporation Insurance 2.4%
Unicom Corp. Utility 2.4%
Owens-Illinois, Inc. Packaging 2.4%
</TABLE>
OUTLOOK
As of this writing, we believe the stock market, in general, is somewhat
overvalued. Though we still expect the market to achieve positive results in
1997, its returns are unlikely to match the strong returns of 1995 or 1996.
Despite the expensive market, the fund's current holdings are attractively
valued and we expect them to continue to perform well. We intend to continue to
utilize extensive fundamental research to identify attractive, undervalued
stocks with solid long-term prospects.
Sincerely,
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Portfolio Manager
U.S. Active Equity Value
March 3, 1997
4
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
The following graph shows the value, as of January 31, 1997, of a $1,000,000
investment made on the inception date of the Fund. For comparative purposes,
the performance of the Fund's benchmark (the Russell Midcap Index ("Russell
Midcap")) is shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
(dollars in thousands)
[LINE GRAPH APPEARS HERE]
GS MIDCAP RUSSELL MIDCAP
8/1/95 $1,000 $1,000
1/31/96 $1,069 $1,094
1/31/97 $1,344 $1,523
<TABLE>
<CAPTION>
Average Annual Total Return
-----------------------------------
One Year Since Inception
(a)
-----------------------------------
<S> <C> <C>
Institutional 25.63% 21.65%
Shares
</TABLE>
(a) Institutional shares commenced operations on August 1, 1995.
5
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
January 31, 1997
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<S> <C> <C>
Common Stocks--96.5%
Airlines--2.0%
102,400 Continental Airlines, $ 2,867,200
Inc.*
- -------------------------------------------------------------
APPLIANCE MANUFACTURER--1.8%
95,300 Sunbeam Corp., Inc. 2,644,575
- -------------------------------------------------------------
AUTO--ORIGINAL EQUIPMENT MANUFACTURER--0.7%
48,500 Exide Corp. 1,091,250
- -------------------------------------------------------------
BANKS--4.1%
27,600 Greenpoint Financial Corp. 1,504,200
40,700 Republic Bank of New York 3,607,038
Corp.
14,800 Unionbancal Corp. 791,800
5,903,038
- -------------------------------------------------------------
CHEMICALS--COMMODITY--1.2%
94,600 Geon Co. 1,773,750
- -------------------------------------------------------------
COMPUTERS AND PERIPHERALS--3.2%
124,300 Decisionone Corp. 2,175,250
48,000 Seagate Technology, Inc.* 2,472,000
4,647,250
- -------------------------------------------------------------
CONSUMER STAPLES--1.8%
56,135 Block Drug Company, Inc. 2,638,345
- -------------------------------------------------------------
DEFENSE--3.0%
76,600 Thiokol Corp. 4,289,600
DEPARTMENT STORES--2.5%
228,000 Shopko Stores, Inc. 3,619,500
- -------------------------------------------------------------
ELECTRIC UTILITIES--8.6%
242,100 Central Maine Power Co. 2,693,362
38,500 CMS Energy Corp. 1,289,750
158,100 Long Island Lighting Co. 3,596,775
147,500 Niagara Mohawk Power 1,493,437
Corp.*
145,900 Unicom Corp. 3,446,888
12,520,212
- -------------------------------------------------------------
FOOD--4.1%
161,900 Chiquita Brands 2,367,788
International, Inc.
197,000 International Multifoods 3,546,000
Corp.
5,913,788
- -------------------------------------------------------------
FOREST PRODUCTS--2.7%
31,000 Georgia-Pacific Corp. 2,282,375
130,000 Stone Container Corp. 1,755,000
4,037,375
- -------------------------------------------------------------
HEALTHCARE MANAGEMENT--4.8%
57,800 Health Systems 1,495,575
International, Inc.*
104,900 Horizon CMS Healthcare 1,442,375
Corp.
126,400 Tenet Healthcare Corp.* 3,412,800
33,000 Trigon Healthcare Inc. 585,750
6,936,500
- -------------------------------------------------------------
HOME BUILDERS--3.1%
46,000 Centex Corp. 1,794,000
104,600 Lennar Corp. 2,784,975
4,578,975
- -------------------------------------------------------------
INSURANCE--LIFE--3.8%
36,900 Reliastar Financial Corp. 2,047,950
84,700 US Life Corp. 3,472,700
5,520,650
- -------------------------------------------------------------
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE--PROPERTY AND CASUALTY--3.8%
90,100 Allmerica Financial Group $ 3,299,912
84,300 American States Financial 2,223,413
Corp.*
5,523,325
- -------------------------------------------------------------
INSURANCE BROKERS--1.5%
80,900 Old Republic 2,174,187
International
Corp.
- -------------------------------------------------------------
INVESTMENT BROKERS AND MANAGERS--1.0%
44,300 Lehman Brothers Holdings, 1,400,987
Inc.
- -------------------------------------------------------------
LOGISTICS/TRUCKING--1.9%
106,800 Consolidated Freightways, 2,710,050
Inc.
- -------------------------------------------------------------
LEISURE--2.1%
115,300 Royal Caribbean Cruise 3,041,038
Lines
- -------------------------------------------------------------
MACHINERY--0.9%
22,400 Tecumseh Products, Inc. 1,293,600
MEDIA--1.2%
76,200 Carmike Cinemas 1,809,750
- -------------------------------------------------------------
MEDICAL--2.5%
68,800 Owens and Minor, Inc. 705,200
272,700 Perrigo Co. 2,897,438
3,602,638
- -------------------------------------------------------------
OIL REFINING AND MARKETING--5.5%
59,400 Ashland Inc. 2,561,625
34,600 Tosco Corp. 3,062,100
71,700 Valero Energy Corp. 2,419,875
8,043,600
- -------------------------------------------------------------
PACKAGING--2.4%
144,000 Owens-Illinois Inc.* 3,420,000
- -------------------------------------------------------------
RECREATIONAL PRODUCTS--1.7%
149,300 Outboard Marine Corp. 2,482,112
RESTAURANTS--1.8%
369,800 Darden Restaurants 2,681,050
- -------------------------------------------------------------
SEMICONDUCTORS AND ELECTRONICS--7.8%
56,600 Avnet, Inc. 3,502,125
98,000 Imation Corp. 2,854,250
69,200 Silicon Valley Group, 1,859,750
Inc.*
124,250 Vishay Intertechnology, 2,997,531
Inc.*
11,213,656
- -------------------------------------------------------------
SOFTWARE--1.4%
62,900 Autodesk, Inc. 1,989,213
- -------------------------------------------------------------
STEEL--1.8%
63,600 AK Steel Holding Corp. 2,559,900
- -------------------------------------------------------------
SUPERMARKETS--1.9%
168,800 Fleming Companies, Inc. 2,721,900
TECHNOLOGY CAPITAL GOODS--1.9%
91,700 Teradyne, Inc.* 2,831,238
- -------------------------------------------------------------
TEXTILES--4.1%
141,100 Angelica Corp. 2,698,537
82,300 Fruit of the Loom, Inc.* 3,302,287
6,000,824
- -------------------------------------------------------------
TIRE AND OTHER RELATED
RUBBER PRODUCTS--2.5%
66,200 Goodyear Tire & Rubber Co. 3,607,900
- -------------------------------------------------------------
TOBACCO--1.4%
67,000 Universal Corp. 2,077,000
- -------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $118,250,113) $ 140,165,976
- -------------------------------------------------------------
</TABLE>
6
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
January 31, 1997
<TABLE>
<CAPTION>
Principal Amount
Interest Rate Maturity Date Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--2.8%
Joint Repurchase Agreement Account
$4,100,000 5.63% 02/03/97 $ 4,100,000
- -----------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $4,100,000) $ 4,100,000
TOTAL INVESTMENTS (COST $122,350,113)** $144,265,976
- -----------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost
$ 27,053,378
Gross unrealized loss for investments in which cost exceeds value
(5,196,819)
- -----------------------------------------------------------------------------------
Net unrealized gain $ 21,856,559
- -----------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $122,409,417.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
7
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in securities, at value (identified cost $144,265,976
$122,350,113)
Cash 31,121
Receivables:
Fund shares sold 87,576
Investment securities sold 4,552,534
Dividends and interest 56,999
Deferred organization expenses, net 60,056
Other assets 10,218
TOTAL ASSETS 149,064,480
LIABILITIES:
Payables:
Investment securities purchased 3,687,585
Investment advisory fees 71,762
Administration fees 18,370
Transfer agent fees 4,807
Accrued expenses and other liabilities 28,626
TOTAL LIABILITIES 3,811,150
NET ASSETS:
Paid-in capital 115,859,949
Distributions in excess of net investment income (25,142)
Accumulated undistributed net realized gain on investment and 7,502,660
option transactions
Net unrealized gain on investments 21,915,863
NET ASSETS $145,253,330
Total shares of beneficial interest outstanding, $.001 par 7,755,774
value (50,000,000 shares authorized)
Net asset value, offering and redemption price per share (net $18.73
assets/shares outstanding)
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Goldman Sachs Mid-Cap Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 2,631,906
Interest 188,358
TOTAL INCOME 2,820,264
- -----------------------------------------------------
EXPENSES:
Investment adviser fees 771,956
Administration fees 192,989
Professional fees 68,906
Transfer agent fees 51,464
Custodian fees 29,506
Amortization of deferred organization 17,213
expenses
Directors' fees 2,234
Other 31,778
- -----------------------------------------------------
TOTAL EXPENSES $1,166,046
Less Expenses reimbursable by Goldman (72,441)
Sachs
NET EXPENSES 1,093,605
NET INVESTMENT INCOME 1,726,659
- -----------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENT AND OPTION TRANSACTIONS:
Net realized gain on investment 13,627,039
transactions
Net realized gain on options written 40,466
Net change in unrealized gain on 14,749,074
investments
- -----------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON 28,416,579
INVESTMENT AND OPTION TRANSACTIONS
- -----------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING $30,143,238
FROM OPERATIONS
- -----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, 1997 JANUARY 31, 1996 (A)
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,726,659 $ 1,088,855
Net realized gain on investment 13,627,039 547,655
transactions
Net realized gain (loss) on options 40,466 (83,442)
written
Net change in unrealized gain on 14,749,074 7,166,789
investments
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 30,143,238 8,719,857
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,837,675) (986,293)
In excess of net investment income (25,142) ---
From net realized gains (6,629,058) ---
Total distributions to shareholders (8,491,875) (986,293)
- ------------------------------------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS: SHARES SHARES
- ------------------------------------------------------------------------------------------------------------
Proceeds from sales of shares 227,071 3,933,239 9,029,858 135,730,361
Reinvestment of dividends and 483,747 8,489,760 64,045 986,293
distributions
Cost of shares repurchased (1,480,859) (24,491,993) (568,088) (8,779,257)
Net increase (decrease) in net assets
resulting from share transactions (770,041) (12,068,994) 8,525,815 127,937,397
- ------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 9,582,369 135,670,961
NET ASSETS:
Beginning of period 135,670,961 ---
End of period $145,253,330 $135,670,961
- ------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net $ (25,142) $ 102,562
investment income
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, 1997 JANUARY 31, 1996 (a)
------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.91 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.24 0.13
Net realized and unrealized gain on investments 3.77 0.90
and options
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 4.01 1.03
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.24) (0.12)
- ------------------------------------------------------------------------------------------------------------
In excess of net investment income (0.02) --
Net realized gain on investments and option (0.93) --
transactions
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1.19) (0.12)
- ------------------------------------------------------------------------------------------------------------
Net increase in net asset value 2.82 0.91
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.73 $ 15.91
Total return /(b)/ 25.63% 6.89% /(d)/
Portfolio turnover rate 74.03% 58.77% /(d)/
Average commission rate /(e)/ $ 0.0547 --
Net assets at end of period $145,253,330 $135,670,961
Ratio of net expenses to average net assets /(c)/ 0.85% 0.85%
Ratio of net investment income to average net assets /(c)/ 1.35% 1.67%
Ratios assuming no expense limitations:
Ratio of expenses to average net assets /(c)/ 0.91% 0.98%
Ratio of net investment income to average net assets /(c)/ 1.29% 1.54%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
/(b)/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
/(c)/ Annualized.
/(d)/ Not annualized.
/(e)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
January 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Goldman Sachs Mid-Cap Equity Fund ("the Fund") is a separate diversified
portfolio of Goldman SachsEquity Portfolios, Inc. (the "Company"). The Company
consists of eight funds and is a Marylandcorporation registered under the
Investment Company Act of 1940, as amended, as an open-end,management investment
company. The Fund offers two classes of shares - Institutional shares
andService shares. No Service shares were outstanding as of January 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significantaccounting policies consistently
followed by the Fund. The preparation of financial statements inconformity with
generally accepted accounting principles requires management to make
estimatesand assumptions that may affect the reported amounts.
A. Investment Valuation
- -- --------------------
Investments in securities traded on a U.S. or foreignsecurities exchange or the
NASDAQ system are valued daily at their last sale or closing price on
theprincipal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on aU.S. exchange or NASDAQ are valued at the mean between the
closing bid and asked price, andsecurities traded on a foreign exchange will be
valued at the official bid price. Unlisted equity anddebt securities for which
market quotations are available are valued at the mean between the mostrecent
bid and asked prices. Debt securities are valued at prices supplied by an
independent pricingservice, which reflect broker/dealer-supplied valuations and
matrix pricing systems. Short-termdebt obligations maturing in sixty days or
less are valued at amortized cost. Restricted securities, andother securities
for which quotations are not readily available, are valued at fair value using
methodsapproved by the Board of Directors of the Company.
B. Securities Transactions and Investment Income
- -- ---------------------------------------------
Securities transactions are recorded on the tradedate. Realized gains and
losses on sales of investments are calculated on the identified-costbasis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Fund hasthe choice to receive either cash or stock are recognized as investment
income in an amountequal to the cash dividend. This amount is also used as an
estimate of the fair value of the stockreceived. Interest income is determined
on a basis of interest accrued, premium amortized anddiscount earned.
C. Federal Taxes
- -- -------------
It is the Fund's policy to comply with the requirements of the Internal Revenue
Codeapplicable to regulated investment companies and to distribute substantially
all of its investmentcompany taxable income and capital gains to its
shareholders. Accordingly, no federal tax provisionis required. The
characterization of distributions to shareholders for financial reporting
purposes isdetermined in accordance with income tax rules. Therefore, the source
of a portfolio's distributionsmay be shown in the accompanying financial
statements as either from or in excess of netinvestment income or net realized
gain on investment transactions, or from capital, dependingon the type of
book/tax differences that may exist.
D. Deferred Organization Expenses
- -- ------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
12
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
E. Expenses
- -- --------
Expenses incurred by the Company which do notspecifically relate to an
individual fund of the Company are allocated to the funds based on eachfund's
relative average net assets for the period.
F. Option Accounting Principles
- -- ----------------------------
When the Fund writes call or put options, an amount equal to the premium
received is recordedas an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. When a written option expires onits stipulated
expiration date or the Fund enters into a closing purchase transaction, the Fund
realizes again or loss without regard to any unrealized gain or loss on the
underlying security, and the liabilityrelated to such option is extinguished.
When a written call option is exercised, the Fund realizes again or loss from
the sale of the underlying security, and the proceeds of the sale are
increasedby the premium originally received. When a written put option is
exercised, the amount of thepremium originally received will reduce the cost of
the security which the Fund purchases uponexercise. There is a risk of loss
from a change in value of such options which may exceed the relatedpremiums
received.
Upon the purchase of a call option or aprotective put option by the Fund, the
premium paid is recorded as an investment and subsequentlymarked-to-market to
reflect the current market value of the option. If an option which the Fundhas
purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount ofthe cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gainor loss, depending on whether the
sale proceeds from the closing sale transaction are greater or lessthan the cost
of the option. If the Fund exercises a purchased put option, the Fund will
realize a gainor loss from the sale of the underlying security, and the proceeds
from such sale will be decreased bythe premium originally paid. If the Fund
exercises a purchased call option, the cost of the securitywhich the Fund
purchases upon exercise will be increased by the premium originally paid.
G. Futures Contracts
- -- -----------------
The Fund may enter into financial futures contracts for hedging purposes or to
increase total return. Upon entering into a futures contract, the Fund is
required to deposit with a broker an amount of cashor securities equal to the
minimum "initial margin" requirement of the futures exchange on which
thecontract is traded. Subsequent payments ("variation margin") are made or
received by theFund each day, dependent on the daily fluctuations in the value
of the underlying index, and arerecorded for financial reporting purposes as
unrealized gains or losses by the Fund. Whenentering into a closing
transaction, for book purposes, the Fund will realize a gain or loss equalto the
difference between the value of the futures contract to sell and the futures
contract to buy. Futures contracts are valued at the most recent settlement
price, unless such price does not reflectthe fair market value of the contract,
in which case the position will be valued using methods approvedby the Board of
Directors of the Company.
Certain risks may arise upon entering intofutures contracts. The predominant
risk is that the changes in the value of the futures contract may notdirectly
correlate with changes in the value of the underlying securities. This risk may
decrease theeffectiveness of the Fund's hedging strategies and may also result
in a loss to the Fund.
13
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), aseparate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund'sinvestment adviser
pursuant to an Investment Advisory Agreement. Under the InvestmentAdvisory
Agreement, GSAM, subject to the general supervision of the Company's Board of
Directors,manages the Fund's portfolio. As compensation for the services
rendered under the AdvisoryAgreement and the assumption of the expenses related
thereto, GSAM is entitled to a fee,computed daily and payable monthly, at an
annual rate equal to .60% of the Fund's average daily netassets.
GSAM also acts as the Fund's administratorpursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administersthe Fund's
business affairs, including providing facilities. As compensation for the
servicesrendered pursuant to the Administration Agreement, the Fund pays GSAM a
fee, computeddaily and payable monthly, at an annual rate equal to .15% of the
Fund's average daily net assets.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" (excludingadvisory, administration, service plan and transfer agent
fees and litigation, indemnification, taxes,interest, brokerage commissions and
extraordinary expenses) until further notice to the extent suchexpenses exceed
..06% of the average daily net assets of the Fund. For the year ended January
31,1997, these expense reimbursements amounted to $72,441 and Goldman Sachs owed
the Fund $8,717at year end.
Goldman Sachs serves as the Distributor ofshares of the Fund pursuant to a
distribution agreement and receives no fee. Goldman Sachsalso serves as the
Transfer Agent of the Fund for a fee.
4. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line of
creditfacility. In addition, the Fund participates in a $50,000,000 committed,
unsecured revolving lineof credit facility. Both facilities are to be used
solely for temporary or emergency purposes. Under the most restrictive
arrangement, the Fund must own securities having a market value inexcess of 300%
of the total bank borrowings. The interest rate on the borrowings is based on
theFederal Funds rate. The committed facility also requires a fee to be paid
based on the amount of thecommitment which has not been utilized. During the
year ended January 31, 1997, the Fund did nothave any borrowings under these
facilities.
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities ofsecurities (excluding short-term
investments and options) for the year ended January 31, 1997 were$92,601,511 and
$112,186,001, respectively.
For the year ended January 31, 1997, optiontransactions in the Fund were as
follows:
<TABLE>
<CAPTION>
Put Options written Contracts Premium Received
- ----------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period -- $ --
Options written 240 40,466
Options expired (240) (40,466)
- ----------------------------------------------------
Balance outstanding,
end of period -- $ 0
- ----------------------------------------------------
</TABLE>
Certain risks arise related to written call or put options from the possible
inability of counterpartiesto meet terms of their contracts.
For the year ended January 31, 1997, GoldmanSachs earned approximately $22,000
of brokerage commissions from portfolio transactions executedon behalf of the
Fund.
14
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, thevalue of the underlying
securities, including accrued interest, is required to equal or exceed thevalue
of the repurchase agreement. The underlying securities for all repurchase
agreements are held insafekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements withGSAM, transfer uninvested cash balances into joint accounts, the
daily aggregate balance of which isinvested in one or more repurchase
agreements. The underlying securities for the repurchaseagreements are U.S.
Treasury obligations. At January 31, 1997, the Fund had an undividedinterest
in the repurchase agreements in the following joint account which equaled
$4,100,000in principal amount. At January 31, 1997, the repurchase agreements
held in this joint account,along with the corresponding underlying securities
(including the type of security, market value,interest rate and maturity date)
were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns Securities, dated 01/31/97, repurchase price
$800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26; FNMA:
$720,411,516, 5.50% - 8.00%, 02/01/09 -09/01/26; FHLMC:
77,372,676, 6.0% -$ 8.0%, 04/01/98 - 07/01/26)
$800,000,000 5.63% 02/03/97 $ 800,000,000
Nomura Securities, dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.5% - 10.25%
01/15/20 - 01/20/27)
100,000,000 5.65 02/03/97 100,000,000
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.375%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535 05/15/02 - 11/15/03)
201,800,000 5.60 02/03/97 201,800,000
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,101,800,000
- --------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, theMid-Cap Equity Fund has
reclassified $8,454 from paid-in capital to distributions in excess of
netinvestment income. These reclassifications have no impact on the net asset
value of the Fund and isdesigned to present the Fund's capital accounts on a tax
basis.
9. OTHER MATTERS
As of January 31, 1997, The Goldman, Sachs & Co. Employees Profit Sharing and
Retirement IncomePlan was the beneficial owner of approximately 98% of the
outstanding shares of the Fund.
15
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of GoldmanSachs Mid-Cap Equity Fund:
We have audited the accompanying statement ofassets and liabilities of Goldman
Sachs Mid-Cap Equity Fund, one of the portfolios constituting Goldman Sachs
Equity Portfolios, Inc., including the statement of investments, as of January
31, 1997, and the relatedstatement of operations and the statement of changes in
net assets and the financial highlights for the periodspresented. These
financial statements and the financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlightsbased on our audits.
We conducted our audits in accordance withgenerally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtainreasonable assurance about whether the financial statements and the
financial highlights are free ofmaterial misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts anddisclosures in
the financial statements. Our procedures included confirmation of securities
owned as of January 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accountingprinciples used and significant
estimates made by management, as well as evaluating the overall
financialstatement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in allmaterial respects, the financial position of
Goldman Sachs Mid-Cap Equity Fund as of January 31, 1997, theresults of its
operations and the changes in its net assets and the financial highlights for
the periods presented, inconformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
16
<PAGE>
Goldman Sachs
1 New York Plaza
New York, NY 10004
DIRECTORS
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser, Administrator,
Distributor and Transfer Agent
17
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
The U.S. equity market rewarded investors with excellent returns once
again in the 12-month period ended January 31, 1997. Most European markets
achieved significant gains as well, with several outpacing the U.S., while the
performance of Asian markets varied widely. We are pleased to report that most
of the Goldman Sachs equity funds performed very well in this generally
favorable global equity environment.
U.S. Stocks Continued to Climb Amid Heightened Volatility
The U.S. stock market surged to record levels during the period under
review, rising an impressive 26.3% (as measured by the Standard & Poor's 500
stock index). During 1996, the market advanced in a "staircase" pattern, where
notable gains are achieved within a relatively short time and are followed by a
period of choppy trading. For example, after a run-up from January through
mid-February, market volatility notably increased, as investor sentiment
vacillated between two contradictory concerns. With some economic news,
investors feared that the economy was growing too quickly, making higher
inflation a possibility, while other news caused them to worry that the economy
was slowing, putting earnings at risk. In May, investors briefly overcame their
fears and sent the market higher, but their concerns quickly re-emerged and
caused the market to settle into another choppy trading range that culminated in
a sharp sell-off in July.
By August, sentiment significantly improved when data indicated that
earnings growth was more resilient than generally expected and inflation
remained under control. Thus reassured, investors propelled stocks to record
highs during the second half of the period, with the Dow Jones Industrial
Average crossing the 6000 mark for the first time by mid-October. The ascent
continued through the end of the period, with the Dow climbing to 7000 by
mid-February 1997.
Though small-cap stocks led the market during the first half of the
year, the post-July rally was dominated by large-cap, growth companies.
Furthermore, the rally was very narrowly focused, with a handful of large-cap
stocks (primarily in the technology, finance and pharmaceutical sectors)
contributing substantially to the S&P 500 index's performance for the period.
After a Weak Start, Economic Growth Rebounded, Then Moderated
When the period began, lackluster consumer spending and the General
Motors strike restrained economic growth, but the economy still advanced faster
than expected, with first-quarter real GDP growth of 2.0% (annualized). Momentum
accelerated even more dramatically during the second quarter, as industrial
activity, automobile sales and home sales all showed significant improvement. As
a result, second-quarter real GDP rose a robust 4.7% (annualized), its highest
rate in two years.
The economy's torrid growth cooled markedly during the third quarter
with an annualized real GDP growth of 2.1%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. This slowdown proved to be
temporary, however, as the economy strengthened from October through December.
Fourth-quarter real GDP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table of Contents
<S> <C>
Introduction/Market Overview............................................. 1
Goldman Sachs Balanced Fund.............................................. 4
Goldman Sachs Select Equity Fund......................................... 14
Goldman Sachs Growth and Income Fund..................................... 22
Goldman Sachs Capital Growth Fund........................................ 28
Goldman Sachs Small Cap Equity Fund...................................... 34
Goldman Sachs International Equity Fund.................................. 40
Goldman Sachs Asia Growth Fund........................................... 48
Financial Statements..................................................... 56
Notes to Financial Statements............................................ 64
Financial Highlights..................................................... 74
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
growth was revised to 3.9% (annualized), reflecting a narrowing trade deficit,
rising consumer spending and accelerating manufacturing activity. Despite firm
growth, underlying inflation remained surprisingly mild. For all of 1996,
consumer prices rose only 2.9%. In January 1997, most indicators suggested that
the economy would continue to advance.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis
points in January 1996, just prior to the start of the period, in response to
generally poor year-end economic conditions. Though stronger than expected
growth shifted investor expectations from further Federal Reserve interest rate
cuts to potential tightening, the Fed then left rates unchanged. As of January
31, 1997, the Federal funds rate remained at 5.25%.
The Dollar Resumed Its Climb Against the Yen and the Mark Following a Brief July
Slide
During the period under review, the dollar continued to strengthen,
rising to a 47-month high against the yen and a 31-month high against the mark.
Though the dollar declined briefly in July along with the U.S. stock market, it
quickly rebounded in August and continued to rally through the end of the
period. The dollar's climb was reflective of several developments, including the
relative strength of the U.S. economy, reductions in the budget deficit and
controlled inflation. Despite the run-up, Goldman Sachs' economists do not
expect a major impact on U.S. growth in 1997, nor do they anticipate a major
decrease in exports, as the dollar's effect on U.S. trade flows is relatively
small and stretched out over time. Furthermore, domestic demand in Canada and
Mexico, which together accounted for nearly one-third of U.S. exports in 1996,
is expected to rise.
The International Market Environment: European Equities Performed Well, Japan
Declined Sharply and Asian Markets Were Mixed Amid Increased Volatility
During the period under review, most global economies experienced
modest growth, but long-awaited recoveries in Europe and Japan fell short of
expectations. In Europe, several major economies, such as Germany and France,
continued to be plagued by weaker than expected manufacturing activity and
record-high unemployment, while others, such as the U.K., clearly accelerated.
In contrast to the mixed economic conditions, most European equity markets
performed very well, buoyed by healthy corporate profits. Though the Japanese
economy strengthened, equities declined due to concerns regarding the
sustainability of earnings growth as well as fears that the newly elected
government would delay deregulation. In January 1997, the already weak Japanese
market sold off sharply when the government announced an austerity program that
was expected to curb growth. In other Asian countries, key elections heightened
political uncertainty throughout the region and a marked slowdown in economic
growth increased volatility.
Outlook in the U.S.: Economic Growth Is Expected to Continue to Strengthen
Goldman Sachs' economists expect first-quarter real GDP growth to
slow to just under 2.0% (annualized) due to a widening trade deficit. However,
this slowdown should not be interpreted as any change in economic fundamentals,
as underlying demand remains firm and consumer confidence, income and employment
trends continue to support consumer spending. The favorable economic environment
of moderate growth and low inflation appears likely to persist in the near term,
which could translate to a seventh year of profit growth for U.S. corporations
in 1997 and another good year for U.S. equities, though not likely as strong as
last year. As always, equity performance can be affected by changes in the
economic environment, such as higher than expected inflation, which could lead
to a Fed tightening by midyear, or an unforeseen faltering of economic growth.
After the outstanding performance of the past two years, it is
important to maintain realistic expectations from your equity investments. As
increased volatility during 1996 demonstrated, equities can go down as well as
up. Over the long run, however, stocks have historically outperformed other
asset classes, rewarding investors committed to a long-term investment horizon.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
A Major Addition to Our Active Equity Management Team
We are pleased to announce that we have recently acquired Liberty
Investment Management, a Tampa, Florida-based investment advisory firm with an
impressive 16-year track record. Liberty's Chief Investment Officer, Herbert
Ehlers, and his portfolio management team have assumed primary responsibility
for the Goldman Sachs Capital Growth Fund, which they will manage using a
"growth at a reasonable price" investment style. The Liberty group adds both
breadth and depth to the Goldman Sachs U.S. Active Equity team, and we look
forward to working with them.
In conclusion, thank you for making the Goldman Sachs equity funds part of
your long-term financial plan.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
March 3, 1997
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Balanced Fund seeks to provide investors with a
combination of long-term growth of capital and current income by investing in a
diversified portfolio that includes both equity and fixed income securities.
Under normal market conditions, the fund is expected to maintain an asset mix of
45% to 65% in equity securities, with the remainder (at a minimum 25%) in fixed
income securities. The fund's portfolio management team will review the fund's
asset mix on a regular basis and adjust it to reflect changes in the economic
environment.
Stocks are selected using a value style, identifying those judged to
be inexpensive relative to their expected long-term earnings and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, we actively manage the
portfolio within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
Performance Review: Equity, Fixed Income and Asset Allocation Contributed to
Strong Results
<TABLE>
<CAPTION>
Fund Total Return
(based on net Benchmark
asset value) Total Return+
------------ -------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 18.59% 15.51%
Class B (5/1/96 - 1/31/97)* 16.22% 14.99%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%).
We are pleased to report that during the period under review, the
fund's Class A and Class B shares outperformed the benchmark. In addition, the
fund's Class A shares ranked within the top 15% of the Lipper balanced fund
category (35th of 281) for the 12-month period ended January 31, 1997, according
to Lipper Analytical Services, Inc. (Please note that Lipper rankings do not
take sales charges into account and that past performance is not a guarantee of
future results. Class B shares were not ranked because they did not exist during
the full year.)
The equity and fixed income portions of the fund both performed
favorably, with equity investments contributing most to fund results. In
addition, our asset allocation decisions also benefited performance. During the
spring of 1996, we reduced the fund's equity weightings in favor of fixed income
investments, which worked in its favor when equities fell sharply in July. In
October, we increased the fund's equity weighting, just prior to a significant
rally in the stock market. As of January 31, 1997, the fund's asset mix based on
net assets was 54% in equities, 42% in fixed income and the remainder in cash
equivalents.
Best Performing Equity Investments Included Technology, Finance and Energy
Stocks
The fund's best performing stocks came from a wide range of
industries, particularly technology, finance and energy. Technology holdings
that performed well included Intel Corp., the dominant microprocessor
manufacturer, which we sold after it climbed sharply due to stronger than
expected personal computer sales and reached our target price, and Avnet, Inc.,
the second largest distributor of semiconductors and other electronic
components. In the financial sector, BankAmerica Corp. increased its focus on
aggressive capital management, and NationsBank Corp. began to realize the
benefits of cost cuts. Top-performing energy-related investments were Tosco
Corp., an oil refiner and distributor, which continued its ambitious acquisition
strategy, and Texaco Inc., which benefited from higher petroleum prices and a
successful restructuring program. Disappointing performers included three
companies that suffered from
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride.
One of the fund's new investments was Unicom Corp., an electric
utility that operates 12 nuclear units at six sites. Unicom generates excess
capital and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects. During
the period, we sold several stocks after they appreciated and reached our price
targets, including Anheuser-Busch Co., Inc., the world's largest brewer, and
Greenpoint Financial Corp., a New York-based thrift.
<TABLE>
<CAPTION>
Top 10 Equity Holdings as of January 31, 1997
Percentage of
Total
Company Line of Business Net Assets
<S> <C> <C>
Aetna Inc. Healthcare 1.9%
Management
Tenet Healthcare Corp. Hospitals 1.9%
Cigna Corp. Insurance 1.7%
Lear Corp. Autoparts/Original 1.7%
Equipment
Brunswick Corp. Pleasure 1.7%
Boats/Marine
Engines
Goodyear Tire & Rubber Co. Tire and Rubber 1.6%
Products
Dean Witter Discover & Co. Financial Services 1.6%
Avnet, Inc. Electronic 1.5%
Components
Distributor
Philip Morris Companies, Tobacco and Food 1.5%
Inc. Products
Owens-Illinois, Inc. Packaging 1.5%
</TABLE>
Corporate and Emerging Market Debt Sectors Led the Fund's Fixed Income
Performance
The fixed income sectors that contributed most to the fund's
performance were its corporate bond holdings and emerging market debt
securities. Corporate bonds benefited when many companies reported positive
earnings growth throughout the period. Emerging market debt was one of the
fund's smaller allocations during the year but performed extremely well due to
positive emerging country credit trends and supportive cash flows resulting from
global investors' persistent search for incremental yield. In addition, the
fund's investments in the mortgage and asset-backed sectors also performed well,
reflecting healthy investor demand.
The fund's largest fixed income allocation was mortgage-backed
securities (MBS), which accounted for a 12.9% position in terms of total net
assets, up from 10.0% a year ago. The MBS sector fared particularly well during
the first half of the period, when interest rates rose and prepayment fears
abated. We gradually trimmed the fund's exposure in the corporate bond sector to
9.8%, down from 13.2% a year ago, as it became more fully valued. The fund's
asset-backed securities (ABS) weighting was 4.8%, and they continued to offer
incremental yield over similar duration Treasuries. U.S. Treasuries, with an
8.5% allocation, were used together with futures to manage the fund's interest
rate risk. Finally, 3.3% of the fund was invested in emerging market debt, where
we stressed higher credit, short-duration bonds, and 0.7% was invested in
government agency securities.
Outlook
We believe that, overall, the stock market is moderately overvalued
and is therefore unlikely to match the strong return it achieved in 1996.
However, it is important to note that even after last year's rally, the fund's
equity holdings continue to be attractively valued. We expect that our emphasis
on using extensive fundamental research to identify stocks selling below their
- --------------------------------------------------------------------------------
5
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
- --------------------------------------------------------------------------------
intrinsic value will continue to serve us well in 1997's potentially more
challenging stock market environment.
We have a relatively cautious view of the fixed income markets in the
coming months due to a possible tightening by the Federal Reserve later in the
year, which would impact the prices of fixed income securities. In the MBS
market, the pace of mortgage prepayments remains stable, and we continue to
identify specific securities that present attractive investment opportunities.
We have a moderately optimistic view for the corporate sector, where we will
continue to emphasize short-duration bonds that offer attractive incremental
yield over Treasuries. Finally, we believe ABS still offer attractive value
relative to other similarly rated securities, and we expect new supply to
continue to be met with enthusiastic demand.
Going forward, we will continue to actively allocate the portfolio's
asset mix between the equity and fixed income sectors to take advantage of
changing market conditions throughout the coming year.
/s/ Ronald E. Gutfleish /s/ Jonathan A. Beinner
Ronald E. Gutfleish Jonathan A. Beinner
Senior Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ G. Lee Anderson /s/ c. Richard Lucy
G. Lee Anderson C. Richard Lucy
Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ Eileen A. Aptman /s/ Richard H. Buckholz
Eileen A. Aptman Richard H. Buckholz
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Fixed Income
March 3, 1997
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 index ("S&P 500") and the Lehman
Brothers Aggregate Bond Index (LBABI)) are shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class A Class A
(w/sales charge) (no sales charge) LBABI S&P 500
---------------- ----------------- ----- -------
<S> <C> <C> <C> <C>
10/12/94 9,450 10,000 10,000 10,000
1/31/95 9,532 10,087 10,233 10,184
1/31/96 12,211 12,922 11,966 14,123
1/31/97 14,488 15,331 12,357 17,842
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class B Class B
(no redemp. charge) (w/redemp. charge) LBABI S&P 500
------------------- ------------------ ----- -------
<S> <C> <C> <C> <C>
5/1/96 10,000 10,000 10,000 10,000
1/31/97 11,622 11,122 10,642 12,218
</TABLE>
---------------------------------------
Average Annual Total Return
---------------------------------------
One Year Since Inception/(a)/
------------------------------- ------------------ -------------------
Class A, no sales charge 18.59% 20.32%
------------------------------- ------------------ -------------------
Class A, w/sales charge 12.07% 17.41%
------------------------------- ------------------ -------------------
Class B, no redemption charge N/A 16.22%/(b)/
------------------------------- ------------------ -------------------
Class B, w/redemption charge N/A 11.22%/(b)/
------------------------------- ------------------ -------------------
/(a)/ Class A and B shares commenced operations October 12, 1994 and May 1,
1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve
months of operations.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--53.0%
Airlines--1.8%
7,700 AMR Corp.* $ 619,850
32,600 Continental Airlines, Inc.* 908,725
- --------------------------------------------------------------------
1,528,575
- --------------------------------------------------------------------
Appliance Manufacturer--0.9%
28,600 Sunbeam Corp. 793,650
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.7%
38,200 Lear Corp.* 1,427,725
- --------------------------------------------------------------------
Auto/Vehicle--1.0%
25,600 Ford Motor Co. 824,400
- --------------------------------------------------------------------
Banks--4.5%
10,300 BankAmerica Corp. 1,149,738
5,300 Chase Manhattan Corp. 490,250
9,400 Fleet Financial Group, Inc. 507,600
9,300 NationsBank Corp. 1,004,400
7,400 Republic Bank of New York Corp. 655,825
- --------------------------------------------------------------------
3,807,813
- --------------------------------------------------------------------
Chemicals-Commodity--1.1%
31,400 Geon Co. 588,750
7,600 Union Carbide Corp. 344,850
- --------------------------------------------------------------------
933,600
- --------------------------------------------------------------------
Defense--2.1%
17,900 McDonnell Douglas Corp. 1,203,775
6,200 Northrop Grumman Corp. 484,375
1,900 Thiokol Corp. 106,400
- --------------------------------------------------------------------
1,794,550
- --------------------------------------------------------------------
Department Stores--0.8%
13,900 Sears Roebuck & Co. 667,200
- --------------------------------------------------------------------
Electric Utilities--2.8%
5,500 CMS Energy Corp. 184,250
43,000 Long Island Lighting Co. 978,250
49,600 Unicom Corp. 1,171,800
- --------------------------------------------------------------------
2,334,300
- --------------------------------------------------------------------
Food--1.5%
40,200 Chiquita Brands International, Inc. 587,925
4,000 Unilever Inc. 658,000
- --------------------------------------------------------------------
1,245,925
- --------------------------------------------------------------------
Forest Products--1.1%
12,400 Georgia Pacific Corp. 912,950
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
23,300 Baxter International, Inc. 1,074,713
- --------------------------------------------------------------------
Healthcare Management--3.8%
20,400 Aetna Inc. 1,611,600
57,800 Tenet Healthcare Corp.* 1,560,600
- --------------------------------------------------------------------
3,172,200
- --------------------------------------------------------------------
Home Builders--1.8%
18,200 Centex Corp. 709,800
28,200 Lennar Corp. 750,825
- --------------------------------------------------------------------
1,460,625
- --------------------------------------------------------------------
Insurance-Life--2.5%
9,500 Cigna Corp. 1,440,438
11,700 Lincoln National Corp. 627,413
- --------------------------------------------------------------------
2,067,851
- --------------------------------------------------------------------
Insurance-Property and Casualty--1.6%
9,200 Allmerica Financial Corp. 336,950
16,100 Partner Re Holding Ltd. 571,550
12,700 Tig Holdings, Inc. 439,738
- --------------------------------------------------------------------
1,348,238
- --------------------------------------------------------------------
Integrated Oil--2.6%
8,100 Atlantic Richfield Co. 1,071,225
10,300 Texaco, Inc. 1,090,513
- --------------------------------------------------------------------
2,161,738
- --------------------------------------------------------------------
Logistics/Rail--1.0%
30,400 Canadian Pacific Ltd. 824,600
- --------------------------------------------------------------------
Logistics/Trucking--1.2%
39,600 Consolidated Freightways, Inc. 1,004,850
- --------------------------------------------------------------------
Oil Refining & Marketing--1.9%
12,800 Ashland Inc. 552,000
11,300 Tosco Corp. 1,000,050
- --------------------------------------------------------------------
1,552,050
- --------------------------------------------------------------------
Packaging--1.5%
52,500 Owens-Illinois Inc.* 1,246,875
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
8
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Recreational Products--1.7%
55,500 Brunswick Corp. $ 1,394,438
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.5%
13,100 Lehman Brothers Holdings, Inc. 414,288
- --------------------------------------------------------------------
Semiconductors & Electronics--1.5%
20,700 Avnet Inc. 1,280,813
- --------------------------------------------------------------------
Software--0.5%
13,800 Autodesk Inc. 436,425
- --------------------------------------------------------------------
Specialty Finance--1.6%
34,200 Dean Witter Discover & Co. 1,303,875
- --------------------------------------------------------------------
Steel--1.0%
20,200 AK Steel Holding Corp. 813,050
- --------------------------------------------------------------------
Supermarkets--2.0%
56,300 Fleming Companies, Inc. 907,838
24,600 Supervalu, Inc. 759,525
- --------------------------------------------------------------------
1,667,363
- --------------------------------------------------------------------
Textiles--1.3%
27,500 Fruit of The Loom, Inc.* 1,103,438
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--1.6%
24,000 Goodyear Tire & Rubber Co. 1,308,000
- --------------------------------------------------------------------
Tobacco--2.8%
4,200 Loews Corp. 415,275
10,700 Philip Morris Companies, Inc. 1,271,963
12,100 RJR Nabisco, Inc. 396,275
8,500 Universal Corp. 263,500
- --------------------------------------------------------------------
2,347,013
- --------------------------------------------------------------------
Total Common Stocks
(Cost $35,773,086) $44,253,131
====================================================================
Preferred Stocks--0.1%
Media Content--0.1%
63 Time Warner, Inc. 10.25% $ 69,064
- --------------------------------------------------------------------
Tobacco--0.0%
3,400 RJR Nabisco, Inc., class C 9.25% 22,525
- --------------------------------------------------------------------
Total Preferred Stocks
(Cost $84,320) $ 91,589
====================================================================
Rights--1.1%
Forest Products--0.7%
42,000 Stone Container Corp. * exp. 08/08/98 $ 567,000
Technology Capital Goods--0.4%
10,800 Teradyne, Inc.* exp. 03/26/00 333,450
- --------------------------------------------------------------------
Total Rights
(Cost $923,718) $ 900,450
====================================================================
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Fixed Income--41.5%
Asset-Backed Securities--4.8%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 102,655
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 249,609
Case Equipment Loan Trust, Series 1995-A, Class A
74,286 7.30 03/15/02 75,124
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/03 139,343
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
74,323 5.80 06/15/02 74,137
Discover Card Master Trust 1994-2, Class A
70,000 5.83 10/16/04 70,613
Discover Card Master Trust 1996-2, Class A
110,000 5.70 07/18/05 110,550
Discover Card Master Trust 1996-4, Class A
740,000 5.86 10/16/13 751,329
Discover Card Master Trust 1996-4, Class B
420,000 6.03 10/16/13 424,460
Fasco Auto Trust, Series 1996-1
266,114 6.65 11/15/01 267,223
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 200,936
Navistar Financial Trust, Series 1995-A, Class A2
134,590 6.55 11/20/01 135,347
Navistar Financial Trust, Series 1995-b, Class A3
120,000 6.05 04/15/02 120,000
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 733,026
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Asset-Backed Securities (continued)
Sears Credit Card Master Trust, Series 1995-3, Class A
$ 70,000 7.00% 10/15/04 $ 71,268
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 117,322
Standard Credit Card Master Trust, Series 1995-1, Class A
360,000 8.25 01/07/07 389,135
- --------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $4,019,726) $ 4,032,077
====================================================================
Corporate Bonds--9.8%
Finance Bonds--3.6%
BankAmerica Corp.
$ 500,000 7.75% 07/15/02 $ 520,600
Capital One Bank
200,000 8.33 02/10/97 200,056
250,000 8.13 02/27/98 254,825
Conseco Finance
120,000 8.70 11/15/26 122,912
Continental Bank
100,000 12.50 04/01/01 120,501
Countrywide Funding Corp.
100,000 6.08 07/14/99 99,368
150,000 8.00 12/15/26 147,029
Edison Mission Energy Funding Corp.
100,000 6.77 09/15/03 99,852
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 248,888
Golden West Financial Corp.
200,000 10.25 12/01/00 223,894
Meditrust, Inc.
120,000 7.82 09/10/26 128,021
Mic Finance Trust
80,000 8.38 02/01/27 80,442
Olympic Financial Ltd.
95,000 13.00 05/01/00 107,350
PXRE Cap Trust
65,000 8.85 02/01/27 65,847
Signet Banking Corp.
$ 500,000 9.63% 06/01/99 $ 531,870
Washington Real Estate
55,000 7.13 08/13/03 54,745
- --------------------------------------------------------------------
Total Finance Bonds
(Cost $3,035,271) $ 3,006,200
====================================================================
Industrial Bonds--5.6%
360 Communications Co.
$ 195,000 7.13% 03/01/03 $ 193,518
Auburn Hills Trust
90,000 12.00 05/01/20 134,352
Blockbuster Entertainment
50,000 6.63 02/15/98 49,995
Chelsea GCA Realty
226,000 7.75 01/26/01 228,362
DVI Equipment Lease Trust
434,745 6.55 07/10/04 434,605
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,038
General Motors Acceptance Corp.
170,000 7.13 05/10/00 173,087
210,000 5.63 02/05/01 202,810
H + T Master Trust, Class A2
220,000 8.18 08/15/02 220,000
K Mart Corp.
40,000 9.55 06/30/98 40,290
40,000 9.60 09/15/98 40,845
Loewen Group International
50,000 7.75 10/15/01 50,000
News America Holdings, Inc.
160,000 7.50 03/01/00 163,784
Northwest Airlines
217,076 8.97 01/02/15 226,558
NWA
68,025 8.26 03/10/06 71,149
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
10
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Corporate Bonds (continued)
Industrial Bonds (continued)
Oryx Energy Co.
$ 245,000 9.50% 11/01/99 $ 259,252
RJR Nabisco Inc.
135,000 8.00 07/15/01 136,184
160,000 8.63 12/01/02 164,654
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 119,600
Tele-Communications, Inc.
295,000 6.19 09/15/03 292,956
125,000 9.65 10/01/03 133,951
20,000 6.82 09/15/10 19,899
Tenet Healthcare Corp.
60,000 9.63 09/01/02 65,100
Time Warner, Inc.
375,000 7.45 02/01/98 378,776
125,000 9.63 05/01/02 139,444
250,000 7.98 08/15/04 256,243
Tosco Corp.
110,000 7.00 07/15/00 110,793
U.S. Home Corp.
70,000 7.95 03/01/01 68,250
USI American Holdings Corp.
60,000 7.25 12/01/06 58,540
Viacom International
80,000 9.13 08/15/99 81,800
95,000 10.25 09/15/01 103,550
- --------------------------------------------------------------------
Total Industrial Bonds
(Cost $4,650,412) $ 4,660,385
====================================================================
Utility Bonds--0.6%
Arkla Inc.
$ 250,000 9.20% 12/18/97 $ 255,665
Central Maine Power Co.
100,000 7.38 01/01/99 100,138
160,000 7.45 08/30/99 159,134
- --------------------------------------------------------------------
Total Utility Bonds
(Cost $521,661) $ 514,937
====================================================================
- --------------------------------------------------------------------
====================================================================
Total Corporate Bonds
(Cost $8,207,344) $ 8,181,522
====================================================================
Government Bonds--1.2%
Australia Commonwealth
AUD1,000,000 7.50% 07/15/05 $ 769,138
Province of Quebec
$ 200,000 13.25 09/15/14 238,976
- --------------------------------------------------------------------
Total Government Bonds
(Cost $1,033,387) $ 1,008,114
====================================================================
Emerging Market Debt--3.3%
Argentina Bocan
$ 144,111 5.69% 04/01/01 $ 138,490
Asia Pulp and Paper International Finance Co.
100,000 7.26(a) 04/03/97 98,614
200,000 8.30 06/28/99 198,118
90,000 10.25 10/01/00 90,754
Banco De Commercio Exterior
30,000 8.63 06/02/00 30,979
BCO De Colombia
110,000 8.63 06/02/00 113,590
Bridas Corp.
170,000 12.50 11/15/99 181,433
Bridas Corp. Gtd Euro Medium
60,000 9.50 06/17/99 60,147
Corp. Andina de Fomento
160,000 7.25 04/30/98 161,774
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,440
Empresa Col Petroleos
80,000 7.25 07/08/98 80,566
Financiera Energy Nacional
230,000 5.88 02/17/98 226,062
60,000 8.13 04/09/98 60,347
200,000 8.46 06/19/98 201,876
80,000 9.38 06/15/06 82,847
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Emerging Market Debt (continued)
Grupo Industrial Durango
$ 120,000 12.00% 07/15/01 $ 127,978
Grupo Televisa
20,000 11.38 05/15/03 21,425
Imexsa Export Trust
100,000 10.13 05/31/03 104,190
Inst Fomento Industrial
290,000 8.38 07/29/01 295,707
PT Indah Kiat
50,000 8.88 11/01/00 49,518
Republic of Argentina
89,600 8.63 04/06/98 90,730
150,000 5.63 04/01/00 75,600
Sampoerna International
50,000 8.38 06/15/06 51,208
YPF Sociedad Anonima
111,483 7.50 10/26/02 113,132
- --------------------------------------------------------------------
Total Emerging Market Debt
(Cost $2,710,872) $ 2,766,525
====================================================================
Government Agency Obligations--0.7%
Federal National Mortgage Association
$ 520,000 8.50% 02/01/05 $ 545,917
- --------------------------------------------------------------------
Total Government Agency Obligations
(Cost $566,963) $ 545,917
====================================================================
Mortgage Backed Obligations--12.9%
Federal Home Loan Mortgage Corp.
$ 2,000,000 7.50% TBA-30yr/(b)/ $ 2,003,740
Federal National Mortgage Association
2,000,000 8.00 TBA-30yr/(b)/ 2,042,500
1,000,000 6.50 TBA-15yr/(b)(d)/ 990,930
95,702 8.50 09/01/06/(d)/ 100,068
119,291 8.50 03/01/07/(d)/ 124,733
677,419 8.50 03/01/10/(d)/ 707,985
1,000,000 3.50 05/25/19 869,370
====================================================================
Government National Mortgage Association
$ 1,000,000 7.50% TBA-30yr/(b)/ $ 1,002,180
963,086 7.50 05/15/23 969,404
1,005,709 7.00 07/15/23 990,311
1,000,000 7.00 08/15/23 984,690
- --------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $10,687,107) $10,785,911
====================================================================
Sovereign Credit--0.2%
State of Israel
$ 150,000 6.38% 12/15/05 $ 141,983
- --------------------------------------------------------------------
Total Sovereign Credit
(Cost $139,082) $ 141,983
====================================================================
U.S. Treasury Obligations--8.5%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13/(d)/ $ 666,592
120,000 8.75 05/15/17/(d)/ 144,619
30,000 8.88 08/15/17 36,595
580,000 8.75 05/15/20 704,068
160,000 8.75 08/15/20/(d)/ 194,400
680,000 7.63 02/15/25 743,430
United States Treasury Notes
1,200,000 6.88 08/31/99 1,223,628
1,000,000 6.13 07/31/00 999,220
900,000 7.88 11/15/04 977,202
United States Treasury Principal Only Stripped Securities/(a)/
80,000 6.03/(a)/ 08/15/99 68,774
740,000 6.55/(a)/ 11/15/04/(d)/ 447,552
320,000 6.59/(a)/ 05/15/05 186,781
2,200,000 7.09/(a)/ 02/15/19 473,968
890,000 7.10/(a)/ 05/15/20 175,205
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $7,102,563) $ 7,042,034
====================================================================
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
12
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Yankee Bonds--0.1%
Korea Electric Power
$ 93,927 7.40% 04/01/16 $ 93,712
- --------------------------------------------------------------------
Total Yankee Bonds
(Cost $90,825) $ 93,712
====================================================================
Total Fixed Income
(Cost $34,557,869) $34,597,795
- --------------------------------------------------------------------
Short-Term Obligations--0.2%
Argentina Treasury Bill
$ 40,000 6.00%/(a)/ 02/14/97 $ 39,896
Banco Nacional de Com
50,000 10.63 06/23/97 51,291
Republic of Argentina
90,000 6.29(a) 05/16/97 88,166
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $179,353) $ 179,353
====================================================================
Repurchase Agreement--11.0%
Joint Repurchase Agreement Account
$ 9,200,000 5.63% 02/03/97/(d)/ $ 9,200,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $9,200,000) $ 9,200,000
====================================================================
Total Investments
(Cost $80,718,346)/(c)/ $89,222,318
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 9,461,225
Gross unrealized loss for investments in which
cost exceeds value (981,857)
- --------------------------------------------------------------------
Net unrealized gain $ 8,479,368
====================================================================
<CAPTION>
- --------------------------------------------------------------------
====================================================================
Futures contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain(Loss)
- ------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
2-Year U.S. Treasury Note 5 March 1997 $(3,438)
10-Year U.S. Treasury Bond 15 March 1997 (25,500)
30-Year U.S. Treasury Bond 2 March 1997 (3,969)
S&P 500 Stock Index 4 March 1997 123,100
- -------------------------------------------------------------------
$90,193
- -------------------------------------------------------------------
</TABLE>
* Non-income producing security.
/(a)/ The interest rate disclosed for these securitites represents effective
yields to maturity.
/(b)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally +/-2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(c)/ The aggregate cost for federal income tax purposes is $80,742,950.
/(d)/ Portions of these securities are being segregated as collateral for
futures contracts, TBA (To Be Assigned) securities, covered short sales
and/or mortgage dollar rolls.
/(e)/ Each 2-Year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 10-Year and 30-Year U.S. Treasury Bond contract represents
$100,000 in notional par value. Each S&P 500 Stock Index represents
$50,000 in notional par value. The total net notional amount and market
value at risk are $2,900,000 and $4,463,969, respectively. The
determination of notional amounts does not consider market risk factors
and therefore notional amounts as presented here are indicative only of
volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Select Equity Fund is designed to provide investors with
a broadly diversified portfolio that can be used as a core holding on which to
build an investment program. The fund's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of predominantly large-cap and
blue-chip equity securities representing all major sectors of the U.S. economy.
The fund's mandate is to remain fully invested with industry diversification,
capitalization and risk characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's relative
performance compared with the market comes almost exclusively from stock
selection within sectors. We believe the fund offers investors an attractive
combination of value and growth, without assuming more risk than the broad
market.
The fund employs a disciplined approach that combines fundamental
investment research provided by the Goldman Sachs Global Investment Research
Department with quantitative analysis generated by the Asset Management
Division's proprietary model. Our quantitative system evaluates each stock using
many different criteria including valuation measures, growth expectations,
earnings momentum and risk. It also objectively analyzes the impact of current
economic conditions on different types of stocks. Those stocks ranked highly by
both our quantitative model and by Goldman Sachs research are selected for the
fund's portfolio.
Performance Review: Quantitative Model Contributed to the Fund's Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 -1/31/97)* 23.75% 26.25%
Class B (5/1/96 -1/31/97)* 18.59% 22.18%
Institutional (1/31/96 -1/31/97)* 24.63% 26.25%
Service (6/7/96 - 1/31/97)* 15.92% 18.36%
</TABLE>
- --------------------------------------------------------------------------------
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B and Service shares is a cumulative total
return (not annualized) from their inception through the end of the period.
During the period, the fund achieved strong absolute returns, with most of
its gains occurring in the second half of the year. When the period began, the
fund performed well primarily due to successful stock selection. The Research
Department's qualitative ratings were particularly helpful early in the period,
when its analysis helped the fund steer clear of underperforming stocks. During
the latter half of the year, most of the fund's positive performance came from
the Asset Management Division's quantitative model.
Of the three themes considered by our quantitative model -- value, growth
and low-risk -- stocks with value-oriented features, such as low price/earnings
ratios, received the highest weighting during most of the period. This emphasis
did not work in the fund's favor during the second and third quarters of 1996,
when stocks with growth characteristics (strong near-term growth expectations
and high price/earnings multiples) outperformed value-oriented stocks. In the
fourth quarter, however, our emphasis on value proved to be extremely
successful, as stocks with value characteristics soared to record highs and
outperformed the other themes by a substantial margin. As a result of this
dramatic rebound, value emerged as the dominant investment style for the year.
Despite the positive results from our quantitative model, the fund
underperformed the index because it was
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
unable to keep pace with the dramatic outperformance of the largest 50 stocks,
which accounted for a significant portion of the market's gains. In addition,
the fund held a slightly higher cash position than usual as the volume of new
assets invested in the fund rapidly increased, particularly during the fourth
quarter, when the top 50 stocks surged. To address this issue, at the end of
1996 the fund instituted new procedures to ensure that cash balances will be
invested more rapidly. Furthermore, we expect that any future market advance
will broaden to include stocks beyond the top 50.
The fund's best performers were large-capitalization stocks from a wide
range of sectors, including banks (BankAmerica Corp. and NationsBank Corp.),
technology companies (Intel Corp., Microsoft Corp. and IBM Corp.), consumer
staples (Procter & Gamble Co.), electrical equipment (General Electric Co.) and
tobacco (Philip Morris Companies, Inc.).
Stocks that fell short of our expectations included some of the fund's
utility, telecommunication and oil investments such as Unicom Corp., Airtouch
Communications, Inc. and Tenneco, Inc.
Portfolio Composition: Model Increasingly Favored Stocks With Defensive
Characteristics
As of January 31, 1997, the fund held 141 stocks. While its sector
exposures were generally in line with the S&P 500 index, the fund was
overweighted in electric/gas (5.8% for the fund versus 3.3% for the S&P 500) and
energy (10.1% versus 8.0%) and underweighted in consumer nondurables (10.2%
versus 12.9%) and telecommunications (3.9% versus 6.3%). These over- and
underweightings, as shown in Table II, were the result of the fund's stock
selection process and were not a reflection of our economic forecast for
specific sectors.
During the first quarter of 1996, the Fund's quantitative model favored
growth characteristics (such as earnings momentum and price momentum) and put a
smaller, but still positive, weight on stocks with value or low-risk
characteristics (e.g., low beta and low "disappointment" risk). As the year
progressed, the fund's strategy became somewhat more defensive as our
quantitative model increased its weighting in value and low-risk themes. This
shift was triggered by a number of indicators that pointed toward emerging
excesses in the equity market: Low cash cushions held by equity mutual funds,
the increasing volatility of equity prices, the record-low dividend yields and
the divergence in returns between stocks and bonds.
As a result of our more defensive posture, over the past year we gradually
increased the fund's weighting in energy-related companies such as Texaco Inc.
and Atlantic Richfield Co., both newcomers to the fund's 10 largest holdings. We
also decreased the fund's exposure to consumer noncyclicals, which includes
food/agriculture companies (e.g., IBP, Inc. and Kellogg Co.).
As of the end of the period, the fund's major valuation characteristics
were more attractive than the benchmark. These included a lower price/earnings
ratio based on 1997 estimated earnings (15.9x versus 17.3x for the S&P 500) as
well as a lower price/book ratio (3.0x versus 3.4x). The fund achieved these
favorable valuation levels while maintaining growth and risk characteristics in
line with those of the S&P 500.
Table I: Top 10 Portfolio Holdings as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
General Electric Co. Electronics 2.9%
Intel Corp. Semiconductors 2.8%
and Electronics
Exxon Corp. Petroleum and 2.2%
Natural Gas
Microsoft Corp. Computer Software 2.1%
Texaco Inc. Petroleum and 2.0%
Natural Gas
Merck & Co., Inc. Pharmaceuticals 1.9%
Atlantic Richfield Co. Petroleum and 1.7%
Natural Gas
Bristol-Myers Squibb Co. Pharmaceuticals 1.7%
Philip Morris Companies, Tobacco and Food 1.7%
Inc. Products
Travelers Group, Inc. Financial Services 1.6%
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
- --------------------------------------------------------------------------------
Table II: Sector Breakout as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Percentage S&P 500
Industry Sectors of Portfolio Index Difference
<S> <C> <C> <C>
Finance 17.8% 16.2% 1.6%
Consumer Nondurables 10.2% 12.9% -2.7%
Energy 10.1% 8.0% 2.1%
Health 9.6% 10.4% -0.8%
Technology 9.3% 10.9% -1.6%
Basic Industry 7.9% 7.1% 0.8%
Capital Spending 6.5% 5.6% 0.9%
Electric/Gas 5.8% 3.3% 2.5%
Miscellaneous 4.4% 5.0% -0.6%
Retail 4.3% 3.6% 0.7%
Telecommunications 3.9% 6.3% -2.4%
Consumer Services 3.8% 4.8% -1.0%
Consumer Durables 2.6% 2.5% 0.1%
Aerospace 1.8% 2.0% -0.2%
Transportation 1.1% 1.4% -0.3%
Cash 1.0% 0.0% 1.0%
</TABLE>
- --------------------------------------------------------------------------------
Outlook
Goldman Sachs expects the U.S. equity market to continue to advance in
1997, although returns will likely be more modest than the unusually strong
results of 1995 and 1996. In addition, we expect equity gains to broaden beyond
the top 50 stocks. In 1997, we will continue to maintain a balanced approach by
considering risk, value and growth simultaneously.
However, the relative importance of avoiding riskier stocks has increased in the
current market environment, which is likely to result in greater emphasis on
defensive stocks with below-average price volatility, attractive valuations and
lower possibility of near-term earnings disappointments.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
March 3, 1997
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class A Class A
(w/sales charge) (no/sales charge) S&P 500
---------------- ---------------- -------
<S> <C> <C> <C>
5/24/91 9,450 10,000 10,000
1/31/92 10,112 10,701 11,092
1/31/93 10,548 11,162 12,266
1/31/94 12,144 12,851 13,846
1/31/95 12,009 12,708 13,919
1/31/96 16,654 17,617 19,306
1/31/97 20,613 21,813 24,390
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class B Class B
(no redemption charge) (w/redemption charge) S&P 500
---------------------- --------------------- -------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 11,859 11,359 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Select Eq
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/15/95 10,000 10,000
1/31/96 12,014 12,029
1/31/97 14,983 15,197
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Select Eq
Serv. Class S&P 500
------------ -------
<S> <C> <C>
6/7/96 10,000 10,000
1/31/97 11,592 11,836
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
Average Annual Total Return
------------------------------------------------
One Year Since Inception/(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 23.75% 14.67%
- --------------------------------------------------------------------------------
Class A, w/sales charge 16.98% 13.54%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 18.59% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 13.59% /(b)/
- --------------------------------------------------------------------------------
Institutional Class 24.63% 28.04%
- --------------------------------------------------------------------------------
Service Class N/A 15.92% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
May 24, 1991, May 1, 1996, June 15, 1995 and June 7, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
17
<PAGE>
Statement of Investments
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks--97.3%
Aerospace--0.8%
43,600 United Technologies Corp. $ 3,041,100
- --------------------------------------------------------------------
Agency/Government--0.9%
93,800 Federal National Mortgage Assn. 3,705,100
- --------------------------------------------------------------------
Agriculture/Heavy Equipment--2.5%
25,100 Case Corp. 1,330,300
55,500 Caterpillar, Inc. 4,308,188
44,100 Conagra, Inc. 2,227,050
48,900 Tenneco, Inc. 1,956,000
- --------------------------------------------------------------------
9,821,538
- --------------------------------------------------------------------
Airlines--1.2%
19,700 AMR Corp.* 1,585,850
38,500 Delta Air Lines, Inc. 3,041,500
- --------------------------------------------------------------------
4,627,350
- --------------------------------------------------------------------
Alcohol--0.2%
21,600 Anheuser Busch Companies, Inc. 918,000
- --------------------------------------------------------------------
Appliance Manufacturer--1.0%
38,300 Emerson Electric Co. 3,782,125
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--0.3%
23,100 Cummins Engine, Inc. 1,215,638
- --------------------------------------------------------------------
Auto/Vehicle--1.5%
25,200 Chrysler Corp. 878,850
32,200 Ford Motor Co. 1,034,425
70,700 General Motors Corp. 4,171,300
- --------------------------------------------------------------------
6,084,575
- --------------------------------------------------------------------
Bank Holding Companies--0.4%
26,000 Comerica, Inc. 1,485,250
- --------------------------------------------------------------------
Banks--6.0%
33,550 Banc One Corp. 1,522,331
48,000 Bank of New York, Inc. 1,758,000
46,400 BankAmerica Corp. 5,179,400
12,900 Chase Manhattan Corp. 1,193,250
25,800 Citicorp 3,002,475
28,500 First Bank System, Inc. 2,166,000
34,400 First Chicago Corp. 1,965,100
6,400 First Union Corp. 535,200
48,400 NationsBank Corp. 5,227,200
4,500 Wells Fargo & Company $ 1,371,375
- --------------------------------------------------------------------
23,920,331
- --------------------------------------------------------------------
Beverages--1.6%
41,900 Coca Cola Co. 2,424,963
115,300 Pepsico, Inc. 4,021,088
- --------------------------------------------------------------------
6,446,051
- --------------------------------------------------------------------
Business Services--0.2%
19,100 Automatic Data Processing, Inc. 790,263
- --------------------------------------------------------------------
Chemicals-Commodity--2.1%
46,000 Dow Chemicals Co. 3,547,750
20,600 Du Pont EI de Nemours 2,258,275
68,900 Monsanto Co. 2,609,588
- --------------------------------------------------------------------
8,415,613
- --------------------------------------------------------------------
Chemicals-Specialty--1.0%
37,800 Allied Signal, Inc. 2,655,450
27,700 Morton International, Inc. 1,125,313
- --------------------------------------------------------------------
3,780,763
- --------------------------------------------------------------------
Commercial Services--0.3%
32,500 Interim Services, Inc.* 1,178,125
- --------------------------------------------------------------------
Communications Services Companies--1.5%
75,500 Airtouch Communications, Inc.* 1,953,563
96,100 Sprint Corp. 3,916,075
- --------------------------------------------------------------------
5,869,638
- --------------------------------------------------------------------
Communications Technology--0.8%
37,403 Lucent Technologies, Inc. 2,029,113
15,200 Motorola Inc. 1,037,400
- --------------------------------------------------------------------
3,066,513
- --------------------------------------------------------------------
Computers--0.9%
65,200 Hewlett Packard Co. 3,431,150
- --------------------------------------------------------------------
Computers & Peripherals--3.7%
45,400 Cisco Systems, Inc.* 3,166,650
35,000 Compaq Computer Corp.* 3,040,625
20,300 Eastman Kodak Co. 1,761,025
33,400 International Business Machines 5,252,150
51,100 Sun Microsystems, Inc.* 1,622,425
- --------------------------------------------------------------------
14,842,875
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Construction/Environmental Services--0.2%
13,300 Armstrong World Industries, Inc. $ 944,300
- --------------------------------------------------------------------
Consumer Staples--3.4%
51,700 American Home Products Corp. 3,276,488
13,300 Clorox Co. 1,577,713
60,200 Gillette Co. 4,906,300
33,400 Procter & Gamble Co. 3,857,700
- --------------------------------------------------------------------
13,618,201
- --------------------------------------------------------------------
Defense--1.4%
5,400 Boeing Co. 578,475
17,700 McDonnell Douglas Corp. 1,190,325
18,500 Textron, Inc. 1,801,438
36,800 TRW, Inc. 1,867,600
- --------------------------------------------------------------------
5,437,838
- --------------------------------------------------------------------
Department Stores--3.2%
147,400 Dayton Hudson Corp. 5,545,925
38,000 Federated Dept. Stores, Inc.* 1,249,250
18,900 Mercantile Stores Co. 926,100
65,700 Sears Roebuck & Co. 3,153,600
72,100 Walmart Stores, Inc. 1,712,375
- --------------------------------------------------------------------
12,587,250
- --------------------------------------------------------------------
Electric Utilities--4.7%
76,300 Duke Power Co. 3,576,563
128,700 Edison International, Inc. 2,750,963
31,500 Empresa Nacional de Electric ADR 2,071,125
139,600 Niagara Mohawk Power* 1,413,450
57,700 Public Service Company of New Mexico 1,154,000
92,800 Texas Utilities Co. 3,758,400
156,300 Unicom Corp. 3,692,588
- --------------------------------------------------------------------
18,417,089
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--2.9%
112,200 General Electric Co. 11,556,600
- --------------------------------------------------------------------
Financial Services--0.7%
53,300 Providian Corp. 2,871,538
- --------------------------------------------------------------------
Food Producers--0.5%
10,600 CPC International, Inc. 814,875
16,400 Ralston Purina Co. 1,289,450
- --------------------------------------------------------------------
2,104,325
- --------------------------------------------------------------------
Forest Products--2.6%
78,600 Avery Dennison Corp. 2,878,725
32,000 Champion International Corp. 1,340,000
32,600 Georgia Pacific Corp. 2,400,175
26,000 International Paper Co. 1,062,750
19,700 Mead Corp. 1,108,125
30,700 Weyerhaeuser Co. 1,396,850
- --------------------------------------------------------------------
10,186,625
- --------------------------------------------------------------------
Funeral Services--0.2%
29,600 Service Corp. International 858,400
- --------------------------------------------------------------------
Gas Distribution & Pipeline--1.2%
55,600 Columbia Gas Systems, Inc. 3,620,950
22,900 Panenergy Corp. 1,056,263
- --------------------------------------------------------------------
4,677,213
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
73,200 Johnson & Johnson 4,218,150
15,800 Medtronic Inc. 1,082,300
- --------------------------------------------------------------------
5,300,450
- --------------------------------------------------------------------
Healthcare Management--0.8%
55,800 Columbia HCA Healthcare 2,204,100
38,300 Manor Care, Inc. 976,650
- --------------------------------------------------------------------
3,180,750
- --------------------------------------------------------------------
Information Management--0.7%
114,100 Dun & Bradstreet Corp. 2,738,400
- --------------------------------------------------------------------
Insurance Brokers & Other Insurance--0.3%
24,600 Exel Insurance Ltd. 1,042,425
- --------------------------------------------------------------------
Insurance-Life--2.6%
29,100 American General Corp. 1,160,363
18,700 Cigna Corp. 2,835,388
122,933 Travelers Group, Inc. 6,438,616
- --------------------------------------------------------------------
10,434,367
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Insurance-Property and Casualty--2.2%
25,956 Allstate Corp. $ 1,706,607
36,850 American International Group, Inc. 4,463,456
68,500 Safeco Corp. 2,603,000
- --------------------------------------------------------------------
8,773,063
- --------------------------------------------------------------------
Integrated Oil--11.1%
22,100 Amoco Corp. 1,922,700
51,800 Atlantic Richfield Co. 6,850,550
84,300 Exxon Corp. 8,735,574
46,800 Kerr McGee Corp. 3,217,500
17,200 Mobil Corp. 2,257,500
52,000 Norsk Hydro ADR 2,925,000
32,000 Phillips Petroleum Co. 1,412,000
26,600 Royal Dutch Petroleum ADR 4,615,100
75,700 Texaco, Inc. 8,014,738
97,300 Unocal Corp. 4,098,763
- --------------------------------------------------------------------
44,049,425
- --------------------------------------------------------------------
Investment Brokers & Managers--2.7%
52,500 Merrill Lynch Co. 4,423,125
38,300 Morgan Stanley Group, Inc. 2,187,888
76,900 Salomon, Inc. 4,248,725
- --------------------------------------------------------------------
10,859,738
- --------------------------------------------------------------------
Local Phone Companies--2.3%
53,600 Ameritech Corp. 3,202,600
67,100 GTE Corp. 3,153,700
104,900 Worldcom, Inc.* 2,635,613
- --------------------------------------------------------------------
8,991,913
- --------------------------------------------------------------------
Machinery and Equipment--0.6%
20,100 Dover Corp. 994,950
29,300 Ingersoll-Rand Co. 1,336,813
- --------------------------------------------------------------------
2,331,763
- --------------------------------------------------------------------
Media/Entertainment--1.4%
41,400 King World Productions, Inc.* 1,619,775
54,942 Walt Disney Co. 4,024,502
- --------------------------------------------------------------------
5,644,277
- --------------------------------------------------------------------
Nonferrous Metals--1.3%
15,900 Phelps Dodge Corp. 1,111,013
72,800 Tyco International Ltd. 4,158,700
- --------------------------------------------------------------------
5,269,713
- --------------------------------------------------------------------
Office & Business Equipment--0.5%
36,400 Xerox Corp. 2,133,950
- --------------------------------------------------------------------
Oil & Gas Exploration--0.4%
31,100 Burlington Resources, Inc. 1,547,225
- --------------------------------------------------------------------
Pharmaceuticals--6.7%
51,100 Abbott Labs 2,778,563
53,100 Bristol Myers Squibb 6,743,700
18,600 Eli Lilly & Co. 1,620,525
82,100 Merck & Co. 7,450,575
23,600 Pfizer, Inc. 2,191,850
31,700 Pharmacia & Upjohn, Inc. 1,180,825
47,600 Schering Plough Corp. 3,599,750
13,800 Warner Lambert Co. 1,110,900
- --------------------------------------------------------------------
26,676,688
- --------------------------------------------------------------------
Recreational Products--0.2%
29,407 Mattel, Inc. 827,072
- --------------------------------------------------------------------
Restaurants & Hotels--1.0%
14,000 HFS, Inc.* 980,000
23,000 ITT Corp.* 1,313,875
40,200 McDonalds Corp. 1,829,100
- --------------------------------------------------------------------
4,122,975
- --------------------------------------------------------------------
Retail--0.7%
34,100 Home Depot, Inc. 1,687,950
29,900 TJX Companies, Inc. 1,188,525
- --------------------------------------------------------------------
2,876,475
- --------------------------------------------------------------------
Retail-Specialty--1.2%
48,200 Gap, Inc. 1,385,750
49,600 Nike, Inc. 3,366,600
- --------------------------------------------------------------------
4,752,350
- --------------------------------------------------------------------
Semiconductors & Electronics--2.8%
67,800 Intel Corp. 11,000,550
- --------------------------------------------------------------------
Software--2.7%
33,350 Computer Associates International,
Inc. 1,513,256
79,900 Microsoft Corp.* 8,149,800
24,600 Oracle Corp.* 956,325
- --------------------------------------------------------------------
10,619,381
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Supermarkets--0.9%
63,300 Great A&P Tea Co., Inc. $ 1,978,125
31,200 Safeway, Inc.* 1,489,800
- --------------------------------------------------------------------
3,467,925
- --------------------------------------------------------------------
Technical Services--0.4%
22,800 3Com Corp.* 1,530,450
- --------------------------------------------------------------------
Technology Capital Goods--0.7%
18,800 Applied Materials, Inc.* 928,250
22,000 Harris Corp. 1,674,750
- --------------------------------------------------------------------
2,603,000
- --------------------------------------------------------------------
Telecommunications--0.2%
17,000 Tellabs, Inc.* 700,188
- --------------------------------------------------------------------
Textiles--1.1%
22,500 Liz Claiborne, Inc. 947,813
33,200 Sara Lee Corp. 1,311,400
30,800 VF Corp. 2,048,200
- --------------------------------------------------------------------
4,307,413
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--0.8%
36,800 BF Goodrich Co. 1,508,800
29,800 Goodyear Tire & Rubber Co. 1,624,100
- --------------------------------------------------------------------
3,132,900
- --------------------------------------------------------------------
Tobacco--1.7%
55,600 Philip Morris Companies, Inc. 6,609,450
- --------------------------------------------------------------------
Total Common Stocks
(Cost $294,916,122) $ 385,205,653
====================================================================
Rights--0.9%
Insurance--0.2%
9,400 MBIA, Inc.,* exp. 12/12/01 $ 903,575
- --------------------------------------------------------------------
Insurance-Life--0.4%
36,400 Protective Life Corp.*, exp. 07/13/97 1,442,350
- --------------------------------------------------------------------
Specialty Finance--0.3%
19,100 Beneficial Corp.,* exp. 11/23/97 1,284,475
- --------------------------------------------------------------------
Total Rights
(Cost $2,826,759) $ 3,630,400
- --------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
U.S. Treasury Obligations--0.2%
$ 841,000 U.S. Treasury Bill
5.08%, 05/29/97/(b)/ $ 827,118
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $827,118) $ 827,118
- --------------------------------------------------------------------
Repurchase Agreement--0.9%
$ 3,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 3,600,000
- --------------------------------------------------------------------
Total Repurchase Agreements
(Cost $3,600,000) $ 3,600,000
- --------------------------------------------------------------------
Total Investments
(Cost $302,169,999)/(a)/ $ 393,263,171
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 94,373,749
Gross unrealized loss for investments in
which cost exceeds value (3,489,045)
- --------------------------------------------------------------------
Net unrealized gain $ 90,884,704
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long/(c)/ Month Gain
- ------------------------- ------------- ------------ ----------------
<S> <C> <C> <C>
S&P 500 Stock Index 7 March 1997 $91,800
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $302,378,467.
/(b)/Portion of this security is being segregated as collateral for futures
contracts.
/(c)/Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and net market value at risk are $350,000 and
$2,756,250, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Growth and Income Fund seeks long-term growth of
capital and growth of income primarily through investments in a diversified
portfolio of common stocks and other equity securities. The fund is managed with
a value style, which means we focus on companies whose stocks we believe are
inexpensive relative to their expected long-term earnings growth and their
ability to pay dividends. Investments may include well-known companies that are
temporarily out of favor due to cyclical economic conditions or are experiencing
near-term difficulties the portfolio managers judge to be temporary in nature.
In-depth fundamental research of a company's financial structure, its
competitive position in the market and its management's commitment to increasing
shareholder value are all critical parts of the fund's investment approach.
Though we are not sector investors, we closely monitor the fund's sector and
industry exposures compared with the benchmark in an effort to avoid
unintentional over- or underweightings.
Performance Review: The Fund Outperformed the Index...
<TABLE>
<CAPTION>
- ------------------------------------- ----------------- -----------
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 28.42% 26.25%
Class B (5/1/96 - 1/31/97)* 22.23% 22.18%
Institutional (6/3/96 - 1/31/97)* 20.77% 19.11%
Service (3/6/96 - 1/31/97)* 23.87% 22.20%
- ------------------------------------- ----------------- -----------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inceptions through the end
of the period.
The U.S. stock market continued to soar during the period under
review, adding to the impressive performance recorded during the prior year.
Most of the market's gains occurred during the latter half of the period, when
equities rebounded strongly following a sharp correction in July.
We are pleased to report that all of the fund's share classes
outperformed the S&P 500 stock index during the past fiscal year. Most notably,
its Class A shares returned 28.42% (at net asset value) versus 26.25% for the
index. During the period, the fund increased its regular quarterly dividend.
....And Fared Very Well Relative to Its Peers
We are proud to announce that for the three-year period ended January
31, 1997, the fund's Class A shares were rated "five stars" (out of 1,858
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency. The "five star" designation is Morningstar's highest rating for
historical risk-adjusted performance, and is given to mutual funds that
Morningstar determines to be in the top 10% of their category.1
In addition, the fund's Class A shares ranked within the top 10% of
the Lipper growth and income category (53rd of 533) for the 12-month period
ended January 31, 1997, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. Class B, Institutional and
Service shares
- -------------------------
1 Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. For the one-year period, the Class A shares
received four stars and was rated among 2,990 domestic equity funds. The
Morningstar rating applies only to the fund's Class A shares; the fund's Class
B, Institutional and Service shares have not been rated. Class B, Institutional
and Service shares are subject to additional fees and expenses that may have the
effect of lowering performance and may affect any future Morningstar rating.
Morningstar rates funds against peers in the same category. In all, there are
five Morningstar categories (domestic equity, international equity, fixed
income, municipal and hybrid). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
were not ranked because they did not exist during the full year.)
Financial, Technology and Energy Stocks Were Among the Fund's Best Performers
The fund's outperformance came from successful stock selection in a
wide range of industries, led by finance, its largest sector weighting at 18.0%.
Technology and energy investments also did well. In addition, the fund benefited
significantly from our decision to limit its exposure in the media and
communication sector. Our concerns regarding increased competition between the
local exchange and long-distance companies and high valuations in the sector
proved to be on target.
In the financial sector, top performers were BankAmerica Corp. and
NationsBank Corp., the country's third and fourth largest banks, respectively.
BankAmerica Corp. increased its focus on aggressive capital management, which
resulted in its exiting unprofitable businesses and buying back some of its
stock. NationsBank Corp. acquired Bank South Corp. and Boatmen's Bancshares,
Inc., and investors began to realize the benefits of its cost structure due to
its acquisitions over the past few years.
Technology holdings that performed well included Intel Corp., the
dominant microprocessor manufacturer, which was purchased when the sector was
depressed due to concerns that the personal computer upgrade cycle had slowed.
Intel quickly rebounded when investors recognized the advantages of its dominant
market position, and we subsequently sold the stock when it reached our target
price. We saw solid gains from Avnet, Inc., the second largest distributor of
semiconductors and other electronic components, which we viewed as an
inexpensive opportunity to participate in the growth of the technology sector.
The fund was also well served by a number of its energy-related
investments. Tosco Corp., an oil refiner and distributor, more than doubled in
price as it continued to consolidate its market position through an ambitious
acquisition strategy, and Texaco Inc. benefited from higher petroleum prices and
a restructuring program that meaningfully improved profits.
In addition, several holdings appreciated due to special situations.
Our confidence in Long Island Lighting Co., a New York-based utility, which had
been shunned by many other investors, was handsomely rewarded when the stock
soared after Brooklyn Union Gas Co. made an attractive bid for the company in
January. The fund also benefited when McDonnell Douglas Corp., one of our
long-term positions, was acquired by Boeing Co. at a very favorable price.
Sunbeam Corp., a leading consumer products company, met with an enthusiastic
investor response to the aggressive restructuring program initiated by its new
CEO.
Paper and Chemical Stocks Were Weak
Disappointing performers included three companies impacted by
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride. We continue to have confidence in these
companies and expect their prospects to improve over time.
Additional Investments in a Variety of Sectors
During the period, we added a number of new holdings. These included
Dean Witter, Discover & Co., which we viewed as undervalued based on the
potential of its broker-dealer/asset management business and its large Discover
credit card business. In February 1997, Dean Witter, Discover & Co. announced
its intention to merge with investment bank Morgan Stanley. We also invested in
Unicom Corp., an electric utility that operates 12 nuclear units at six sites.
Unicom generates excess capital and, unlike many other electric utilities, has
no utility power purchase problems. We established a position after its stock
price declined due to a mandated increase in spending on operations and
maintenance, an issue that management believes will not impair the company's
long-
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund (continued)
- --------------------------------------------------------------------------------
term prospects. Also notable was our decision to increase the fund's
position in Tenet Healthcare Corp., a long-term holding, based on its prospects
for improved efficiencies resulting from the integration of its acquisition of
OrNda Healthcorp., a for-profit hospital chain.
Sales Included Several Financial and Technology Positions
We sold several stocks after they appreciated and reached our price
targets. These included Anheuser-Busch Co., Inc., the world's largest brewer,
which reported strong earnings; Greenpoint Financial Corp., which benefited from
increased investor appreciation of the value of its
"no-documentation--low-documentation" mortgage franchise; and technology
holdings Compaq Computer Corp. and Intel Corp.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total Net
<S> <C> <C>
Company Line of Business Assets
Aetna Inc. Healthcare Service 3.3%
Provider
Tenet Healthcare Corp. Hospitals 3.3%
Lear Corp. Autoparts/Original 3.0%
Equipment
Cigna Corp. Insurance 2.9%
Brunswick Corp. Pleasure 2.9%
Boats/Marine
Engines
Dean Witter, Discover & Co. Financial Services 2.8%
Goodyear Tire & Rubber Co. Tire and Rubber 2.8%
Products
Philip Morris Companies, Tobacco and Food 2.7%
Inc. Products
Avnet, Inc. Electronic 2.7%
Components
Distributor
BankAmerica Corp. Commercial Bank 2.6%
- --------------------------------------------------------------------
</TABLE>
Outlook
As we enter the seventh year of a bull market for U.S. equities, we
view the market as moderately overvalued and therefore unlikely to match the
strong return it achieved in 1996. In this environment, it is particularly
noteworthy that the fund's holdings continue to be attractively valued even
after last year's rally. Our focus on undervalued stocks and extensive
fundamental research will continue to be extremely important in the more
challenging market we anticipate ahead.
/s/ Ronald E. Gutfleish /s/ G. Lee Anderson
- ------------------------ -------------------------
Ronald E. Gutfleish G. Lee Anderson
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ Eileen A. Aptman
--------------------
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
March 3, 1997
24
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class A Class A
(w/sales charge) (no sales charge) S&P 500
---------------- ----------------- -------
<S> <C> <C> <C>
2/5/93 $ 9,450 $10,000 $10,000
1/31/94 10,686 11,308 11,073
1/31/95 11,110 11,757 11,132
1/31/96 14,716 15,573 15,436
1/31/97 18,911 20,012 19,501
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class B Class B
(no redemp charge) (w/redemp charge) S&P 500
------------------ ----------------- -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 12,223 11,723 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/3/96 $10,000 $10,000
1/31/97 12,077 11,911
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Service Class S&P 500
--------------- -------
<S> <C> <C>
3/6/96 $10,000 $10,000
1/31/97 12,387 12,220
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
Average Annual Total Return
--------------------------------------------
One Year Since Inception /(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 28.42% 18.98%
- --------------------------------------------------------------------------------
Class A, w/sales charge 21.39% 17.31%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 22.23% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 17.23% /(b)/
- --------------------------------------------------------------------------------
Institutional Class N/A 20.77% /(b)/
- --------------------------------------------------------------------------------
Service Class N/A 23.87% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
February 5, 1993, May 1, 1996, June 3, 1996 and March 6, 1996,
respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
25
<PAGE>
Statement of Investments
- -------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
===================================================================
<S> <C> <C>
Common Stocks--93.2%
Airlines--3.2%
96,100 AMR Corp.* $ 7,736,050
463,600 Continental Airlines, Inc.* 12,980,800
- -------------------------------------------------------------------
20,716,850
- -------------------------------------------------------------------
Appliance Manufacturer--1.9%
440,900 Sunbeam Corp. 12,234,975
- -------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.0%
512,800 Lear Corp.* 19,165,900
- -------------------------------------------------------------------
Auto/Vehicle--2.0%
394,800 Ford Motor Co. 12,682,950
- -------------------------------------------------------------------
Banks--8.3%
146,600 BankAmerica Corp. 16,364,225
64,900 Chase Manhattan Corp. 6,003,250
117,800 Fleet Financial Group Inc. 6,361,200
146,900 NationsBank Corp. 15,865,200
96,500 Republic of New York Corp. 8,552,313
- -------------------------------------------------------------------
53,146,188
- -------------------------------------------------------------------
Chemicals-Commodity--2.0%
439,800 Geon Co. 8,246,250
97,400 Union Carbide Corp. 4,419,525
- -------------------------------------------------------------------
12,665,775
- -------------------------------------------------------------------
Defense--3.4%
225,100 McDonnell Douglas Corp. 15,137,975
79,800 Northrop Grumman Corp. 6,234,375
6,300 Thiokol Corp. 352,800
- -------------------------------------------------------------------
21,725,150
- -------------------------------------------------------------------
Department Stores--1.6%
207,700 Sears Roebuck & Co. 9,969,600
- -------------------------------------------------------------------
Electric Utilities--5.1%
95,100 CMS Energy Corp. 3,185,850
641,400 Long Island Lighting Co. 14,591,850
632,300 Unicom Corp. 14,938,088
- -------------------------------------------------------------------
32,715,788
- -------------------------------------------------------------------
Food--2.8%
582,200 Chiquita Brands International, Inc. 8,514,675
58,400 Unilever Inc. 9,606,800
- -------------------------------------------------------------------
18,121,475
- -------------------------------------------------------------------
Forest Products--1.9%
161,500 Georgia Pacific Corp. 11,890,438
- -------------------------------------------------------------------
Health Suppliers/Services--2.0%
280,800 Baxter International, Inc. 12,951,900
- -------------------------------------------------------------------
Healthcare Management--6.6%
266,400 Aetna Inc. 21,045,600
768,500 Tenet Healthcare Corp.* 20,749,500
- -------------------------------------------------------------------
41,795,100
- -------------------------------------------------------------------
Home Builders--3.1%
232,800 Centex Corp. 9,079,200
388,500 Lennar Corp. 10,343,813
- -------------------------------------------------------------------
19,423,013
- -------------------------------------------------------------------
Insurance-Life--4.3%
123,600 Cigna Corp. 18,740,850
166,200 Lincoln National Corp. 8,912,475
- -------------------------------------------------------------------
27,653,325
- -------------------------------------------------------------------
Insurance-Property & Casualty--1.4%
16,100 Integon Corp. 223,388
237,600 Partner Re Holding Ltd. 8,434,800
- -------------------------------------------------------------------
8,658,188
- -------------------------------------------------------------------
Integrated Oil--4.8%
121,400 Atlantic Richfield Co. 16,055,150
138,900 Texaco, Inc. 14,706,038
- -------------------------------------------------------------------
30,761,188
- -------------------------------------------------------------------
Logistics/Rails--1.8%
415,700 Canadian Pacific Ltd. 11,275,863
- -------------------------------------------------------------------
Logistics/Trucking--2.0%
512,100 Consolidated Freightways, Inc. 12,994,538
- -------------------------------------------------------------------
Oil Refining & Marketing--3.6%
187,700 Ashland Inc. 8,094,563
166,800 Tosco Corp. 14,761,800
- -------------------------------------------------------------------
22,856,363
- -------------------------------------------------------------------
Packaging--2.5%
661,600 Owens Illinois Corp.* 15,713,000
- -------------------------------------------------------------------
Recreational Products--2.9%
724,800 Brunswick Corp. 18,210,600
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Security and Commodity Brokers, Dealers and Services--1.0%
195,900 Lehman Brothers Holdings, Inc. $ 6,195,338
- -------------------------------------------------------------------
Semiconductors & Electronics--2.7%
275,100 Avnet, Inc. 17,021,813
- -------------------------------------------------------------------
Software--1.1%
214,300 Autodesk, Inc. 6,777,238
- -------------------------------------------------------------------
Specialty Finance--2.8%
470,200 Dean Witter Discover & Co. 17,926,375
- -------------------------------------------------------------------
Steel--1.6%
251,600 AK Steel Holding Corp. 10,126,900
- -------------------------------------------------------------------
Supermarkets--3.4%
726,500 Fleming Companies, Inc. 11,714,813
316,700 Supervalu, Inc. 9,778,113
- -------------------------------------------------------------------
21,492,926
- -------------------------------------------------------------------
Textiles--2.4%
374,400 Fruit of The Loom, Inc.* 15,022,800
- -------------------------------------------------------------------
Tire & Other Related Rubber Products--2.8%
320,900 Goodyear Tire & Rubber Co. 17,489,050
- -------------------------------------------------------------------
Tobacco--5.2%
63,700 Loews Corp. 6,298,338
144,700 Philip Morris Companies, Inc. 17,201,204
187,480 RJR Nabisco, Inc. 6,139,970
115,600 Universal Corp. 3,583,600
- -------------------------------------------------------------------
33,223,112
- -------------------------------------------------------------------
Total Common Stocks
(Cost $465,569,279) $ 592,603,719
===================================================================
Preferred Stocks--0.6%
Food--0.3%
44,600 Chiquita Brands International, Inc.
Convertible, 5.75% $ 2,073,900
- -------------------------------------------------------------------
Tobacco--0.3%
287,100 RJR Nabisco, Inc., Class C 9.25% 1,902,038
- -------------------------------------------------------------------
Total Preferred Stocks
(Cost $3,843,410) $ 3,975,938
===================================================================
Rights--2.0%
Forest Products--1.2%
579,100 Stone Container Corp.,* exp.
08/08/98 $ 7,817,850
- -------------------------------------------------------------------
Technology Capital Goods--0.8%
166,300 Teradyne, Inc.,* exp. 03/26/00 5,134,513
- -------------------------------------------------------------------
Total Rights
(Cost $13,294,493) $ 12,952,363
===================================================================
Repurchase Agreements--4.2%
- -------------------------------------------------------------------
$ 26,800,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 26,800,000
- -------------------------------------------------------------------
Total Repurchase Agreements
(Cost $26,800,000) $ 26,800,000
===================================================================
<CAPTION>
Contracts Description Value
===================================================================
<C> <S> <C>
Options*--0.4%
1,340 S & P 500 Index Put, Strike 750
exp. 06/97 $ 2,244,500
1,439 S & P 500 Index Put, Strike 700
exp. 03/97 377,738
- -------------------------------------------------------------------
Total Options
(Cost $4,105,525) $ 2,622,238
===================================================================
Total Investments
(Cost $513,612,707)/(a)/ $ 638,954,258
===================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $136,933,045
Gross unrealized loss for investments in which
cost exceeds value (11,607,531)
- -------------------------------------------------------------------
Net unrealized gain $125,325,514
===================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $513,628,744. The
percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- -------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
primarily through investments in a portfolio of large-capitalization stocks. We
use extensive fundamental research to identify companies in a diversified range
of industries that we believe offer attractive growth potential at a reasonable
price.
The fund's investment management team believes that wealth is created
through the long-term ownership of growing businesses. As such, we view each
stock purchase as if we were buying the entire business. To implement this
investment strategy, we focus on growing companies with characteristics such as
strong brand franchises, dominant market share, recurring revenue, product
pricing flexibility, long product life cycles, high returns on invested capital,
high profit margins, strong free cash flow, excellent management and favorable
long-term prospects. Finally, we will buy a stock meeting our rigorous criteria
only if it trades at a reasonable discount to the company's intrinsic value.
Performance Review: Fund Achieved Strong Results
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Fund Total Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 25.97% 26.25%
Class B (5/1/96 - 1/31/97)* 19.39% 22.18%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the 12-month period ended January 31, 1997, the fund's Class A shares
achieved a total return of approximately 26%, in line with the S&P 500 stock
index, reflecting the robust equity market, particularly during the second half
of the period. The fund's Class B shares also achieved strong absolute results;
however, a partial year of only nine months is obviously too short a time frame
to meaningfully measure long-term performance.
We are pleased to report that for the five-year period ended January
31, 1997, the fund's Class A shares were rated "four stars" (out of 1,072
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency./1/ In addition, the fund's Class A shares fared well versus its peers in
the Lipper growth fund category, placing in the top third (187th out of 685) for
the 12-month period and in the top quartile (56th out of 263) for the five-year
period, as of January 31, 1997, according to Lipper Analytical Services, Inc.
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results. Lipper did not rank
the fund's Class B shares.)
Top Performers Included Financial, Technology and Defense Stocks
The fund's best performers during the period came from a variety of sectors,
particularly financial services (20.4% of the portfolio), technology (9.1%) and
defense/aerospace (3.2%).
.. Top performers in the financial sector included MBNA Corp. and First USA
Inc., the nation's third and fourth largest credit card issuers, respectively,
which both reported better than expected earnings and loan growth. In
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund's Class A shares received three stars
for both the three- and one-year periods. The Class A shares were rated among
1,858 and 2,990 domestic equity funds for the three- and one-year periods,
respectively. The Morningstar rating applies only to the fund's Class A shares;
the fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are five Morningstar categories
(domestic equity, international equity, fixed income, municipal and hybrid).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
addition, these companies benefited from continuing industry consolidation,
with First USA performing particularly well after Banc One announced that it was
acquiring the company. Two of the fund's commercial bank holdings, BankAmerica
Corp. and NationsBank Corp., appreciated due to successful cost cutting, strong
earnings growth and aggressive capital management, and PartnerRe Holding Ltd., a
worldwide provider of catastrophe reinsurance, rose on strong earnings.
.. Several of our technology holdings also performed well. During the first
half of the period, we increased the fund's positions in Intel Corp., the
dominant microprocessor manufacturer, and Compaq Computer Corp., the world's
largest manufacturer of personal computers, when their prices slumped because of
concerns regarding slowing computer sales. This strategy significantly
contributed to the fund's performance when computer sales were stronger than
expected. We subsequently sold Compaq Computer when it reached our target price
but continue to hold Intel, which more than tripled in price during the period.
.. Consolidation in the defense industry helped two of the fund's long-
standing investments in that sector. McDonnell Douglas Corp. climbed over 50%
after the announcement of its proposed merger with Boeing Co., and Northrop
Grumman Corp. was buoyed by its purchase of Westinghouse Electric Corp.'s
defense electronics businesses.
Specific Paper, Airline and Insurance Stocks Lagged
Not all of the fund's holdings fulfilled our expectations. For example,
Georgia-Pacific Corp., a manufacturer of paper products, suffered from an
industry oversupply and a consequent decline in paper and pulp prices; AMR
Corp., the holding company of American Airlines, was impacted by concerns
regarding competition from discount carriers; and Integon Corp., a provider of
automobile insurance, experienced a higher than expected increase in claims and
lower earnings.
New Additions in Consumer Product Companies and Pharmaceuticals
During the period, we initiated several positions that reflect our new
emphasis on large-capitalization stocks with world-class franchises and/or
strong brand names. For example, we added Procter & Gamble Co., one of the
strongest marketers in the U.S. with a stable of brand name products, many of
which hold number one or number two positions in their respective markets. Over
the past decade, the company has achieved steady growth in revenues and
earnings, exactly the type of consistent operating history that we favor.
Another recent investment was Coca-Cola Co., a world-class company with four of
the five leading carbonated soft drinks -- Coca-Cola, Diet Coke, Sprite and
Fanta. With 80% of its business coming from abroad, we expect Coca-Cola's long-
term earnings growth to continue as it further penetrates the emerging markets
of China, India, Latin America, Southeast Asia, Eastern Europe and Russia.
Other new positions included pharmaceutical companies Bristol-Myers
Squibb Co., Johnson & Johnson Co. and Pfizer, Inc., which are attractive because
of their strong new product flow, huge free cash flow, earnings growth and
essentially net debt-free balance sheets. We believe these companies are
positioned to be major beneficiaries as the baby boomers age and require more
health-related products and services over the coming decades.
Sales Included Several Investments in Cyclical Industries
During the period, we sold Kirby Corp. and Trinity Industries after we lost
confidence in their managements' attempts to improve their competitive
positions, and cyclical stocks such as Quanex Corp. and Harnischfeger
Industries, Inc. after they were unable to improve their profitability in
difficult industry conditions. In contrast, we sold the fund's long-held
position in Millipore Corp., an industrial filter producer, after it reached our
target price.
- --------------------------------------------------------------------------------
29
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
<TABLE>
<CAPTION>
Percentage
of Total
Company Line of Business Net Assets
<S> <C> <C>
First USA, Inc. Financial Services 4.5%
Intel Corp. Semiconductors and 4.3%
Electronics
NationsBank Corp. Commercial Bank 3.4%
Aetna Inc. Healthcare 3.4%
Management
Texaco Inc. International 3.3%
Integrated Oil
Company
BankAmerica Corp. Commercial Bank 3.2%
Tenet Healthcare Corp. Hospitals 3.0%
Philip Morris Companies, Tobacco and Food 3.0%
Inc. Products
Baxter International, Inc. Medical Supplies 2.9%
PartnerRe Ltd. Insurance 2.7%
- --------------------------------------------------------------------
</TABLE>
Outlook
We believe that the global political and economic environments will
continue to remain favorable for the financial markets. In our opinion, the
outlook for the U.S. stock market is attractive, as we expect it to continue to
benefit from low inflation, moderate growth and high levels of consumer
confidence. In addition, we anticipate that the equity market will continue to
be buoyed as baby boomers increase their savings and 401(k) investment plans
grow. To enhance the fund's ability to benefit from the positive investing
climate, we expect to continue to diversify the portfolio among industry sectors
and increase its holdings of large-cap stocks, with the intention of both
providing favorable long-term returns and reducing portfolio risk.
We want to emphasize that investing is a marathon, not a sprint.
Notwithstanding the excellent performance the fund has recently experienced, we
have a long-term investment horizon. In a nutshell, we hope to be able to
purchase great companies with attractive business characteristics and favorable
long-term outlooks, and then patiently hold them for an extended period of time
so that their growth compounds.
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
- --------------------------------------------------------------------------------
30
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class A Class A
(w/sales charge) (no sales charge) S&P 500
----------------- ----------------- -------
<S> <C> <C> <C>
4/20/90 9,450 10,000 10,000
1/31/91 9,529 10,084 10,552
1/31/92 12,322 13,040 12,946
1/31/93 14,542 15,388 14,316
1/31/94 16,998 17,987 16,160
1/31/95 16,254 17,200 16,246
1/31/96 21,203 22,437 22,528
1/31/97 26,726 28,282 28,460
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class B Class B
(no redemp. charge) (w/redemp. charge) S&P 500
------------------- ------------------ -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 11,939 11,439 12,218
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
Average Annual Total Return
----------------------------------------------
One Year Five Year Since Inception/(a)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A, no sales charge 25.97% 16.73% 16.54%
- ------------------------------------------------------------------------------
Class A, w/sales charge 19.04% 15.42% 15.57%
- ------------------------------------------------------------------------------
Class B, no redemption charge N/A N/A 19.39%/(b)/
- ------------------------------------------------------------------------------
Class B, w/redemption charge N/A N/A 14.39%/(b)/
- ------------------------------------------------------------------------------
</TABLE>
/(a)/Class A and Class B shares commenced operations on April 20, 1990 and
May 1, 1996, respectively.
/(b)/An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve months
of operations.
- --------------------------------------------------------------------------------
31
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--98.9%
Advertising & Marketing--1.8%
888,900 Valassis Communications, Inc.* $ 16,333,538
- --------------------------------------------------------------------
Airlines--1.5%
176,500 AMR Corp.* 14,208,250
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.6%
391,900 Lear Corp.* 14,647,262
- --------------------------------------------------------------------
Banks--6.6%
263,700 BankAmerica Corp. 29,435,512
291,500 NationsBank Corp. 31,482,000
- --------------------------------------------------------------------
60,917,512
- --------------------------------------------------------------------
Beverages--2.1%
155,100 Coca Cola Co. 8,976,413
293,800 Pepsico, Inc. 10,246,275
- --------------------------------------------------------------------
19,222,688
- --------------------------------------------------------------------
Commercial Services--0.9%
226,500 Ecolab Inc. 8,380,500
- --------------------------------------------------------------------
Communications Technology--1.7%
290,860 Lucent Technologies, Inc. 15,779,155
- --------------------------------------------------------------------
Construction/Environmental Services--2.0%
497,500 WMX Technologies, Inc. 18,220,938
- --------------------------------------------------------------------
Consumer Staples--4.0%
150,800 Avon Products Inc. 9,462,700
109,000 Gillette Co. 8,883,500
160,940 Procter & Gamble Co. 18,588,570
- --------------------------------------------------------------------
36,934,770
- --------------------------------------------------------------------
Defense--3.2%
226,800 McDonnell Douglas Corp. 15,252,300
187,500 Northrop Grumman Corp. 14,648,438
- --------------------------------------------------------------------
29,900,738
- --------------------------------------------------------------------
Electric Utilities--1.6%
669,400 Long Island Lighting Co. 15,228,850
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--1.0%
89,400 General Electric Co. 9,208,200
- --------------------------------------------------------------------
Electronics & Semiconductors--1.5%
219,700 Avnet Inc. 13,593,937
- --------------------------------------------------------------------
Food--1.8%
186,500 Nabisco Holdings Corp. 7,133,625
160,480 William Wrigley Jr. Co. 9,327,900
- --------------------------------------------------------------------
16,461,525
- --------------------------------------------------------------------
Forest Products--2.2%
273,500 Georgia Pacific Corp. 20,136,437
- --------------------------------------------------------------------
Health Suppliers/Services--8.4%
589,600 Baxter International, Inc. 27,195,300
477,500 Fisher Scientific International, Inc. 20,950,312
176,400 Johnson & Johnson 10,165,050
277,600 Perkin-Elmer Corp. 19,397,300
- --------------------------------------------------------------------
77,707,962
- --------------------------------------------------------------------
Healthcare Management--8.5%
395,760 Aetna Inc. 31,265,040
487,650 Columbia HCA Healthcare 19,262,175
1,021,400 Tenet Healthcare Corp.* 27,577,800
- --------------------------------------------------------------------
78,105,015
- --------------------------------------------------------------------
Hotels & Restaurants--1.0%
169,720 Marriott International, Inc. 9,016,375
- --------------------------------------------------------------------
Information Management--1.9%
241,000 First Data Corp. 8,676,000
135,670 Reuters Holdings Corp. ADR 8,665,921
- --------------------------------------------------------------------
17,341,921
- --------------------------------------------------------------------
Insurance-Property and Casualty--3.2%
356,650 Integon Corp. 4,948,519
703,800 PartnerRe Holding Ltd. 24,984,900
- --------------------------------------------------------------------
29,933,419
- --------------------------------------------------------------------
Integrated Oil--6.7%
68,700 Amoco Corp. 5,976,900
52,700 Atlantic Richfield Co. 6,969,575
90,900 Mobil Corp. 11,930,625
41,200 Royal Dutch Petroleum ADR 7,148,200
284,800 Texaco, Inc. 30,153,200
- --------------------------------------------------------------------
62,178,500
- --------------------------------------------------------------------
Logistics/Rails--1.6%
556,900 Canadian Pacific Ltd. 15,105,912
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Media Content--4.6%
166,200 Gaylord Entertainment Co. $ 4,258,875
261,800 Knight Ridder, Inc. 10,046,575
530,700 Telecommunication Liberty
Media Group* 10,083,300
237,610 Time Warner Inc. 9,147,985
130,400 Walt Disney Co. 9,551,800
- --------------------------------------------------------------------
43,088,535
- --------------------------------------------------------------------
Packaging--1.6%
614,000 Owens Illinois Corp.* 14,582,500
- --------------------------------------------------------------------
Pharmaceuticals--2.3%
90,500 Bristol Myers Squibb 11,493,500
104,300 Pfizer, Inc. 9,686,863
- --------------------------------------------------------------------
21,180,363
- --------------------------------------------------------------------
Retail Trade--1.0%
222,600 Walgreen Co. 9,154,425
- --------------------------------------------------------------------
Retail-Department Stores--2.1%
658,400 Dillard Department Stores, Inc. 19,669,700
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--2.0%
571,000 Lehman Brothers Holdings, Inc. 18,057,875
- --------------------------------------------------------------------
Semiconductors & Electronics--4.3%
247,000 Intel Corp. 40,075,750
- --------------------------------------------------------------------
Specialty Finance & Agency--8.6%
345,300 Federal National Mortgage Assn. 13,639,350
828,200 First USA, Inc. 41,927,625
683,925 MBNA Corp. 23,595,413
- --------------------------------------------------------------------
79,162,388
- --------------------------------------------------------------------
Specialty Retail--1.0%
311,900 Service Corp. International 9,045,100
- --------------------------------------------------------------------
Technology Capital Goods--1.5%
286,400 Applied Materials Inc.* 14,141,000
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--2.1%
362,400 Goodyear Tire & Rubber Co. 19,750,800
- --------------------------------------------------------------------
Tobacco--3.0%
229,400 Philip Morris Companies, Inc. 27,269,925
- --------------------------------------------------------------------
Total Common Stocks
(Cost $661,066,240) $ 913,741,765
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Repurchase Agreement--2.0%
$18,300,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 18,300,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $18,300,000) $ 18,300,000
- --------------------------------------------------------------------
Total Investments
(Cost $679,366,240)(a) $ 932,041,765
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 255,377,138
Gross unrealized loss for investments in
which cost exceeds value (3,163,091)
- --------------------------------------------------------------------
Net unrealized gain $ 252,214,047
====================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $679,827,718.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Letter to Shareholders
- ----------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
- ----------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Small Cap Equity Fund's objective is long-term
capital appreciation, primarily through investments in equity securities of U.S.
companies with market capitalizations of $1 billion or less. The fund is managed
using a "business value" approach to investing, which means we look for
attractive companies with high or improving returns on capital that we believe
can achieve solid, sustainable growth, as well as generate free cash after
investing for future growth. This approach differs markedly from many emerging
growth small-cap funds that invest in companies with high price-to-earnings
multiples solely on the basis of rapid, but frequently unsustainable, growth
rates. Using our own rigorous fundamental research, which includes meeting with
a company's management and examining a company's competitors, customers and
suppliers, we build the fund's portfolio one stock at a time.
Performance Review: Class A Shares Outperformed the Benchmark and the S&P 500
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
<S> <C> <C>
Fund Total Return Russell
(based on net 2000 Total
asset value) Return
----------- ------
Class A (1/31/96 - 1/31/97)* 27.28% 18.95%
Class B (5/1/96 - 1/31/97)* 5.39% 7.32%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the period under review, small-cap stocks achieved strong
returns but still underperformed large-cap stocks. Small-caps began the period
on a strong note, outpacing large-caps from February through May, then gave up
their early lead during June and July when the market experienced a sharp
correction. While both large-cap and small-cap stocks sold off, small-caps were
particularly hard hit. During the latter half of the period, the market surged
to record highs, but small-caps trailed their larger peers as investors rushed
to participate in the rising market, but hedged their bets by sticking with the
largest, most liquid stocks.
Despite the small-cap sector's waning momentum, we are pleased to
report that the fund's Class A shares returned 27.28% (at net asset value),
outperforming both its benchmark, the Russell 2000 index (18.95%), and the
large-cap S&P 500 stock index (26.25%). In addition, the fund's Class A shares
placed in the top third of the Lipper small-company growth fund category
(ranking 129th out of 394) for the 12-month period ended January 31, 1997,
according to Lipper Analytical Services, Inc. (Please note that Lipper rankings
do not take sales charges into account and that past performance is not a
guarantee of future results. Lipper did not rank the fund's Class B shares.) The
fund's Class B shares also achieved positive returns, but did not fare as well
because their inception coincided with the start of a more difficult market
environment for small-cap stocks.
The fund's performance was especially strong during the first half of
the period, when a number of its long-held investments performed well. These
positions included some companies that had experienced temporary difficulties
and rebounded on improving fundamentals, as well as companies that had been
relatively undiscovered and garnered increased investor awareness due to
continued strong earnings gains. The fund also performed better than the broader
market during the summer correction, when expensive, momentum-type stocks were
hit harder than those with inexpensive valuations, which the fund typically
emphasizes. In contrast, during the second half of the period, stocks with
momentum characteristics rebounded, while the types of stocks that the fund
stresses did not perform as strongly. In addition, the fund experienced price
corrections in several holdings due to earnings volatility.
The fund's top performers during the period came from a wide variety
of industries, with Black Box Corp. and Morningstar Group, Inc. contributing
significantly to overall results. Black Box Corp., a catalog marketer of
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
communications and networking products, was the fund's largest holding in the
beginning of the period and climbed substantially as it continued to achieve
record revenues and profits due to successful direct marketing efforts and new
product introductions. The position in Black Box was then sold after it reached
our target price. Morningstar Group, Inc., a manufacturer of specialty foods,
was the fund's eighth largest holding at the start of the period and nearly
tripled in price when it consolidated its market position through internal
growth, new product introductions and several attractive acquisitions. The fund
has held Morningstar Group for over four years; it is a good example of our
willingness to hold strong businesses until the market recognizes their true
value.
Other strong performers included American Safety Razor Co., the
leading U.S. manufacturer of private-brand and value-priced shaving blades,
which benefited from internal profit enhancement efforts and particularly strong
sales of its branded and private-label shaving and personal care products;
Movado Group, Inc., the owner of the Movado, Concord and Esquire watch brands,
which rebounded due to significant sales growth, new licensing agreements and
increased analyst coverage; J. Baker, Inc., a diversified retailer of footwear
and apparel, which announced its intention to sell its shoe division in order to
focus its resources on its successful "Casual Male Big & Tall" stores; and
Nimbus CD International, Inc., a CD and CD-ROM manufacturer that we sold after
it rose sharply due to high investor expectations of future DVD (digital video
disk) demand. Finally, several financial holdings performed well, such as Horace
Mann Educators Co., a provider of property, casualty and life insurance for the
educator market, and Terra Nova Bermuda Holdings, a worldwide provider of
property casualty insurance and reinsurance.
Not all of the fund's holdings fulfilled our expectations. Several
stocks were hurt by disappointing earnings, although we continue to believe in
their long-term prospects. For example, Landstar System, Inc. experienced
weakness when the restructuring of its trucking operations from a fixed cost to
a variable cost business took longer than expected. In addition, Central Maine
Power Co. was impacted by uncertainty in the regulatory environment, and Alpine
Lace Brands, Inc., a developer and marketer of cheese products, declined due to
an increase in commodity cheese prices. We took advantage of lower prices and
increased the fund's positions in all three stocks. In contrast, we liquidated
two other underperformers, Musicland Stores Corp. and Levitz Furniture Inc.,
because their fundamental businesses continued to deteriorate.
Recent Additions
During the period, we initiated a number of positions that have
already contributed to performance. These included Linens 'N Things, Inc., a
retailer of home accessories, which was attractively valued versus its key
competitor, Bed, Bath and Beyond, and has significant store expansion and margin
improvement potential, and Sun Healthcare Group, Inc., a well-managed
owner/operator of nursing homes with attractive long-term growth potential.
Though Sun Healthcare Group has been temporarily impacted by a government
investigation of one of its subsidiaries, we believe this issue is fully
reflected in the current stock price. In the technology sector, we added
DecisionOne Holdings Corp., the leading independent provider of computer
hardware and maintenance support services to U.S. companies. We intend to
continue to focus on technology-related service providers and distributors that
we believe are positioned to benefit from the expected long-term growth of the
sector but are not dependent on the success of any single product or service.
Other new investments were APS Holding Corp., a distributor of
automotive parts, which was depressed by industry- and company-specific issues
that we believe to be temporary, and Friedman's, Inc., a retailer of inexpensive
jewelry with significant expansion potential and a very low-cost operating
strategy. We also added two specialty insurance companies, SCPIE Holdings, Inc.
and Symon's International Group, Inc.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund (continued)
- --------------------------------------------------------------------------------
Sales Included Several Financial Holdings
The fund sold several stocks after they appreciated and reached our
target prices. These included a number of financial holdings, such as Greenpoint
Financial Corp., the leading national lender of "no-documentation--low-
documentation" mortgages; Dime Bancorp, Inc., the fifth largest thrift in the
U.S.; and Western National Corporation, a marketer of annuity products.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
Movado Group, Inc. Luxury and 5.6%
Affordable Watch
Distributor
DecisionOne Holdings Corp. Computer Support 4.9%
Provider
Sun Healthcare Group, Inc. Healthcare Services 3.9%
APS Holding Corp. Automotive Parts 3.6%
Distributor
Mariner Health Group, Inc. Healthcare Services 3.6%
Groupe AB Television 3.5%
Programming
Distributor
Friedman's, Inc. Jewelry Retailer 3.5%
J. Baker, Inc. Specialty Apparel 3.5%
Heritage Media Corp. Marketing Services 3.4%
Provider
Linens 'N Things, Inc. Home Products 3.1%
Retailer
- --------------------------------------------------------------------
</TABLE>
Outlook
One of the key factors that will affect equity performance during
1997 will be the continuation of the favorable economic environment of moderate
growth and low inflation, which would ensure that both the corporate earnings
outlook and the interest rate climate remain hospitable. Small-capitalization
stocks as a group currently appear undervalued relative to large-cap stocks and
to their own expected earnings potential. We believe that corporate earnings
growth will slow somewhat in 1997, and to the extent that smaller companies can
achieve better earnings growth than larger companies, they should perform
relatively well. The performance of small-caps will particularly depend on
investors broadening their focus from the largest, most liquid stocks to
smaller, less widely followed issues. We are optimistic regarding the fund's
future performance based on the strong earnings growth and the free cash flow we
expect from many of our top holdings, as well as from new investments.
/s/ Paul D. Farrell
Paul D. Farrell
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ Matthew B. McLennan
Matthew B. McLennan
Assistant Portfolio Manager,
U.S. Active Equity Value
/s/ Timothy G. Ebright
Timothy G. Ebright
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
36
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 Index ("S&P 500") and the Russell 2000)
are shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class A GS Small Cap Class A Russell
(w/sales charge) (no sales charge) S&P 500 2000
-------------------- --------------------- ------- -------
<S> <C> <C> <C> <C>
10/22/92 $ 9,450 10,000 $10,000 $10,000
1/31/93 11,138 11,786 10,655 11,733
1/31/94 14,494 15,337 12,027 13,914
1/31/95 11,953 12,649 12,091 13,078
1/31/96 12,813 13,559 16,768 17,010
1/31/97 16,320 17,270 21,183 20,242
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class B GS Small Cap Class B Russell
(no redemp. charge) (w/redemp. charge) S&P 500 2000
-------------------- -------------------- ------- -------
<S> <C> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000 $10,000
1/31/97 10,539 10,039 12,218 10,732
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
Average Annual Total Return
-----------------------------------------
One Year Since Inception/(a)/
-------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 27.28% 13.61%
-------------------------------------------------------------------------
Class A, w/sales charge 20.27% 12.12%
-------------------------------------------------------------------------
Class B, no redemption charge N/A 5.39%/(b)/
-------------------------------------------------------------------------
Class B, w/redemption charge N/A 0.39%/(b)/
-------------------------------------------------------------------------
</TABLE>
/(a)/ Class A and Class B shares commenced operations on October 22, 1992
and May 1, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an
average annual total return since this class has not completed a full
twelve months of operations.
- --------------------------------------------------------------------------------
37
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--92.5%
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.6%
777,200 APS Holding Corp.* $ 7,869,150
- --------------------------------------------------------------------
Commercial Products--2.4%
211,000 Figgie International, Inc. Class A* 2,611,125
231,400 Figgie International, Inc. Class B* 2,487,550
- --------------------------------------------------------------------
5,098,675
- --------------------------------------------------------------------
Commercial Services--1.0%
539,200 Opinion Research Corp.* 2,022,000
- --------------------------------------------------------------------
Computers & Peripherals--7.5%
598,700 DecisionOne Holdings Corp.* 10,477,250
467,100 Multiple Zones International, Inc.* 5,605,200
- --------------------------------------------------------------------
16,082,450
- --------------------------------------------------------------------
Consumer Staples--3.8%
270,700 American Safety Razor Co.* 3,958,987
389,400 Spartech Corp. 4,234,725
- --------------------------------------------------------------------
8,193,712
- --------------------------------------------------------------------
Electric Utilities--2.2%
433,900 Central Maine Power Co. 4,827,137
- --------------------------------------------------------------------
Electrical Equipment--2.3%
240,100 Carbide/Graphite Group* 5,012,087
- --------------------------------------------------------------------
Food--2.3%
374,600 Alpine Lace Brands, Inc.* 2,341,250
109,000 Morningstar Group, Inc.* 2,588,750
- --------------------------------------------------------------------
4,930,000
- --------------------------------------------------------------------
Healthcare Management--9.0%
20,100 Health Systems International, Inc.* 520,088
798,000 Mariner Health Group, Inc.* 7,780,500
517,100 Sun Healthcare Group, Inc.* 8,402,875
146,200 Trigon Healthcare, Inc.* 2,595,050
- --------------------------------------------------------------------
19,298,513
- --------------------------------------------------------------------
Home Furnishing & Services--2.9%
221,500 Congoleum Corp.* 3,156,375
160,900 Synthetic Industries, Inc.* 3,036,988
- --------------------------------------------------------------------
6,193,363
- --------------------------------------------------------------------
Insurance Specialty--1.6%
63,100 Old Republic International Corp. 1,695,812
83,900 Scpie Holdings, Inc.* 1,761,900
- --------------------------------------------------------------------
3,457,712
- --------------------------------------------------------------------
Insurance-Life--0.3%
36,000 AmerUs Life Holdings, Inc.* 711,000
- --------------------------------------------------------------------
Insurance-Property and Casualty--6.0%
50,500 Horace Mann Educators Co. 2,158,875
206,500 IPC Holdings Ltd. 4,943,094
92,200 Symons International Group* 1,475,200
215,800 Terra Nova Bermuda Holdings 4,262,050
- --------------------------------------------------------------------
12,839,219
- --------------------------------------------------------------------
Leisure--1.0%
210,700 Trump Hotels & Casino Resorts,
Inc.* 2,212,350
- --------------------------------------------------------------------
Media Content--9.0%
596,300 Groupe AB SA ADR* 7,602,825
609,800 Heritage Media Corp.* 7,393,825
432,300 International Post Ltd.* 1,729,200
324,200 Platinum Entertainment, Inc.* 2,674,650
- --------------------------------------------------------------------
19,400,500
- --------------------------------------------------------------------
Metal Products--0.5%
57,200 Doncasters Plc ADR* 1,122,550
- --------------------------------------------------------------------
Packaging--0.7%
88,100 Shorewood Packaging Corp.* 1,596,813
- --------------------------------------------------------------------
Real Estate--0.7%
73,700 Insignia Financial Group, Inc.* 1,538,487
- --------------------------------------------------------------------
Recreation Products--5.6%
539,200 Movado Group, Inc. 12,064,600
- --------------------------------------------------------------------
Restaurants & Hotels--6.4%
262,400 IHOP Corp.* 6,461,600
399,300 Mortons Restaurant Group, Inc.* 6,438,713
40,000 Sonic Corp.* 815,000
- --------------------------------------------------------------------
13,715,313
- --------------------------------------------------------------------
Retail Hardgoods--4.7%
731,000 Brookstone Inc.* 5,939,375
290,700 Finlay Enterprises, Inc.* 4,287,825
- --------------------------------------------------------------------
10,227,200
- --------------------------------------------------------------------
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Specialty Retail--12.7%
506,200 Friedmans, Inc.* $ 7,593,000
242,000 General Nutrition Companies, Inc.* 4,386,250
1,500 Hibbett Sporting Goods, Inc.* 24,375
1,100,400 J. Baker, Inc. 7,565,250
87,000 Leslies Poolmart, Inc.* 1,141,875
307,200 Linens N'Things, Inc.* 6,758,400
- --------------------------------------------------------------------
27,469,150
- --------------------------------------------------------------------
Telephone Communications--0.3%
15,400 Telephone & Data Systems, Inc. 587,125
- --------------------------------------------------------------------
Textiles--1.6%
87,800 Samsonite Corp.* 3,468,100
- --------------------------------------------------------------------
Trucking--2.3%
207,100 Landstar Systems, Inc.* 4,918,625
- --------------------------------------------------------------------
Voice, Video and Data--2.1%
263,200 Pegasus Communications, Inc.* 3,224,200
142,700 Rural Cellular Corp.* 1,391,325
- --------------------------------------------------------------------
4,615,525
- --------------------------------------------------------------------
Total Common Stocks
(Cost $194,261,908) $199,471,356
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bond--0.2%
- --------------------------------------------------------------------
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 412,500
- --------------------------------------------------------------------
Total Corporate Bond
(Cost $498,387) $ 412,500
====================================================================
Repurchase Agreement--7.7%
- --------------------------------------------------------------------
$16,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 16,600,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $16,600,000) $ 16,600,000
====================================================================
<CAPTION>
Contracts Description Value
====================================================================
<S> <C> <C>
Options*--0.5%
200 S&P 500 Index Put Strike 725
exp. 03/97 $ 95,000
351 S&P 500 Index Put Strike 700
exp. 03/97 92,138
560 S&P 500 Index Put Strike 750
exp. 06/97 938,000
- --------------------------------------------------------------------
Total Options
(Cost $1,643,182) $ 1,125,138
====================================================================
Total Investments
(Cost $213,003,477)/(a)/ $217,608,994
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 31,335,604
Gross unrealized loss for investments in
which cost exceeds value (26,835,810)
- --------------------------------------------------------------------
Net unrealized gain $ 4,499,794
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $213,109,200.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment opportunities.
While the fund does not allocate assets across specific countries based on
top-down economic or market forecasts, the portfolio managers strive to manage
risk by remaining diversified by country and industry sector and by closely
monitoring economic and political events in countries in which the fund does
invest.
Economic and Market Overview: European Markets Were Strong Despite Weak
Economies; Asia Faltered
Economic growth was slower than expected in many countries during the
period, prompting further monetary easing in much of Europe and continued very
low short-term interest rates in Japan. European equity markets performed very
well despite the growth shortfall, benefiting from an increased focus on
improving shareholder value. The Japanese market declined significantly, while
results in other Asian markets were mixed.
.. Europe. The economies of several European markets, such as the U.K., Norway
and Ireland, strengthened during the period, but overall growth remained weak
throughout most of Europe. A number of European countries attempted to stimulate
their economies through monetary easing, but maintained tight fiscal policies in
an effort to reduce their budget deficits enough to qualify for European
Monetary Union. This strategy proved to be only modestly successful, as
unemployment remained at record highs, particularly in Germany. Though the
recovery was somewhat disappointing, European equity markets rose 26.6% during
the period (as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies), fueled by low inflation, low interest rates and relatively strong
bond markets. In addition, corporate profits improved, reflecting increased
emphasis on cost cutting and restructuring. The equity markets of Finland, Spain
and Sweden were among the strongest performers, while British stocks lagged much
of Europe due to a strengthening currency (which made U.K. exports more
expensive) and expectations of increases in short-term interest rates.
.. Japan. The Japanese economy strengthened during the period, but earnings
growth fell short of expectations. For the 12-month period ended January 31,
Japanese stocks (as measured by the TOPIX index in yen) declined 14.9%, with
approximately half of the loss occurring in January 1997 alone. During the first
half of the period, the Japanese market was bolstered by heavy demand from
Europe and the U.S., but foreign investors subsequently became net sellers when
the economic recovery softened and raised uncertainty surrounding the
sustainability of corporate profits. The weaker corporate earnings outlook
resulted in a conspicuous divergence between the performance of the largest
international blue-chip stocks and the rest of the market, particularly in the
third quarter. Lackluster investor sentiment was further exacerbated at the end
of the year due to increased pessimism that the Liberal Democratic Party (LDP)
government's higher taxes and scant spending on public works would dampen the
economy.
.. Asia (ex-Japan). Asian stock markets rose 2.4% during the period, as measured
by the MSCI All Country Asia Free (Ex Japan) Index (in terms of local
currencies). Asian markets began the period on a strong note, but several
markets faltered during the spring and summer due to a host of issues. These
included political uncertainty arising from national elections in several Asian
countries as well as slowing economic growth throughout the region, principally
due to weak electronics exports. From
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
September 1996 through January 1997, the region generally improved due to
stronger corporate earnings and stabilizing exports. The performance of the
individual markets varied widely. Malaysia was one of the region's best
performing markets during the period under review, rising 18.4%; Hong Kong, the
largest market in the region, performed well with a 12.0% return; and Thailand
was by far the weakest market, declining 45.3% (all in local currency terms).
Performance Review: Security Selection, Country Allocations and Industry
Weightings All Contributed to Strong Performance
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Fund Total FT/S&P
Return Actuaries
(based on Europe &
net asset Pacific Index
value) Total Return
------ ------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 13.48% 1.27%
Class B (5/1/96 - 1/31/97)* 2.83% -4.22%
Institutional (2/7/96 - 1/31/97)* 12.53% 0.53%
Service (3/6/96 - 1/31/97)* 10.42% 0.86%
- ------------------------------------------------------------------------------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inception through the end of
the period.
The fund performed extremely well during the period under review,
with all of its share classes outperforming the benchmark, the Financial
Times/S&P Actuaries Europe & Pacific Index ("Europac") unhedged. Europac is a
capitalization-weighted composite of approximately 1,500 stocks from 23
countries in Europe and the Asia-Pacific region and is calculated on a monthly
basis. We are also pleased to note that the fund's Class A shares placed in the
top third of the Lipper international fund category (ranking 93rd out of 342)
for the 12-month period ended January 31, 1997, according to Lipper Analytical
Services, Inc. (Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results. Lipper
did not rank the fund's Class B, Institutional or Service shares.)
The primary driver of the fund's superior performance was successful
stock selection, as we continued to focus on growing companies that actively
increased shareholder value through actions such as cost cutting, share buybacks
or restructuring. In addition, country allocations that worked in the fund's
favor were its overweighting in Sweden, one of the strongest performing markets
during the period, and its underweighting in Japan, one of the weakest, each the
result of our bottom-up approach to stock selection. The fund's industry
allocations also added value. The fund was overweighted in business services and
diversified consumer goods/services, which were among the best performing
sectors, and underweighted in financial services and basic industries, which
performed relatively poorly.
In terms of currency exposure, though the fund's neutral exposure is
unhedged, it was substantially hedged against the yen, which benefited
performance significantly when the yen continued to fall against the dollar. In
addition, the fund was partially hedged against some European currencies, such
as the Deutsche mark and the Swiss franc, which worked in its favor when the
dollar rose against those currencies.
The fund's Class B shares outperformed the benchmark by a wide
margin, but their performance was not as strong as the other share classes
because they began operations in May, after equity prices had already risen
significantly.
Portfolio Composition: A Widely Diversified Portfolio
As of January 31, 1997, the fund held positions in 56 companies based
in 16 countries. In terms of total portfolio assets, the five largest country
exposures were Japan (27.3%), the U.K. (12.6%), Germany (7.1%), Sweden (7.0%)
and Switzerland (6.8%).
Europe. At the end of the period, the portfolio's 53.0% allocation in European
stocks was in line with that of the benchmark (54.1%). In general, growth stocks
led the
- --------------------------------------------------------------------------------
41
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
- --------------------------------------------------------------------------------
market during the period. Many of the fund's European holdings were
growth-oriented stocks that benefited from positive earnings surprises and
successful efforts by senior management to enhance equity returns and
shareholder value. Several of the portfolio's longer term European holdings
were, once again, among its strongest performers. Securitas (Sweden), the
largest security services company in Europe, more than doubled during the
period, boosted by earnings from companies it acquired in Germany, France and
Portugal. Fresenius (Germany), a major producer of medical supplies, rose over
140% as it merged its global kidney dialysis division with W. R. Grace's
National Medical Center healthcare subsidiary and spun off the resulting
business, Fresenius Medical Care. Ericsson (Sweden), one of the world's leading
suppliers of mobile telephones and infrastructure, rebounded from weakness early
in the period when it achieved very good earnings, which reassured investors
that it was not suffering from margin pressure or weak mobile telephone orders.
Other strong performers were Randstad Holdings (Netherlands), the leading
temporary help organization in its market, which reported healthy sales and
earnings as its business continued to expand, and Comptoirs Modernes (France), a
supermarket chain operator, which gained market share in France and made
important acquisitions in Spain.
Several of the fund's newer additions also contributed to its
positive results. These included two pharmaceutical companies: Hoechst
(Germany), whose acquisition and restructuring plans indicate a commitment to
improving shareholder value, and Novartis (Switzerland), which was formed
through the merger of Ciba-Geigy and Sandoz and is expected to benefit from
significant cost reductions as well as new product development. Other
significant new positions that performed well were SGS Thomson (France), one of
the 10 largest semiconductor manufacturers in the world, which operates in the
high-value-added, application-specific sector of the market, and Telecom Italia
Mobile (Italy), the leading mobile telephone operator in Italy, which generates
strong cash flow and is extremely profitable.
Japan. Approximately 27% of the fund was invested in Japan, which was
underweighted relative to the benchmark (32.1%). The fund's Japanese stocks
fared better than the market, as we avoided banks and brokerages, two of the
weakest industries. We invested in companies with relatively robust earnings
visibility and good valuations, particularly favoring management that improved
cost competitiveness and strengthened their core business. The fund's best
performing Japanese stocks were TDK Corp., an electronic components manufacturer
that reported better than expected earnings due to strong sales of personal
computer-related components; Hoya Corp., an optical glass manufacturer that
aggressively restructured its operations and successfully diversified its
business so that it now dominates the glass magnetic disc market; and Mirai
Industry, a market leader in electric cables, pipes and other electric wiring
that introduced new products and cut costs. In contrast, Kyocera Corp., an
electronics components manufacturer, reported disappointing results due to
increased competition in the semiconductor and communication equipment
businesses. A new addition was Takeda Chemical Industry, the largest
pharmaceutical company in Japan, where aggressive new management initiatives
rapidly expanded overseas sales and improved the profitability of its
prescription drug business.
Asia-Pacific. Asia, a 13.5% allocation (excluding Japan), was slightly
overweighted compared with the benchmark's 10.7%, with Hong Kong representing
the largest country position at 6.7% of the portfolio. For most of the period,
the fund was overweighted in Malaysia, Hong Kong and Australia, which were three
of the better performing Asian markets. Though the performance of some of the
other markets fell short of expectations, our stock selection within the region
worked in the fund's favor. Several of the fund's top performers were financial
stocks, including Commerce Asset-Holdings, the fifth largest financial group in
Malaysia, which benefited from its merchant banking operations and strong loan
growth, and HSBC Holdings, a Hong Kong-based banking and financial services
organization, which reported strong results due to its dominant market position.
New holdings include Australia & New Zealand Bank Group, a bank that is
positioned to benefit from the potential deregulation in Australia's financial
services sector, and Asia Satellite Telecommunications Holdings Ltd., a
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
leading satellite owner and operator in the Asia-Pacific region that owns prime
orbital slots that are expected to result in high utilization rates and fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total
Company Country Line of Business Net Assets
<S> <C> <C> <C>
HSBC Holdings Hong Kong Banking and 3.0%
Finance
Novartis Switzerland Pharmaceuticals 3.0%
Fresenius Germany Kidney Dialysis 2.4%
Equipment
TDK Corp. Japan Tape and Disc 2.4%
Manufacturer
Telecom Italia Italy Mobile Tele- 2.4%
Mobile communications
Operator
Canon, Inc. Japan Office Equipment 2.4%
Manufacturer
Adecco Switzerland Temporary Help 2.4%
Services
Adidas Germany Sporting Goods 2.4%
Manufacturer
Hoechst Germany Chemical and 2.3%
Drug
Manufacturer
Hoya Corp. Japan Optical Glass 2.3%
Manufacturer
- --------------------------------------------------------------------
</TABLE>
Outlook
In the near term, we expect most international economies to continue
to experience moderate growth and subdued inflation. We are particularly
positive on the prospects for the European markets in 1997, where we expect a
modest acceleration in economic growth and a continuation of healthy corporate
earnings growth helped by cost cutting as well as restructuring initiatives.
We are currently most concerned about Japan. Despite the sharp
correction, we expect to remain underweighted in the Japanese market because of
our negative view of the banking sector and only modest earnings recoveries in
nonmanufacturing sectors. Lack of investor confidence in the government's
commitment to deregulation, as well as simultaneous weakness in the bond and
currency markets, have all impacted market sentiment. In this state of
uncertainty, superior stock selection will be essential, and we intend to
emphasize companies with clear earnings visibility, strong management and
attractive valuations. Despite the generally poor conditions, the earnings for
the fund's Japanese holdings are above expectations and are being upgraded. In
non-Japan Asia, corporate earnings reports have been mixed, but we believe
improved political stability and export growth should help stocks in 1997.
Finally, we are pleased to report that we have expanded our
international equity team in all geographic regions to support our effort to
seek out the most promising companies around the world.
/s/ Roderick D. Jack
Roderick D. Jack
Senior Portfolio Manager, London
/s/ Marcel Jongen
Marcel Jongen
Senior Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Senior Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager, Singapore
March 3, 1997
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and Class B, respectively) on the
inception date of each class. For comparative purposes, the performance of the
Fund's benchmark (the Financial Times-Actuaries World Euro-Pacific Index
Unhedged ("FT Euro-Pac (Unhedged)/(b)/) is shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class A Class A FT Euro-Pac Ft Euro-Pac
(w/sales charge) (no sales charge) (Comb )(b) (Unhedged)
---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
12/1/92 9,450 10,000 10,000 10,000
1/31/93 9,566 10,123 10,063 10,055
1/31/94 12,066 12,768 13,498 14,399
1/31/95 10,058 10,643 12,119 13,902
1/31/96 12,942 13,695 13,983 16,039
1/31/97 14,961 15,546 14,160 16,243
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class B Class B FT Euro-Pac
(w/sales charge) (no sales charge) (Unhedged)
---------------- ----------------- -----------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 10,283 9,783 9,578
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Institutional Class (Unhedged)
------------------- -----------
<S> <C> <C>
2/7/96 10,000 10,000
1/31/97 11,253 10,053
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Service Class (Unhedged)
-------------- -----------
<S> <C> <C>
3/6/97 10,000 10,000
1/31/97 11,042 10,086
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------- ------------------- --------------------
<S> <C> <C>
Class A, no sales charge 13.48% 11.15%
- -------------------------------------- ------------------- --------------------
Class A, w/sales charge 7.26% 9.66%
- -------------------------------------- ------------------- --------------------
Class B, no redemption charge N/A 2.83% /(c)/
- -------------------------------------- ------------------- --------------------
Class B, w/redemption charge N/A (2.17)%/(c)/
- -------------------------------------- ------------------- --------------------
Institutional Class N/A 12.53% /(c)/
- -------------------------------------- ------------------- --------------------
Service Class N/A 10.42% /(c)/
- -------------------------------------- ------------------- --------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations
on December 1, 1992, May 1, 1996, February 7, 1996 and March 6, 1996,
respectively.
/(b)/ Beginning on September 1, 1994, the Class A shares began using the
unhedged FT Euro-Pac as its benchmark (prior thereto, Class A used the
hedged FT Euro-Pac). The combined FT Euro-Pac represents the hedged FT
Euro-Pac performance up to August 31, 1994 and the unhedged FT Euro-Pac
performance from September 1, 1994 through January 31, 1997.
/(c)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
44
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--91.5%
Australian Dollar--3.6%
1,851,658 Australia & New Zealand Bank Group
(Commercial Banks) $ 11,355,706
1,564,955 Woodside Petroleum, Ltd. (Oil &
Gas) 11,053,763
- --------------------------------------------------------------------
22,409,469
- --------------------------------------------------------------------
Austrian Schilling--1.2%
105,400 Oesterreichische Elektrizitats
(Utilities) 7,698,241
- --------------------------------------------------------------------
Belgian Franc--0.2%
14,400 Dexia (Financial Services) 1,372,240
- --------------------------------------------------------------------
British Pound Sterling--12.6%
1,391,569 British Airport Authority
(Transportation) 11,661,442
1,788,649 Electrocomponents (Wholesale
Trade) 12,753,546
1,261,210 Premier Farnell PLC (Electronics) 10,670,067
706,368 Misys PLC (Business Services and
Computer Software) 12,393,414
1,708,700 Rentokil Group (Business Services) 12,553,100
473,916 Siebe (Machinery and Engineering
Services) 7,973,270
873,509 Standard Chartered (Banking) 10,497,224
- --------------------------------------------------------------------
78,502,063
- --------------------------------------------------------------------
Deutsche Mark--4.7%
155,760 Adidas AG (Textiles) 14,749,495
343,320 Hoechst AG (Healthcare) 14,439,672
- --------------------------------------------------------------------
29,189,167
- --------------------------------------------------------------------
French Franc--6.4%
22,531 Comptoirs Modernes (Retail) 11,749,983
40,720 CLF Dexia (Financial Services) 3,649,869
95,602 CLF Dexia - Registered Shares 8,569,124
(Financial Services)
63,189 Seita (Tobacco) 2,400,553
193,600 SGS Thomson Microelectronics
(Electronics) 13,882,408
- --------------------------------------------------------------------
40,251,937
- --------------------------------------------------------------------
Hong Kong Dollar--6.7%
4,148,000 Asia Satellite Tel.
(Telecommunications) 9,233,837
816,800 HSBC Holdings (Commercial Banks) 18,920,583
1,185,000 Sun Hung Kai Properties Co. (Real
Estate) 13,380,759
- --------------------------------------------------------------------
41,535,179
- --------------------------------------------------------------------
Irish Pound--2.3%
1,491,014 Bank of Ireland (Commercial Banks) 14,247,624
- --------------------------------------------------------------------
Italian Lira--2.4%
3,000,500 Telecom Italia Mobile (Utilities) 8,930,448
3,574,000 Telecom Italia Mobile (Di Risp
Shares) (Utilities) 6,095,944
- --------------------------------------------------------------------
15,026,392
- --------------------------------------------------------------------
Japanese Yen--27.3%
206,000 Aderans Company Ltd. (Retail) 4,808,281
702,000 Canon, Inc. (Office Equipment
Manufacturer) 14,880,119
363,000 Hoya Corp. (Electronics and
Instrumentation) 14,520,599
297,400 Inaba Denkisangyo (Industrial) 5,396,346
458,000 Kokuyo Co., Ltd. (Office Equipment
Manufacturer) 9,594,787
149,000 Kyocera Corp. (Electronics) 8,749,887
358,000 Max Co. (Electronics and
Instrumentation) 5,432,966
238,900 Mirai Industry Co. (Electrical
Equipment Manufacturer) 5,852,060
1,927,000 Mitsubishi Heavy Industries Ltd.
(Engineering) 13,874,972
1,530,000 Mitsui Marine & Fire (Insurance) 8,215,019
450,100 Santen Pharmaceutical Co.
(Healthcare) 8,352,716
92,800 Sanyo Shinpan Financial
(Financial) 5,204,668
</TABLE>
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Japanese Yen (continued)
322,000 Shimachu (Retail-Furniture) $ 6,905,027
213,900 SMC Corp. (Machinery) 13,125,622
410,000 Taikisha Ltd. (Machinery) 5,038,558
570,000 Takeda Chemical Industry
(Healthcare) 11,235,927
235,000 TDK Corp. (Consumer Goods) 15,040,620
464,000 Tostem Corp. (Construction) 10,906,842
146,800 York Benimaru (Retail) 3,922,900
- --------------------------------------------------------------------
171,057,916
- --------------------------------------------------------------------
Malaysian Ringgit--1.9%
1,328,000 Commerce Asset Holdings
(Commercial Banks) 10,683,829
581,000 Leader Universal Holdings
(Metals-Diversified) 1,168,544
- --------------------------------------------------------------------
11,852,373
- --------------------------------------------------------------------
Netherlands Guilder--5.0%
146,070 Aegon (Insurance) 8,951,011
136,180 Randstad Holdings (Business
Services) 9,471,458
102,016 Wolters Kluwer (Media) 12,602,793
- --------------------------------------------------------------------
31,025,262
- --------------------------------------------------------------------
Singapore Dollar--1.5%
1,511,000 Singapore Land (Real Estate) 9,123,100
- --------------------------------------------------------------------
Spanish Peseta--1.9%
63,595 Banco Popular (Commercial Banks) 11,571,494
- --------------------------------------------------------------------
Swedish Krona--7.0%
335,300 Ericsson Telecommunications
(Computer - Office) 11,255,719
268,440 Hoganas AB (Metal Products) 8,455,037
405,970 Securitas AB (Business Services) 12,057,737
3,469,100 Swedish Match AB (Tobacco) 11,741,304
- --------------------------------------------------------------------
43,509,797
- --------------------------------------------------------------------
Swiss Franc--6.8%
52,468 Adecco SA (Business Services) 14,753,971
6,726 Cie Financier Richemont AG
(Consumer Goods) 9,231,858
16,335 Novartis AG (Healthcare) 18,730,002
- --------------------------------------------------------------------
42,715,831
- --------------------------------------------------------------------
Total Common Stocks
(Cost $503,926,410) $ 571,088,085
====================================================================
Preferred Stock--2.4%
- --------------------------------------------------------------------
Deutsche Mark--2.4%
74,790 Fresenius AG (Health Care),
Non-voting $ 15,042,126
- --------------------------------------------------------------------
Total Preferred Stock
(Cost $4,437,079) $ 15,042,126
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Short-Term Obligations--6.6%
- --------------------------------------------------------------------
$ 41,394,109 State Street Bank & Trust
Euro-Time Deposit 5.5%, 02/03/97** $ 41,394,109
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $41,394,109) $ 41,394,109
====================================================================
Total Investments
(Cost $549,757,598)/(a)/ $ 627,524,320
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $108,968,495
Gross unrealized loss for investments in
which cost exceeds value (31,533,818)
- --------------------------------------------------------------------
Net unrealized gain $ 77,434,677
====================================================================
</TABLE>
/(a)/ The aggregate cost for federal income tax purposes is $550,089,643.
* Non-income producing security.
** A portion of this security has been segregated for extended
settlement securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an intergral part of these financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------
Common and Preferred Stock Industry Concentrations
====================================================================
<S> <C>
Business Services 7.8%
Commercial Banks 12.4%
Computer Software and Services 2.0%
Computer - Office 1.8%
Construction 1.7%
Consumer Goods 3.9%
Electrical Equipment Manufacturer 0.9%
Electronics 5.3%
Electronics and Instrumentation 3.2%
Engineering 2.2%
Financial 0.8%
Financial Services 2.2%
Health Care 10.9%
Industrial 0.9%
Insurance 2.7%
Machinery 2.9%
Machinery and Engineering Services 1.3%
Media 2.0%
Metal Products 1.4%
Metals-Diversified 0.2%
Office Equipment Manufacturer 3.9%
Oil & Gas 1.8%
Real Estate 3.6%
Retail 3.3%
Retail-Furniture 1.1%
Telecommunications 1.5%
Textiles 2.4%
Tobacco 2.3%
Transportation 1.9%
Utilities 3.6%
Wholesale Trade 2.0%
- --------------------------------------------------------------------
Total Common and Preferred Stock 93.9%
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
- --------------------------------------------------------------------
47
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets, including China, Hong Kong, India, Indonesia, Malaysia, Pakistan,
the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its
price-to-book value and the predictability of its earnings stream as among the
best measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers and
competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell a
position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in one country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
Market Overview: Results Were Mixed in Asian Markets
As a group, the Asian stock markets rose 2.37% during the period, as
measured by the MSCI All Country Asia Free (Ex Japan) Index (without dividends
reinvested). The weak performance indicated by the Index masks the wide
divergence of performance among the individual Asian markets, as several
countries rose more than 10% while others fell more than 20%. The period under
review began on a strong note, but the region quickly sold off in mid-February
when investors became unnerved by rising political tension between China and
Taiwan. Though the Asian markets briefly rebounded, investor interest was
dampened again during the spring and summer due to uncertainty surrounding
national elections in several countries, a decline in exports and slowing
economic growth. From October 1996 through January 1997, most Asian markets
recovered due to improving corporate earnings and signs of stabilizing export
growth.
In terms of individual markets, Taiwan, Malaysia and Indonesia were the
strongest performers, rising 56.0%, 21.9% and 17.5%, respectively (in U.S.
dollar terms), with each overcoming brief setbacks such as negative short-term
economic data and political upheaval. Other positive markets were India, which
was the region's strongest performer during the first half of the year and
subsequently gave back some of its gains, and the Philippines, where healthy
economic growth and declining inflation renewed investor interest. Hong Kong,
the most heavily weighted country in the Index, posted lackluster results early
in the period, then rebounded to close the period with a 12.0% gain due to a
favorable interest rate environment and a soaring property market. The weakest
performer was Thailand, which dropped 46.5%. Thailand was impacted by a very
large budget deficit, exacerbated by the slowdown of computer-related exports as
well as a tear in the speculative bubble in the real estate market, as
nonperforming property loans caused problems in the banking sector. South Korea
and Singapore were weak as well, declining approximately 34% and 7%,
respectively. South Korean equities were affected by an ongoing investigation of
government corruption and a weakening economy, and Singapore's market fell due
to soft electronics exports.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Review: Country Allocations Affected the Fund's Performance
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Fund Total MSCI AC
Return Asia Free
(based on net (Ex Japan)
asset value) Index +
------------ -----
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* -1.01% 2.37%
Class B (5/1/96 - 1/31/97)* -6.02% -2.50%
Institutional (2/2/96 - 1/31/97)* -1.09% 2.06%
- -------------------------------------------------------------------
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Class B and Institutional shares is a cumulative total
return (not annualized) from their inception through the end of the period.
+ Represents a price-only index that does not reflect reinvested dividends.
During the period under review, stock selection benefited the fund as a
number of holdings achieved strong returns. The fund's performance was
nonetheless affected by its country over- and underweightings relative to the
Index when individual markets performed better or worse than expected. For
example, Taiwan and Malaysia were two of the region's best performing markets,
but the fund was underweighted in those countries and therefore did not fully
participate in their rallies.
Financial, Property and Infrastructure Stocks Were the Strongest Performers
The fund's best performers during the period were its positions in the
financial, real estate and infrastructure sectors. Top financial stocks included
two of our Hong Kong investments, HSBC Holdings PLC, one of the world's largest
banking and financial services companies, and Wing Hang Bank Ltd., a provider of
banking, foreign exchange and treasury services, which both benefited from
strong growth in mortgage loans resulting from Hong Kong's robust property
market. Metropolitan Bank and Trust, the Philippines' largest bank in terms of
assets, rose substantially due to the growing Philippine economy and aggressive
branch expansion, and Commerce Asset-Holdings, the fifth largest financial group
in Malaysia, benefited from its merchant banking operations and strong loan
growth.
In the real estate sector, Hong Kong's booming property market buoyed
several of the fund's holdings. These included Sun Hung Kai Properties, one of
the largest and best managed property companies in Hong Kong; Henderson Land
Development, a large property development and investment holding company that
concentrates on mass residential developments; and HKR International Ltd., a
real estate developer that primarily focuses on residential development in
Discovery Bay on Lantau Island (a self-contained community that offers a
"quality lifestyle").
Other strong performers were two Malaysian companies that benefited from
the government's commitment to improve the country's infrastructure. Road
Builder Malaysia Holdings, a contractor specializing in civil engineering and
road construction, continued its strategic expansion and diversification, and
United Engineers Malaysia, Malaysia's largest builder and operator of toll
roads, rose due to the opening of several new roads.
Stocks that did not fulfill our expectations included Leader Universal
Holdings, Malaysia's leading manufacturer of power and telecommunication cable,
which reported lower than expected earnings due to very low export margins;
Industrial Finance Corp. of Thailand (IFCT), which declined in sympathy with
Thailand's financial sector; and Tata Engineering and Locomotive Company
(TELCO), India's largest vehicle manufacturer, which slumped on speculation
concerning rising inventories and general market uncertainty. We significantly
reduced the fund's position in Leader Universal Holdings and IFCT, but we
continue to have confidence in TELCO, which has strong fundamentals and fared
well relative to the broader Indian market.
Portfolio Composition
As of January 31, 1997, 97.1% of the fund's total market value was
invested in equities while 2.2% was in cash equivalents, with the remainder in
other securities. The fund's five largest country exposures were Hong Kong
(39.9%), Malaysia (13.5%), Singapore (10.1%), India (9.9%) and Indonesia (5.2%).
At the end of the period, the portfolio was overweighted relative to the Index
in Hong Kong, India and South Korea, slightly underweighted in
- --------------------------------------------------------------------------------
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
- --------------------------------------------------------------------------------
the Philippines, and significantly underweighted in Thailand, Singapore,
Malaysia and Taiwan.
Additions in Real Estate and Security Services, Reductions in Several Existing
Positions
During the period, we added Hysan Development Company, a property
investment company that owns a number of commercial and residential properties
in Hong Kong and should be a beneficiary of rising rental prices, and
Taiwan-Sogo Shinkong, a security services company that controls approximately
38% of the market in Taiwan and is expected to experience growing demand from
residential clients. Other portfolio changes included the trimming of several
positions in Hong Kong after they appreciated significantly and became more
fully valued. These included Sun Hung Kai Properties, Henderson Land Development
and HKR International Ltd.
<TABLE>
<CAPTION>
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
Line of of Total
Company Country Business Net Assets
<S> <C> <C> <C>
HKR International Hong Kong Property 4.4%
Ltd.
Road Builder Malaysia Infrastructure 4.1%
Malaysia Holdings
Swire Pacific Ltd. Hong Kong Conglomerate 4.1%
Metropolitan Bank Philippines Banking and 3.8%
and Trust Finance
Wing Hang Bank Hong Kong Banking and 3.9%
Ltd. Finance
Henderson Land Hong Kong Property 3.7%
Development
HSBC Holdings PLC Hong Kong Banking and 3.5%
Finance
Hutchison Hong Kong Conglomerate 3.5%
Whampoa
Sun Hung Kai Hong Kong Property 3.5%
Properties
Commerce Asset- Malaysia Conglomerate 3.5%
Holdings
</TABLE>
Outlook
In 1997, we expect export growth to strengthen, which should stimulate
economies throughout the region. With most of the region's elections now over,
the region should also benefit from greater political stability in 1997. Though
the recent death of Deng Xiaoping may increase near-term volatility, we remain
optimistic that the handover of Hong Kong to China will proceed smoothly, as it
is in China's best interests to maintain Hong Kong's current economic success.
We intend to increase the fund's weightings in Malaysia, the Philippines and
Indonesia, markets that we expect to benefit from stable currencies and good
economic fundamentals. In September 1996, the benchmark established a new
weighting in Taiwan and doubled its weighting in Korea, and we are actively
seeking investment opportunities in these countries. We continue to have a
favorable view of India but are still cautious regarding Thailand and Singapore,
where real estate overdevelopment may continue to hinder their respective
markets for the near term.
In general, we believe that Asian equities are attractively valued on a
historical basis. We expect that economic growth in the region may slow somewhat
to 5% to 7% annually, still approximately double versus the U.S., one of the
world's most mature economies. Over time, we intend to broaden our emphasis from
companies that tend to do well in the earliest stages of emerging economies to
companies that we believe are poised to benefit most from the region's internal
growth. These include new start-ups, consumer-related products and services, and
infrastructure companies.
On another front, we are pleased to announce that we have recently
expanded our portfolio management team. Our new team members will focus
primarily on real estate companies, conglomerates and cyclical industries, and
they will enhance our ability to seek out companies with above-average growth
potential.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We appreciate your continued support in what has been a challenging period
for the region and the fund. Going forward, we remain confident that the region
continues to offer many attractive investment opportunities for investors with a
long-term view.
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
March 3, 1997
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Morgan Stanley Capital International Combined Asia (ex Japan) Index ("MSCI
Combined Asia-ex Japan")) is shown for the appropriate time periods. All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares, when
redeemed, to be worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class A Class A MSCI
(w/sales charge) (no sales charge) Combined
---------------- ----------------- --------
<S> <C> <C> <C>
7/8/94 $ 9,450 $10,000 $10,000
1/31/95 8,934 9,454 9,074
1/31/96 11,300 11,958 11,129
1/31/97 11,186 11,837 11,393
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class B Class B MSCI
(w/redemp. charge) (no redemp. charge) Combined
------------------- ------------------ --------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 9,398 8,928 9,750
</TABLE>
Institutional
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth MSCI
Institutional Combined
-------------- --------
<S> <C> <C>
2/2/96 $10,000 $10,000
1/31/97 9,891 10,206
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge (1.01)% 6.78%
- -------------------------------------------------------------------------
Class A, w/sales charge (6.44)% (4.46)%
- -------------------------------------------------------------------------
Class B, no redemption charge N/A (6.02)%/(b)/
- -------------------------------------------------------------------------
Class B, w/redemption charge N/A (10.72)%/(b)/
- -------------------------------------------------------------------------
Institutional Class N/A (1.09)%/(b)/
- -------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B and Institutional shares commenced operations July 8,
1994, May 1, 1996 and February 2, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
52
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
Common Stocks--96.0%
<S> <C> <C>
Hong Kong Dollar--39.9%
3,734,000 Asia Satellite Tel.*
(Telecommunications) $ 8,312,234
1,107,000 Henderson Land Development Co.
(Recreational Services) 10,250,000
7,947,440 HKR International Ltd.
(Real Estate) 12,358,582
2,731,000 Hong Kong Electric Holdings
(Utility) 9,709,517
426,000 HSBC Holdings
(Commercial Banks) 9,867,983
1,305,000 Hutchison Whampoa
(Conglomerates) 9,851,916
2,513,000 Hysan Development
(Utility) 9,145,257
9,735,666 JCG Holdings Ltd.
(Financial Services) 8,669,002
2,308,200 San Miguel Brewery Ltd.
(Breweries) 1,049,994
869,000 Sun Hung Kai Properties Co.
(Real Estate) 9,812,556
1,262,000 Swire Pacific Ltd. "A"
(Transportation) 11,603,755
2,316,500 Wing Hang Bank Ltd.
(Financial Services) 11,030,952
- --------------------------------------------------------------------
111,661,748
- --------------------------------------------------------------------
Indian Rupee--9.9%
235,000 Brook Bond Lipton India Ltd.
(Food) 2,438,494
372,900 Colgate Palmolive
(Conglomerates) 2,613,421
259,600 Hindustan Lever Ltd.
(Household Products) 6,423,018
10,000 Larsen & Toubro Ltd.
(Engineering) 65,272
143,500 Larsen & Toubro Ltd. GDR
(Engineering) 1,919,313
214,000 Larsen & Toubro LTD. GDS
(Engineering) 2,862,250
434,250 Mahindra & Mahindra Ltd.
(Autos and Trucks) 4,339,472
165,750 Mahindra & Mahindra GDR
(Autos and Trucks) 1,895,351
4,000 Niit Limited
(Computers) 32,022
80,000 Tata Engineering & Locomotive Ltd.
GDR (Engineering) 786,000
446,600 Tata Engineering & Locomotive Ltd.
GDS (Engineering) 4,387,845
- --------------------------------------------------------------------
27,762,458
- --------------------------------------------------------------------
Indonesian Rupiah--5.2%
2,374,750 Indofoods Sukses Makmur - Foreign
(Food) 5,245,031
2,346,000 PT Bank of Bali - Foreign
(Banking) 5,675,011
2,613,000 PT Jaya Real Property - Foreign
(Real Estate) 3,627,640
- --------------------------------------------------------------------
14,547,682
- --------------------------------------------------------------------
Malaysian Ringgit--13.2%
1,217,000 Commerce Asset Holdings
(Conglomerates) 9,790,829
623,000 Leader Universal Holdings
(Electronics) 1,253,017
1,936,000 Road Builder Malaysia Holdings
(Construction) 11,603,540
941,000 Tenaga National Berhad
(Utility) 4,504,385
1,081,000 United Engineers Malaysia Holdings
(Construction) 9,696,822
- --------------------------------------------------------------------
36,848,593
- --------------------------------------------------------------------
New Taiwan Dollar--2.5%
2,118,000 Taiwan Sogo Shinkong Securities
(Financial Services) 7,103,755
- --------------------------------------------------------------------
Philippine Peso--4.6%
18,189,000 Centennial City Inc.
(Real Estate) 2,208,911
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Philippine Peso (continued)
393,454 Metropolitan Bank and Trust
(Banking) $ 10,750,925
- --------------------------------------------------------------------
12,959,836
- --------------------------------------------------------------------
Singapore Dollar--9.9%
639,000 Overseas Union Bank - Foreign
(Banking) 5,174,457
1,149,000 Singapore Land
(Real Estate) 6,937,420
383,000 Singapore Press Holdings - Foreign
(Printing & Publishing) 7,671,970
2,195,000 Straits Steamship Land
(Conglomerates) 7,795,852
- --------------------------------------------------------------------
27,579,699
- --------------------------------------------------------------------
South Korean Won--3.8%
168,920 Korea Mobile Telecommunications
Corp. ADR* (Telecommunications) 2,512,685
4,759 Korea Mobile Telecommunications
Corp. (Telecommunications) 5,228,904
7,132 Samsung Fire & Marine Insurance
(Insurance) 2,982,743
- --------------------------------------------------------------------
10,724,332
- --------------------------------------------------------------------
Thai Baht--3.9%
723,800 Electricity Generating Public Co.
(Utility) 1,815,785
758,100 Electricity Generating Public Co.
Foreign(Utility) 1,843,315
1,989,000 Industrial Finance Corp - Foreign
(Financial Services) 5,220,069
425,000 Jasmine International Co. - Foreign
(Diversified) 602,808
1,617,500 Thai Telephone & Telecom Corp. -
Foreign (Telecommunications) 1,326,587
- --------------------------------------------------------------------
10,808,564
- --------------------------------------------------------------------
United States Dollar--3.1%
387,000 Korea Electric Power Corp. ADR*
(Utilities) 8,562,375
- --------------------------------------------------------------------
Total Common Stocks
(Cost $237,846,163) $268,559,042
====================================================================
Rights & Warrants*--0.3%
Singapore Dollar--0.2%
356,750 Straits Steamship Land, exp. 12/12/00
(Conglomerate)- warrants 494,149
Thai Baht--0.1%
808,750 Thai Telephone & Telecom Corp., exp.
03/07/97 (Telecommunications)-rights 351,155
- --------------------------------------------------------------------
Total Rights & Warrants
(Cost $287,980) $ 845,304
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bonds--0.3%
Malaysian Ringitt--0.3%
MYR United Engineers Malaysia
1,024,000 (Construction) 4.00%, 05/22/99 $ 848,528
- --------------------------------------------------------------------
Total Corporate Bonds
(Cost $521,580) $ 848,528
====================================================================
Short-Term Obligations--2.2%
$ 6,200,104 State Street Bank & Trust Euro-Time
Deposit, 5.50%, 02/03/97 $ 6,200,104
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $6,200,104) $ 6,200,104
====================================================================
Total Investments
(Cost $244,855,827)/(a)/ $276,452,978
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 45,982,425
Gross unrealized loss for investments in
which cost exceeds value (14,998,273)
====================================================================
Net unrealized gain $ 30,984,152
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $244,890,862.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Common Stock, Rights, Warrants, and Corporate Bond Industry
Concentrations
====================================================================
<S> <C>
Autos and Trucks 2.2%
Banking 7.8%
Breweries 0.4%
Commercial Banks 3.5%
Conglomerates 10.9%
Construction 7.9%
Diversified 0.2%
Electronics 0.4%
Engineering 3.6%
Financial Services 11.5%
Food 2.7%
Household Products 2.3%
Insurance 1.1%
Printing & Publishing 2.7%
Real Estate 12.5%
Recreational Services 3.7%
Telecommunications 6.3%
Transportation 4.1%
Utilities 12.8%
- --------------------------------------------------------------------
Total Common Stock, Rights, Warrants, and
Corporate Bonds 96.6%
====================================================================
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities
January 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
Assets:
Investments in securities, at value (identified cost $80,718,346, $302,169,999,
$513,612,707, $679,366,240, $213,003,477, $549,757,598 and $244,855,827,
respectively) $89,222,318 $393,263,171
Cash, at value 13,884 9,802
Receivables:
Investment securities sold 3,947,652 --
Forward foreign currency exchange contracts 6,692 --
Fund shares sold 565,860 3,095,601
Dividends and interest, at value 451,554 387,080
Variation margin 10,928 95,387
Deferred organization expenses, net 36,173 --
Other assets 97,786 8,495
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 94,352,847 396,859,536
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 9,690,219 --
Forward foreign currency exchange contracts -- --
Fund shares repurchased 44,298 548,016
Amounts owed to affiliates 97,949 388,699
Covered securities sold short (cash received, $936,984) 938,808 --
Accrued expenses and other liabilities 61,446 89,126
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,832,720 1,025,841
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 73,750,866 300,246,199
Accumulated undistributed (distributions in excess of) net investment income 180,204 --
(loss)
Accumulated undistributed (distributions in excess of) net realized gain (loss)
on investment, option and futures transactions 977,487 4,402,524
Accumulated net realized foreign currency gain (loss) 12,575 --
Net unrealized gain on investments, options and futures 8,611,563 91,184,972
Net unrealized loss on translation of assets and liabilities denominated in
foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $83,520,127 $395,833,695
===================================================================================================================================
<CAPTION>
Class A Class B Class A Class B
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Total shares of beneficial interest outstanding, $.001 par
value (100,000,000 and 25,000,000 shares authorized for
each Class A and B, respectively) 4,336,101 112,660 9,688,806 744,222
Net asset and Class A redemption value per share (a) $18.78 $18.73 $23.32 $23.18
Maximum public offering price per share (Class A NAV x
1.0582) $19.87 $18.73 $24.68 $23.18
Institutional Service Institutional Service
------------ -------------- ------------- ------------
Total shares of beneficial interest outstanding, $.001 par
value (50,000,000 shares per each class authorized) -- -- 6,351,958 157,464
Net asset value, offering and redemption price per share -- -- $23.44 $23.27
===============================================================================================================================
(a) At redemption, Class B shares are subject to a contingent deferred sales charge assessed on the amount equal to the lesser
of the current net asset value or the original purchase price of the shares.
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap Equity International Equity Asia Growth
Fund Fund Fund Fund Fund
==================================================================================================================================
<S> <C> <C> <C> <C>
$638,954,258 $932,041,765 $217,608,994 $627,524,320 $276,452,978
59,158 94,994 30,728 1,735,366 1,060,177
1,632,491 1,390,277 4,392,159 959,642 3,093,623
-- -- -- 2,684,757 --
4,847,992 1,524,356 820,288 4,794,141 685,136
572,159 706,624 85,173 440,308 262,880
-- -- -- -- --
19,321 -- 13,467 14,573 77,113
14,043 16,281 2,597 10,188 770
- ----------------------------------------------------------------------------------------------------------------------------------
646,099,422 935,774,297 222,953,406 638,163,295 281,632,677
- ----------------------------------------------------------------------------------------------------------------------------------
9,130,091 9,797,231 6,585,828 8,912,558 --
-- -- -- 3,434,535 1,495
414,917 850,523 165,072 198,616 694,794
716,432 1,160,456 345,810 833,473 400,444
-- -- -- -- --
21,990 99,060 121,890 255,084 846,340
- ----------------------------------------------------------------------------------------------------------------------------------
10,283,430 11,907,270 7,218,600 13,634,266 1,943,073
- ----------------------------------------------------------------------------------------------------------------------------------
492,994,560 657,200,330 203,743,684 542,859,953 266,426,371
(193,256) (275,552) -- (25,666) (1,316,323)
17,673,137 14,266,724 7,385,605 2,530,732 (16,027,669)
-- -- -- (917,847) (411,919)
125,341,551 252,675,525 4,605,517 112,491,393 33,014,375
-- -- -- (32,409,536) (1,995,231)
- ----------------------------------------------------------------------------------------------------------------------------------
$635,815,992 $923,867,027 $215,734,806 $624,529,029 $279,689,604
==================================================================================================================================
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
- ------------- ---------- ------------- ---------- ------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26,534,286 751,089 55,021,724 193,240 10,140,493 176,544 27,765,580 997,807 16,122,122 206,387
$23.18 $23.10 $16.73 $16.67 $20.91 $20.80 $19.32 $19.24 $16.31 $16.24
$24.53 $23.10 $17.70 $16.67 $22.13 $20.80 $20.44 $19.24 $17.26 $16.24
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service
- ------------- ---------- ------------- ---------- ------------- ------------ ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8,321 136,977 -- -- -- -- 3,524,169 34,830 815,499 --
$23.19 $23.17 -- -- -- -- $19.40 $19.34 $16.33 --
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
57
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===================================
<S> <C> <C>
Investment income:
Dividends /(a)/ $ 838,092 $ 5,629,026
Interest /(b)/ 2,107,288 541,011
- ----------------------------------------------------------------------------------------------------------------------------------
Total income 2,945,380 6,170,037
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 309,372 1,413,035
Administration fees 92,811 706,517
Distribution fees 157,253 468,965
Authorized dealer service fees 154,686 444,626
Custodian fees 93,352 95,947
Transfer agent fees 148,576 319,246
Professional Fees 71,598 74,319
Amortization of deferred organization expenses 13,468 9,549
Director fees 1,171 2,728
Other 53,077 96,414
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,095,364 3,631,346
Less--expenses reimbursed and fees waived by Goldman Sachs (472,758) (626,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 622,606 3,005,158
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2,322,774 3,164,879
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 3,811,127 14,386,845
Options written (2,680) --
Futures transactions 148,013 645,873
Foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on:
Investments 5,008,557 49,393,370
Futures 14,475 67,175
Translation of assets and liabilities denominated in foreign currencies (12,568) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign currency
transactions 8,979,499 64,493,263
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 11,302,273 $ 67,658,142
==================================================================================================================================
</TABLE>
/(a)/ For the Balanced, Select Equity, Growth and Income, Capital Growth, Small
Cap Equity, International Equity and Asia Growth Funds, taxes withheld on
dividends were $1,496, $42,274, $23,285, $53,869, $4,211, $900,877 and
$372,334, respectively.
/(b)/ For the Balanced Fund, taxes withheld on interest were $969.
/(c)/ Certain expenses reflected in the above statement of operations are
incurred on a class specific basis.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------
Goldman Sachs Goldman Sachs
Growth and Income Capital Growth
Fund Fund
<S> ========================================
Investment income: <C> <C>
Dividends /(a)/ $ 13,008,785 $ 14,748,431
Interest /(b)/ 1,235,823 2,802,840
- ---------------------------------------------------------------------------------------------------------------------------------
Total income 14,244,608 17,551,271
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 2,782,464 6,522,949
Administration fees 758,854 2,174,316
Distribution fees 1,280,332 2,179,405
Authorized dealer service fees 1,261,615 2,174,316
Custodian fees 102,394 129,556
Transfer agent fees 871,030 908,310
Professional Fees 75,891 74,529
Amortization of deferred organization expenses 19,164 --
Director fees 6,744 13,973
Other 144,279 208,397
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,302,767 14,385,751
Less--expenses reimbursed and fees waived by Goldman Sachs (1,113,014) (2,171,272)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 6,189,753 12,213,979
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 8,054,855 5,337,292
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 58,221,421 53,687,297
Options written (37,206) --
Futures transactions 45,994 --
Foreign currency related transactions -- --
Net change in unrealized gain (loss) on:
Investments 67,575,111 145,350,120
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign curren
transactions 125,805,320 199,037,417
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $133,860,175 $204,374,709
====================================================================================================================================
<CAPTION>
-------------------------------------------
Goldman Sachs Goldman Sachs
Small Cap Equity International Equity
Fund Fund
<S> ===========================================
Investment income: <C> <C>
Dividends /(a)/ $ 968,945 $ 5,944,299
Interest /(b)/ 896,528 1,533,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 1,865,473 7,477,338
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,598,027 3,478,689
Administration fees 532,676 1,159,514
Distribution fees 538,657 1,115,919
Authorized dealer service fees 532,676 1,086,488
Custodian fees 63,636 786,004
Transfer agent fees 511,883 586,243
Professional Fees 72,844 84,162
Amortization of deferred organization expenses 18,742 17,603
Director fees 3,842 5,519
Other 73,764 229,722
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,946,747 8,549,863
Less--expenses reimbursed and fees waived by Goldman Sachs (529,684) (829,788)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,417,063 7,720,075
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1,551,590) (242,737)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 29,166,218 16,714,697
Options written (398,365) --
Futures transactions -- --
Foreign currency related transactions -- 146,694
Net change in unrealized gain (loss) on:
Investments 22,913,571 60,236,901
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- (28,245,657)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions 51,681,424 48,852,635
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $50,129,834 $48,609,898
====================================================================================================================================
<CAPTION>
-----------------
Goldman Sachs
Asia Growth
Fund
<S> ==================
Investment income: <C>
Dividends /(a)/ $ 4,216,521
Interest /(b)/ 716,243
- -----------------------------------------------------------------------------------------------------------
Total income 4,932,764
- -----------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,937,658
Administration fees 645,897
Distribution fees 636,953
Authorized dealer service fees 630,134
Custodian fees 499,487
Transfer agent fees 385,114
Professional Fees 84,316
Amortization of deferred organization expenses 31,711
Director fees 3,496
Other 51,032
- -----------------------------------------------------------------------------------------------------------
Total expenses 4,905,798
Less--expenses reimbursed and fees waived by Goldman Sachs (511,880)
- -----------------------------------------------------------------------------------------------------------
Net expenses 4,393,918
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 538,846
- -----------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions (7,294,240)
Options written --
Futures transactions (141,910)
Foreign currency related transactions (1,099,538)
Net change in unrealized gain (loss) on:
Investments 5,823,115
Futures --
Translation of assets and liabilities denominated in foreign currencies (599,549)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions (3,312,122)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,773,276)
===========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
59
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment, option and futures transactions 3,956,460 15,032,718
Net realized gain (loss) on foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 11,302,273 67,658,142
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
-----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 27,303,030 149,961,461
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
Net assets:
Beginning of year 50,928,007 193,874,478
===================================================================================================================================
End of year $ 83,520,127 $ 395,833,695
===================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 180,204 $ --
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Equity Portfolios, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs
Statements of Changes in Net Assets Growth and Income Capital Growth Small Cap
For the Year Ended January 31, 1997 Fund Fund Equity Fund
====================================================
<S> <C> <C> <C>
From operations:
Net investment income (loss) $ 8,054,855 $ 5,337,292 $ (1,551,590
Net realized gain (loss) on investment, option and futures transactions 58,230,209 53,687,297 28,767,853
Net realized gain (loss) on foreign currency related transactions -- -- --
Net change in unrealized gain (loss) on investments, options and futures 67,575,111 145,350,120 22,913,571
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 133,860,175 204,374,709 50,129,834
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (8,111,894) (5,948,617) --
Class B shares (5,818) -- --
Institutional shares (494) -- --
Service shares (11,500) -- --
In excess of net investment income
Class A shares (135,533) (258,749) --
Class B shares (48,273) (12,838) --
Institutional shares (380) --
Service shares (9,070) -- --
From net realized gain on investment, option and futures transactions
Class A shares (46,442,616) (91,862,169) (10,210,264)
Class B shares (754,312) (179,327) (149,626)
Institutional shares (9,971) -- --
Service shares (255,610) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (55,785,471) (98,261,700) (10,359,890)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 140,362,846 76,008,897 56,119,213
Reinvestment of dividends and distributions 53,352,809 90,088,874 9,876,571
Cost of shares repurchased (72,730,939) (229,399,817) (95,024,895)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 120,984,716 (63,302,046) (29,029,111)
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase 199,059,420 42,810,963 10,740,833
Net Asssets:
Beginning of Year 436,756,572 881,056,064 204,993,973
==================================================================================================================================
End of Year $635,815,992 $923,867,027 $ 215,734,806
==================================================================================================================================
Accumulated distributed (distributions in excess investment income) $ (193,256) $ (275,552) $ --
==================================================================================================================================
<CAPTION>
-----------------------------------------------------
Statements of Changes in Net Assets Goldman Sachs Goldman Sachs
For the Year Ended January 31, 1997 International Asia Growth
Equity Fund Fund
====================================================
<S> <C> <C>
From operations:
Net investment income (loss) $ (242,737) $ 538,846
Net realized gain (loss) on investment, option and futures transactions 16,714,697 (7,436,150)
Net realized gain (loss) on foreign currency related transactions 146,694 (1,099,538)
Net change in unrealized gain (loss) on investments, options and futures 60,236,901 5,823,115
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (28,245,657) (599,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 48,609,898 (2,773,276)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares -- (206,784)
Class B shares -- --
Institutional shares (106,712) --
Service shares -- --
In excess of net investment income
Class A shares -- --
Class B shares -- (5,064)
Institutional shares -- (83,075)
Service shares -- --
From net realized gain on investment, option and futures transactions
Class A shares (5,358,559) --
Class B shares (159,717) --
Institutional shares (689,171) --
Service shares (3,947) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,318,106) (294,923)
- ------------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 321,475,961 144,448,826
Reinvestment of dividends and distributions 5,481,492 221,279
Cost of shares repurchased (75,580,037) (67,451,011)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 251,377,416 77,219,094
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase
Net assets: 293,669,208 74,150,895
Beginning of year 330,859,821 205,538,709
===================================================================================================================================
End of year $624,529,029 $279,689,604
====================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ (25,666) $ (1,316,323)
===================================================================================================================================
</TABLE>
61
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sach
Balanced Select Equity
Fund Fund
==============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 1,083,645 $ 1,518,160
Net realized gain (loss) on investment, option and futures transactions 1,715,887 4,687,943
Net realized gain on foreign currency related transactions -- --
Net change in unrealized gain on investments, options and futures 3,518,420 37,068,509
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,317,952 43,274,612
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (991,655) (1,610,216)
In excess of net investment income -- --
From net realized gain on investment, option and futures transactions (962,754) (3,527,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,954,409) (5,137,404)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 41,736,040 102,149,318
Reinvestment of dividends and distributions 1,802,563 4,880,575
Cost of shares repurchased (4,483,707) (46,260,132)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 39,054,896 60,769,761
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 43,418,439 98,906,969
Net assets:
Beginning of year 7,509,568 94,967,509
==================================================================================================================================
End of year $ 50,928,007 $ 193,874,478
==================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 125,304 $ 86,854
==================================================================================================================================
Summary of share transactions:
===================================================================================================================================
<CAPTION>
Class A Class A Institutional
-------------- -------------- --------------
<S> <C> <C> <C>
Shares sold 2,578,356 2,479,285 3,220,915
Reinvestment of dividends and distributions 108,023 161,481 97,993
Shares repurchased (271,753) (2,578,247) (30,492)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 2,414,626 62,519 3,288,416
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap International Asia Growth
Fund Fund Equity Fund Equity Fund Fund
=================================================================================================================================
<S> <C> <C> <C> <C>
$ 5,307,925 $ 6,032,534 $ (1,717,759) $ 725,369 $ 1,643,482
18,815,320 188,790,639 (5,033,599) (8,757,936) (5,766,395)
-- -- -- 21,213,851 416,433
58,081,439 53,559,848 30,594,034 69,834,990 42,480,420
-- -- -- (12,612,130) (1,710,833)
- --------------------------------------------------------------------------------------------------------------------------------
82,204,684 248,383,021 23,842,676 70,404,144 37,063,107
- ---------------------------------------------------------------------------------------------------------------------------------
(5,300,032) (6,289,354) -- (9,491,864) (1,787,451)
-- -- -- -- (1,657,672)
(11,998,907) (139,713,660) (161,357) (14,089,155) --
- ---------------------------------------------------------------------------------------------------------------------------------
(17,298,939) (146,003,014) (161,357) (23,581,019) (3,445,123)
- ---------------------------------------------------------------------------------------------------------------------------------
199,623,973 144,529,476 56,891,181 85,900,104 88,560,430
16,219,024 131,979,456 149,801 21,651,092 2,951,847
(37,764,413) (359,937,680) (195,215,538) (98,600,969) (43,889,831)
- ---------------------------------------------------------------------------------------------------------------------------------
178,078,584 (83,428,748) (138,174,556) 8,950,227 47,622,446
- ---------------------------------------------------------------------------------------------------------------------------------
242,984,329 18,951,259 (114,493,237) 55,773,352 81,240,430
193,772,243 862,104,805 319,487,210 275,086,469 124,298,279
=================================================================================================================================
$436,756,572 $ 881,056,064 $ 204,993,973 $ 330,859,821 $ 205,538,709
=================================================================================================================================
$ 56,087 $ 607,360 $ -- $ 227,683 $ (1,630,536)
=================================================================================================================================
Class A Class A Class A Class A Class A
------------- --------------- --------------- -------------- --------------
10,766,604 9,130,715 3,285,739 5,082,572 5,830,049
848,870 9,145,811 8,585 1,286,112 197,978
(2,027,335) (22,215,374) (11,228,873) (6,067,690) (2,898,305)
- ---------------------------------------------------------------------------------------------------------------------------------
9,588,139 (3,938,848) (7,934,549) 300,994 3,129,722
=================================================================================================================================
- -------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
63
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
January 31, 1997
- --------------------------------------------------------------------------------
1. Organization
Goldman Sachs Equity Portfolios, Inc. (the "Company") is a Maryland corporation
registered under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. Included in this report are the
financial statements for the Goldman Sachs Balanced Fund ("Balanced Fund"),
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap Equity
Fund"), Goldman Sachs International Equity Fund ("International Equity Fund")
and Goldman Sachs Asia Growth Fund ("Asia Growth Fund"), collectively, "the
Funds." The Select Equity, Growth and Income, International Equity and Asia
Growth Funds offer four classes of shares - Class A, Class B, Institutional and
Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares - Class A and Class B.
2. Significant Accounting Policies
The following is a summary of the significant accounting policies consistently
followed by the Company. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
- ------------------------
Investments in securities traded on a U.S. or foreign securities exchange or the
NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked price, and securities traded on a foreign exchange
will be valued at the official bid price. Unlisted equity and debt securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices. Debt securities are valued at prices supplied
by an independent pricing service, which reflect broker/dealer-supplied
valuations and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued at
fair value using methods approved by the Board of Directors of the Company.
B. Securities Transactions and Investment Income
- -------------------------------------------------
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value of the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums.
In addition, it is the Funds' policy to accrue for estimated capital gains taxes
on foreign securities held by the Funds subject to such taxes.
C. Mortgage Dollar Rolls
- -------------------------
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities in the current month for delivery and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. For financial reporting and
tax reporting purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale.
D. Foreign Currency Translations
- ---------------------------------
The books and records of the Company are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; (ii) purchases and sales of
foreign investments,
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
income and expenses are converted into U.S. dollars based on currency exchange
rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and holdings
of foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
E. Forward Foreign Currency Exchange Contracts
- -----------------------------------------------
Certain of the Funds are authorized to enter into forward foreign currency
exchange contracts for the purchase of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The International Equity and Asia Growth
Funds may enter into such contracts to seek to increase total return. All
commitments are "marked-to-market" daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded in the funds' financial
statements. The Funds record realized gains or losses at the time the forward
contract is offset by entry into a closing transaction or extinguished by
delivery of the currency. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
F. Short Securities Positions
- ------------------------------
The Funds (other than the Select Equity Fund) may enter into covered short
sales. Short securities positions are accounted for at cost and subsequently
marked to market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the fund's records and
any difference between this market value and cash received is reported as
unrealized gain or loss. Gains and losses are realized when a short
- --------------------------------------------------------------------------------
position is closed out by delivering securities back to the broker.
At January 31, 1997, the Balanced Fund had the following covered short positions
open:
- -------------------------------------------------------------------------------
Short Position
Issuer Par Value Market Value
- --------------------------- --------------- --------------------
FNMA TBA 15-Year $900,000 $938,808
- -------------------------------------------------------------------------------
G. Federal Taxes
- -----------------
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their investment company taxable income and capital gains
to their shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
- ----------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
I. Expenses
- ------------
Expenses incurred by the Company which do not specifically relate to an
individual fund of the Company are allocated to the Funds based on each Fund's
relative
- --------------------------------------------------------------------------------
65
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
average net assets for the period.
Class A and Class B shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses which
are directly attributable to such shares. Each class of Shares separately bears
their respective class-specific transfer agency fees. Service Shares separately
bear a service fee.
J. Option Accounting Principles
- --------------------------------
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When a written call option is exercised, the funds
realize a gain or loss from the sale of the underlying security, and the
proceeds of the sale are increased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the funds purchase upon exercise.
There is a risk of loss from a change in value of such options which may exceed
the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds
the premium paid is recorded as an investment and subsequently marked-to-market
to reflect the current market value of the option. If an option which the Funds
have purchased expires on the stipulated expiration date, the funds will realize
a loss in the amount of the cost of the option. If the funds enter into a
closing sale transaction, the funds will realize a gain or loss, depending on
whether the sale proceeds from the closing sale transaction are greater or less
than the cost of the option. If the Funds exercise a purchased put option, the
funds will realize a gain or loss from the sale of the underlying security, and
the proceeds from such sale will be decreased by the premium originally paid. If
the Funds exercise a purchased call option, the cost of the security which the
funds purchase upon exercise will be increased by the premium originally paid.
K. Futures Contracts
- ---------------------
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The Select Equity Fund may enter into such transactions
only with respect to the S&P 500 Index. A Fund will engage in futures
transactions only for bona fide hedging purposes as defined in regulations of
the CFTC or to seek to increase total return (except with respect to
transactions by the Balanced, Growth and Income, Select Equity, Capital Growth
and Small Cap Equity Funds, in futures on foreign currencies) to the extent
permitted by such regulations. The use of futures contracts involve, to varying
degrees, elements of market risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the futures exchange on which the contract is traded.
Subsequent payments ("variation margin") are made or received by the Funds each
day, dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent price,
unless such price does not reflect the fair market value of the contract, in
which case the position will be valued using methods approved by the Board of
Directors of the Company.
Certain risks may arise upon entering into futures contracts. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds'
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
hedging strategies and may also result in a loss to the Funds.
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser to the
Balanced, Growth and Income, Small Cap Equity and International Equity Funds;
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs,
acts as investment adviser to the Select Equity and Capital Growth Funds; and
Goldman Sachs Asset Management International ("GSAM International") acts as
investment adviser to the Asia Growth Fund and subadviser to the International
Equity Fund. Under the Investment Advisory and Subadvisory Agreements, GSAM,
GSFM and GSAM International (the "Investment Advisors"), subject to the general
supervision of the Company's Board of Directors, manage the Company's
portfolios. As compensation for the services rendered under the Investment
Advisory Agreements and the assumption of the expenses related thereto, GSAM is
entitled to a fee, computed daily and payable monthly, at an annual rate equal
to .50%, .55%, .75% and .25% of the average daily net assets of the Balanced,
Growth and Income, Small Cap Equity and International Equity Funds,
respectively. GSFM is entitled to a fee of .50% and .75% of the average daily
net assets of the Select Equity and Capital Growth Funds, respectively. GSAM
International is entitled to an advisory fee for the Asia Growth Fund and a
subadvisory fee for the International Equity Fund of .75% and .50% of the
average daily net assets for those funds, respectively.
GSAM also acts as the Funds' administrator pursuant to Administration
Agreements. Under these Administration Agreements, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreements, GSAM is entitled to
a fee of .15% of the average daily net assets of the Balanced and Growth and
Income Funds, and .25% of the average daily net assets of the Select Equity,
Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, Select Equity, Growth and Income, International
Equity and Asia Growth Funds (excluding advisory, administration, service,
distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced Fund, transfer agent fees) until
further notice to the extent such expenses exceed .10%, .06%, .11%, .20% and
..24% of the average daily net assets of the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
salesload and Class B back-end salesload imposed and has advised the Company
that it retained approximately $94,000, $380,000, $555,000, $323,000, $219,000,
$1,563,000 and $1,397,000 during the year ended January 31, 1997 for the
Balanced, Select Equity, Growth and Income, Capital Growth, Small Cap Equity,
International Equity and Asia Growth Funds, respectively.
The Company, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% and .75% of a Fund's average daily
net assets attributable to Class A and Class B shares, respectively.
The Company, on behalf of each Fund, has adopted an Authorized Dealer
Service Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized
Dealers are compensated for providing personal and account maintenance services.
Each Fund pays a fee under its Service Plan equal, on an annual basis, to .25%
of its average daily net assets attributable to Class A and Class B shares.
Goldman Sachs also serves as the Transfer Agent of the funds for a fee.
For the year ended January 31, 1997, the Advisors, Administrator and
Distributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
- --------------------------------------------------------------------------------
67
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Waivers
------- Reimburse-
Admin- Class A Reimburse- ment
Fund Adviser istrator 12b-1 ment Outstanding
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ -- $ -- $ 153 $ 320 $ 88
Select Equity 170 282 69 105 3
Growth and
Income -- -- 1,113 -- --
Capital
Growth -- -- 2,171 -- --
Small Cap
Equity -- -- 530 -- --
International
Equity 50 464 171 145 --
Asia Growth 103 259 100 50 --
</TABLE>
The Investment Advisors, Administrator and Distributor may discontinue or
modify such waivers and limitations in the future at their discretion.
At January 31, 1997, the amounts owed to affiliates were as follows(in
thousands):
<TABLE>
<CAPTION>
Authorized
Admin- Distri- Dealer Transfer
Fund Adviser istrator butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced $ 33 $ 10 $ 2 $ 15 $ 38 $ 98
Select Equity 143 49 56 57 84 389
Growth and
Income 284 78 28 119 207 716
Capital
Growth 568 190 2 190 210 1,160
Small Cap
Equity 134 45 2 45 120 346
International
Equity 391 78 105 116 143 833
Asia Growth 171 36 50 53 90 400
</TABLE>
4. Portfolio Securities Transactions
Purchases and proceeds of sales or maturities of securities (excluding
short-term investments, futures and options) for the year ended January 31,
1997, were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- --------- --------------- -------------
<S> <C> <C>
Balanced $146,297,709 $123,056,708
Select Equity 242,635,637 102,479,847
Growth and Income 330,177,173 256,802,366
Capital Growth 436,178,218 569,122,643
Small Cap Equity 202,036,820 256,627,457
International Equity 400,682,323 166,164,906
Asia Growth 192,125,629 118,802,040
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$99,727,748 and $91,845,598, respectively.
For the year ended January 31, 1997, written put option transactions in the
Balanced Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 32 5,416
Options repurchased (32) (5,416)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
For the year ended January 31, 1997, written call option transactions in the
Growth and Income Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 438 73,608
Options repurchased (438) (73,608)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended January 31, 1997, written put option transactions in the
Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 2,100 575,871
Options expired (9) (2,026)
Options exercised (1,091) (238,096)
Options repurchased (1,000) (335,749)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
Certain risks arise related to call and put options from the possible
inability of counterparties to meet the terms of their contracts.
At January 31, 1997, the Balanced Fund had the following outstanding forward
foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain
- --------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
expiring 3/14/97 $777,277 $770,585 $6,692
- --------------------------------------------------------------------
Total Foreign
Currency Sale
Contracts $777,277 $770,585 $6,692
- --------------------------------------------------------------------
</TABLE>
At January 31, 1997, the International Equity Fund had the following
outstanding forward foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Swiss Franc
expiring 4/28/97 $39,343,000 $39,665,062 $ (322,062)
Deutsche Mark
expiring 2/27/97 22,305,725 22,183,180 122,545
Hong Kong Dollar
expiring 8/8/97 38,565,981 38,530,005 35,976
Japanese Yen
expiring 4/24/97 122,316,352 119,792,909 2,523,443
- --------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $222,531,058 $220,171,156 $2,359,902
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Purchase Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Hong Kong Dollar
expiring 2/3/97 $35,454 $35,454 $--
- --------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $35,454 $35,454 $--
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At January 31,
1997, the Balanced and International Equity Fund's had sufficient cash and
securities to cover any commitments under these contracts.
The Balanced and International Equity Funds have recorded a "Receivable for
forward foreign currency exchange contracts" and "Payable for forward foreign
currency exchange contracts" resulting from open and closed but not settled
forward foreign currency exchange contracts of $6,692 and $0, and $2,684,757 and
$3,434,535, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$2,793 and $3,112,473, respectively, related to forward contracts closed but not
settled as of January 31, 1997.
For the year ended January 31, 1997, Goldman Sachs earned approximately
$5,000, $78,000, $304,000, $36,000, $11,000 and $66,000 of brokerage commissions
from portfolio transactions executed on behalf of the Balanced, Growth and
Income, Capital Growth, Small Cap Equity, International Equity and Asia Growth
Funds, respectively.
5. Repurchase Agreements
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
- --------------------------------------------------------------------------------
69
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
6. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having advisory
agreements with GSAM or GSFM, transfer uninvested cash balances into joint
accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1997, the Balanced,
Select Equity, Growth and Income, Capital Growth and Small Cap Equity Funds had
undivided interests in the repurchase agreements in the following joint account
which equaled $9,200,000, $3,600,000, $26,800,000, $18,300,000 and $16,600,000,
respectively, in principal amount. At January 31, 1997, the repurchase
agreements held in this joint account, along with the corresponding underlying
securities (including the type of security, market value, interest rate and
maturity date) were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------
Bear Stearns Securities, Inc., dated 01/31/97, repurchase
price $800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26;
FNMA: $720,411,516, 5.50%-8.00%, 02/01/09-09/01/26;
FHLMC: $77,372,676, 6.00%-8.00%, 04/01/98-07/01/26)
<S> <C> <C> <C>
$800,000,000 5.63% 02/03/97 $ 800,000,000
<CAPTION>
Nomura Securities, Inc. dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.50%-10.25%
01/15/20-01/20/27)
<S> <C> <C> <C>
100,000,000 5.65 02/03/97 100,000,000
<CAPTION>
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.38%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535, 05/15/02-11/15/03)
<S> <C> <C> <C>
201,800,000 5.60 02/03/97 201,800,000
</TABLE>
- --------------------------------------------------------------------
Total Joint Repurchase Agreement Account $ 1,101,800,000
- --------------------------------------------------------------------
7. Line of Credit Facility
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line of
credit facility. In addition, the Funds, except the Select Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the year ended January 31, 1997,
the Funds did not have any borrowings under these facilities.
8. Transactions With Affiliated Companies
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the year ended January 31, 1997 which are considered to be
affiliates of Small Cap Equity are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Safety
Razor $ -- $5,751 $ 289 $ -- $ --
- --------------------------------------------------------------------
Alpine Lace
Brands, Inc. 7,790 -- -- -- 2,341
- --------------------------------------------------------------------
APS Holding
Corp. 10,305 654 290 -- 7,869
- --------------------------------------------------------------------
J. Baker, Inc. 1,591 1,349 (1,090) 60 7,565
- --------------------------------------------------------------------
Black Box, Inc. -- 23,013 14,149 -- --
- --------------------------------------------------------------------
Brookstone, Inc. -- 2,722 (758) -- 5,939
- --------------------------------------------------------------------
Congoleum Corp. -- 2,323 (102) -- 3,156
- --------------------------------------------------------------------
Hollinger
International
Corp. -- 10,903 (1,311) 112 --
- --------------------------------------------------------------------
International Post
Ltd. -- 2,215 (3,933) -- 1,729
- --------------------------------------------------------------------
Morningstar
Group Inc. -- 12,216 6,346 -- --
- --------------------------------------------------------------------
Mortons
Restaurant
Group, Inc. -- 4,106 1,625 -- 6,439
- --------------------------------------------------------------------
Opinion Research
Corp. -- -- -- -- 2,022
- --------------------------------------------------------------------
Pegasus
Communications
Corp. 3,697 -- -- -- 3,224
- --------------------------------------------------------------------
Platinum
Entertainment
Corp. 3,354 -- -- -- 2,675
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
70
<PAGE>
9. Other Matters
As of January 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 14% of the
outstanding shares of the Select Equity Fund.
10. Certain Reclassifications
In accordance with Statement of Position 93-2, the Balanced, Select Equity,
Growth and Income, International Equity and Asia Growth Funds have reclassified
$13,068, $9,549, $18,764, $302,042 and $31,712, respectively, from paid-in
capital to accumulated undistributed net investment income. Additionally, the
Small Cap Equity Fund has reclassified $1,532,848 from accumulated net realized
gains on investments to accumulated net investment loss and $18,742 from paid-in
capital to accumulated net investment loss. The Select Equity Fund reclassified
$40,540 from accumulated net realized gains on investments to distributions in
excess of net investment income. The International Equity Fund and the Asia
Growth Fund have reclassified $205,942 and $338,857 from accumulated net
realized foreign currency loss to distributions in excess of net investment
income, respectively. The Asia Growth Fund also reclassified $377,435 from
accumulated net realized gains on investments to distributions in excess of net
investment income. These reclassifications have no impact on the net asset value
of the Funds and are designed to present the Funds' capital accounts on a tax
basis.
71
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
11. Summary of Share Transactions
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 1,529,469 $27,172,279 3,862,697 $81,642,386 5,616,082 $121,074,992
Reinvestment of dividends
and distributions 310,437 5,598,883 370,586 8,175,333 2,390,917 52,287,188
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) (3,328,038) (72,163,062)
-------------------------------------------------------------------------------------
1,393,371 25,237,890 3,124,081 65,994,573 4,678,961 101,199,118
-------------------------------------------------------------------------------------
Class B shares
Shares sold 109,171 2,001,768 733,802 15,946,016 729,877 16,222,639
Reinvestment of dividends
and distributions 5,284 95,768 24,314 535,407 35,976 787,421
Shares repurchased (1,795) (32,396) (13,894) (310,118) (14,764) (340,546)
-------------------------------------------------------------------------------------
112,660 2,065,140 744,222 16,171,305 751,089 16,669,514
-------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,151,881 66,277,175 8,228 186,173
Reinvestment of dividends
and distributions -- -- 275,197 6,102,331 92 2,020
Shares repurchased -- -- (363,536) (7,991,198) -- --
-------------------------------------------------------------------------------------
-- -- 3,063,542 64,388,308 8,321 188,193
-------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 154,590 3,344,141 134,652 2,879,042
Reinvestment of dividends
and distributions -- -- 4,126 91,166 12,587 276,180
Shares repurchased -- -- (1,252) (28,032) (10,262) (227,331)
-------------------------------------------------------------------------------------
-- -- 157,464 3,407,275 136,977 2,927,891
-------------------------------------------------------------------------------------
Net increase (decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 5,575,348 $120,984,716
=====================================================================================
<CAPTION>
Capital Growth Fund
- -------------------------------------------------------
Shares Dollars
--------------------------
<S> <C> <C>
Class A shares
Shares sold 4,677,047 $73,029,007
Reinvestment of dividends
and distributions 5,870,272 89,898,521
Shares repurchased (14,635,348) (229,277,58)
----------------------------
(4,088,029) (66,350,058)
----------------------------
Class B shares
Shares sold 188,331 2,979,890
Reinvestment of dividends
and distributions 12,408 190,353
Shares repurchased (7,499) (122,231)
----------------------------
193,240 3,048,012
----------------------------
Institutional shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
----------------------------
Service shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
-- --
----------------------------
Net increase (decrease) in
shares (3,894,789) $(63,302,046)
============================
</TABLE>
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- ----------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 2,508,268 $52,353,524 12,103,239 $230,847,197 7,588,351 $124,281,405
Reinvestment of dividends
and distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
------------------------------------------------------------------------------------
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
------------------------------------------------------------------------------------
Class B shares
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of dividends
and distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
------------------------------------------------------------------------------------
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of dividends
and distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
------------------------------------------------------------------------------------
-- -- 3,524,169 68,046,277 815,499 13,114,475
------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of dividends
and distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
------------------------------------------------------------------------------------
-- -- 34,830 676,729 -- --
------------------------------------------------------------------------------------
Net increase (decrease) in
shares (1,537,835) $(29,029,111) 13,081,265 $251,377,416 4,676,292 $77,219,094
=====================================================================================
<CAPTION>
Share activity for the year ended January 31, 1996 is as follows:
Select Equity Fund
- -------------------------------------------------------------
Shares Dollars
------------- ---------------
<S> <C> <C>
Class A shares
Shares sold 2,479,285 $44,569,920
Reinvestment of dividends and 161,481
distributions 3,032,597
Shares repurchased (2,578,247) (45,692,944)
------------- ---------------
62,519 1,909,573
------------- ---------------
Institutional shares
Shares sold 3,220,915 57,579,398
Reinvestment of dividends and
distributions 97,993 1,847,978
Shares repurchased (30,492) (567,188)
------------- ----------------
3,288,416 $58,860,188
------------- ----------------
Net increase 3,350,935 $60,769,761
============= ================
</TABLE>
- --------------------------------------------------------------------------------
73
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/h/ shareholders
------------------------------- ------------------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
-----------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $17.31 $0.66 $2.47 $(0.66) $(1.00) --
1997 - Class B Shares/b/............. 17.46 0.42 2.34 (0.42) (1.00) (0.07)
1996 - Class A Shares................ 14.22 0.51 3.43 (0.50) (0.35) --
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 14.18 0.10 0.02 (0.08) -- --
<CAPTION>
Net asset
Net increase value, Portfolio Average
in net end of Total turnover commission
asset value period return/a/ rate rate/g/
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $1.47 $18.78 18.59% 208.11/f/ $.0587
1997 - Class B Shares(b)............. 1.27 18.73 16.22/c/ 208.11/f/ .0587
1996 - Class A Shares................ 3.09 17.31 28.10 197.10/f/ --
For the Period Ended January 31,
- -------------------------------------
1995 - Class A Shares/d/............. 0.04 14.22 0.87/c/ 14.71/c/ --
<CAPTION>
Ratio assuming no
voluntary waiver of fees
or expense limitations
-------------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
end of expenses to income to expenses to income (loss)
period average net average net average to average
(in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $81,410 1.00% 3.76% 1.77% 2.99%
1997 - Class B Shares/b/............. 2,110 1.75/e/ 2.59/e/ 2.27/e/ 2.07/e/
1996 - Class A Shares................ 50,928 1.00 3.65 1.90 2.75
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 7,510 1.00/e/ 3.39/e/ 8.29/e/ (3.90)/e/
</TABLE>
- --------------------------
/a/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/b/ For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/c/ Not annualized.
/d/ For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
/e/ Annualized.
/f/ Includes the effect of mortgage dollar roll transactions.
/g/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/h/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
(The accompanying notes are an integral part of these financial statements.)
74
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/(h)/ shareholders
========================== ====================================
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
============================================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
==============================
1997 - Class A Shares ........................ 19.66 $0.16 $4.46 $(0.16) $(0.80) --
1997 - Class B Shares/(f)/.................... 20.44 0.04 3.70 (0.04) (0.80) (0.16)
1997 - Institutional Shares .................. 19.71 0.30 4.51 (0.28) (0.80) --
1997 - Service Shares/(f)/.................... 21.02 0.13 3.15 (0.13) (0.80) (0.10)
1996 - Class A Shares ........................ 14.61 0.19 5.43 (0.16) (0.41) --
1996 - Institutional Shares/(d)/.............. 16.97 0.16 3.23 (0.24) (0.41) --
1995 - Class A Shares ........................ 15.93 0.20 (0.38) (0.20) (0.94) --
1994 - Class A Shares ........................ 15.46 0.17 2.08 (0.17) (1.61) --
1993 - Class A Shares ........................ 15.05 0.22 0.41 (0.22) -- --
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 14.17 0.11 0.88 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Net Net
increase asset assets
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(g)/ (in 000s)
======================================================================
SELECT EQUITY FUND
- ------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares .............. $3.66 $23.32 23.75% 37.28% $.0417 $225,968
1997 - Class B Shares/(f)/.......... 2.74 23.18 18.59/(b)/ 37.28 .0417 17,258
1997 - Institutional Shares ........ 3.73 23.44 24.63 37.28 .0417 148,942
1997 - Service Shares/(f)/.......... 2.25 23.27 15.92/(b)/ 37.28 .0417 3,666
1996 - Class A Shares .............. 5.05 19.66 38.63 39.35 -- 129,045
1996 - Institutional Shares/(d)/.... 2.74 19.71 20.14/(b)/ 39.35/(b)/ -- 64,829
1995 - Class A Shares .............. (1.32) 14.61 (1.10) 56.18 -- 94,968
1994 - Class A Shares .............. 0.47 15.93 15.12 87.73 -- 92,769
1993 - Class A Shares .............. 0.41 15.46 4.30 144.93 -- 117,757
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/............ 0.88 15.05 7.01/(b)/ 135.02(c) -- 151,142
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses income to expenses to income
to average average net average to average
assets assets net assets net assets
==================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares ........................ 1.29% 0.91% 1.53% 0.67%
1997 - Class B Shares/(f)/.................... 1.83/(c)/ 0.06/(c)/ 2.00/(c)/ (0.11)/(c)/
1997 - Institutional Shares .................. 0.65 1.52 0.85 1.32
1997 - Service Shares/(f)/.................... 1.15/(c)/ 0.69/(c)/ 1.35/(c)/ 0.49/(c)/
1996 - Class A Shares ........................ 1.25 1.01 1.55 0.71
1996 - Institutional Shares/(d)/.............. 0.65/(c)/ 1.49/(c)/ 0.96/(c)/ 1.18/(c)/
1995 - Class A Shares ........................ 1.38 1.33 1.63 1.08
1994 - Class A Shares ........................ 1.42 0.92 1.67 0.67
1993 - Class A Shares ........................ 1.28 1.30 1.53 1.05
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 1.57/(c)/ 1.24/(c)/ 1.82/(c)/ 0.99/(c)/
</TABLE>
- --------------
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales or redemption charges. Total return would be reduced if
a sales or redemption charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
/(e)/ For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
/(f)/ For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
/(g)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment
operations/(h)/ Distributions to shareholders
====================== =====================================
Net
realized
and From net
Net unrealized realized
asset gain(loss) gain In Net
value, on on excess Increase
beginning Net investments From net investment of net Additional in net
of investment and investment and option investment paid-in asset
period income options income transactions income capital value
===============================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $19.98 $0.35 $5.18 $(0.35) $(1.97) $ (0.01) $ -- $3.20
1997 - Class B Shares/(f)/ ........ 20.82 0.17 4.31 (0.17) (1.97) (0.06) -- 2.28
1997 - Institutional Shares/(f)/ .. 21.25 0.29 3.96 (0.30) (1.97) (0.04) -- 1.94
1997 - Service Shares/(f)/ ........ 20.71 0.28 4.50 (0.28) (1.97) (0.07) -- 2.46
1996 - Class A Shares ............. 15.80 0.33 4.75 (0.30) (0.60) -- -- 4.18
1995 - Class A Shares ............. 15.79 0.20/(b)/ 0.30/(b)/ (0.20) (0.33) (0.07) 0.11/(b)/ 0.01
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 14.18 0.15 1.68 (0.15) (0.06) (0.01) -- 1.61
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Net net net
Net assets expenses investment
asset at to income to
value Total Portfolio Average end of average average
end of return turnover commission period net net
period /(a)/ rate rate/(g)/ (in 000s) assets assets
===================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60%
1997 - Class B Shares/(f)/ ........ 23.10 22.23/(d)/ 53.03 .0586 17,346 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 23.19 20.77/(d)/ 53.03 .0586 193 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 23.17 23.87/(d)/ 53.03 .0586 3,174 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 19.98 32.45 57.93 -- 436,757 1.20 1.67
1995 - Class A Shares ............. 15.80 3.97 71.80 -- 193,772 1.25 1.28
<CAPTION>
For the Period Ended January 31,
==================================
<S> <C> <C> <C> <C> <C> <C> <C>
1994 - Class A Shares/(c)/......... 15.79 13.08/(d)/102.23/(d)/ -- 41,528 1.25/(e)/ 1.23/(e)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
=================================
Ratio of
Ratio of net investment
expenses income (loss)
to average to average
net assets net assets
=================================
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C>
1997 - Class A Shares ............. 1.43% 1.39%
1997 - Class B Shares/(f/) ........ 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 1.45 1.42
1995 - Class A Shares ............. 1.58 0.95
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 3.24/(e)/ (0.76)/(e)/
</TABLE>
- ----------------------------------
/(a)/Assumes investment at the net asset v alue at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/Calculated based on the average shares outstanding methodology.
/(c)/For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
/(g)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations/(g)/ Distributions to shareholders
=========================== =============================================
Net realized
and unrealized From net
Net asset gain (loss) on realized gain In excess
value, Net investments, From net on investments, of net
beginning investment options and investment options investment
of period income futures income and futures income
=======================================================================================
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $14.91 $0.10 $3.56 $ (0.10) $ (1.72) $(0.02)
1997 - Class B Shares(b)................. 15.67 0.01 2.81 (0.01) (1.72) (0.09)
1996 - Class A Shares.................... 13.67 0.12 3.93 (0.12) (2.69) --
1995 - Class A Shares.................... 15.96 0.03 (0.69) (0.01) (1.62) --
1994 - Class A Shares.................... 14.64 0.02 2.40 (0.01) (1.07) (0.02)
1993 - Class A Shares.................... 13.65 0.06 2.28 (0.07) (1.28) --
1992 - Class A Shares.................... 11.10 0.28 2.90 (0.31) (0.32) --
For the Period Ended January 31,
================================
1991 - Class A Shares/(c)/............... 11.34 0.34 (0.27) (0.31) -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Net increase Net asset assets at
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(f)/ (in 000s)
=======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $1.82 $16.73 25.97% 52.92% $.0563 $920,646
1997 - Class B Shares(b)................. 1.00 16.67 19.39/(d)/ 52.92 .0563 3,221
1996 - Class A Shares.................... 1.24 14.91 30.45 63.90 -- 881,056
1995 - Class A Shares.................... (2.29) 13.67 (4.38) 38.36 -- 862,105
1994 - Class A Shares.................... 1.32 15.96 16.89 36.12 -- 833,682
1993 - Class A Shares.................... 0.99 14.64 18.01 58.93 -- 665,976
1992 - Class A Shares.................... 2.55 13.65 29.31 48.93 -- 500,307
For the Period Ended January 31,
================================
1991 - Class A Shares(c)................. (0.24) 11.10 0.84/(d)/ 35.63/(d)/ -- 437,533
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
=============================
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses to income (loss) to expenses to income (loss)
average net average average to average
assets net assets net assets net assets
====================================================================
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares.................... 1.40% 0.62% 1.65% 0.37%
1997 - Class B Shares/(b)/................. 2.15/(e)/ (0.39)/(e)/ 2.15/(e)/ (0.39)/(e)/
1996 - Class A Shares.................... 1.36 0.65 1.61 0.40
1995 - Class A Shares.................... 1.38 0.16 1.63 (0.09)
1994 - Class A Shares.................... 1.38 0.13 1.63 (0.12)
1993 - Class A Shares.................... 1.41 0.42 1.66 0.17
1992 - Class A Shares.................... 1.53 2.09 1.78 1.84
For the Period Ended January 31,
- --------------------------------
1991 - Class A Shares/(c)/............... 1.27/(d)/ 3.24/(d)/ 1.47/(d)/ 3.04/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to
January 31, 1997.
/(c)/For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations/(g)/ shareholders
=========================== =======================================
From In excess
net of
Net realized realized realized Net
and unrealized gain on gains on increase
Net asset Net gain (loss) on From investment, investment (decrease)
value, investment investments, net option and option and in net
beginning income options and investment futures futures asset
of period (loss) futures income transactions transactions value
==============================================================================================
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $17.29 $(0.21) $4.92 $ - $(1.09) $ - $3.62
1997 - Class B Shares/(b)/......... 20.79 (0.11) 1.21 - (1.09) - 0.01
1996 - Class A Shares ............. 16.14 (0.23) 1.39 - (0.01) - 1.15
1995 - Class A Shares ............. 20.67 (0.07) (3.53) - (0.69) (0.24) (4.53)
1994 - Class A Shares ............. 16.68 (0.04) 5.03 - (1.00) - 3.99
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 14.18 0.03 2.50 (0.03) - - 2.50
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Net asset Net assets
value, Portfolio Average at end of
end of Total turnover commission period
period return/(a)/ rate rate/(f)/ (in 000s)
================================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $20.91 27.28% 99.46% $.0461 $212,061
1997 - Class B Shares/(b)/......... 20.80 5.39/(d)/ 99.46 .0461 3,674
1996 - Class A Shares ............. 17.29 7.20 57.58 - 204,994
1995 - Class A Shares ............. 16.14 (17.53) 43.67 - 319,487
1994 - Class A Shares ............. 20.67 30.13 56.81 - 261,074
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 16.68 17.86/(d)/ 7.12/( e)/ - 59,339
<CAPTION>
- ---------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
Ratio of ===========================
Ratio of net Ratio of
net investment Ratio of net
expenses income expenses investment
to average (loss) to to average loss to
net average net net average net
assets assets assets assets
=======================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C>
1997 - Class A Shares ............. 1.60% (0.72)% 1.85% (0.97)%
1997 - Class B Shares/(b)/......... 2.35/(e)/ (1.63)/(e)/ 2.35/(e)/ (1.63)/(e)/
1996 - Class A Shares ............. 1.41 (0.59) 1.66 (0.84)
1995 - Class A Shares ............. 1.53 (0.53) 1.78 (0.78)
1994 - Class A Shares ............. 1.60 (0.45) 1.85 (0.70)
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 1.65/(e)/ 0.62/(e)/ 2.70/(e)/ (0.43)/(e)/
- ------------------
</TABLE>
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/(c)/For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions
investment operations/(g)/ to shareholders
================================================= ==============================
Net Net realized From net
realized and unrealized realized
and unrealized gain (loss) gain on
Net asset gain (loss) on on foreign From investment,
value, Net investments, currency net option and
beginning investment options related investment futures
of period income (loss) and futures transactions income transactions
============================================================================================
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
=====================================
1997 - Class A Shares............... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21)
1997 - Class B Shares/(e)/.......... 18.91 (0.06) 0.94 (0.34) -- (0.21)
1997 - Institutional Shares/(e)/.... 17.45 0.04 3.39 (1.24) (0.03) (0.21)
1997 - Service Shares/(e)/.......... 17.70 (0.02) 2.95 (1.08) -- (0.21)
1996 - Class A Shares .............. 14.52 0.13 2.58 1.42 (0.58) (0.87)
1995 - Class A Shares............... 18.10 0.06 (3.04) (0.01) -- (0.59)
1994 - Class A Shares............... 14.35 0.05 4.08 (0.38) -- --
For the Period Ended January 31,
=====================================
1993 - Class A Shares/(b)/.......... 14.18 (0.01) 0.29 (0.11) -- --
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net
increase Net asset
(decrease) value, Portfolio Average Net assets at
in net asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (in 000s)
==================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... $ 2.12 $19.32 13.48% 38.01% $.0318 $536,283
1997 - Class B Shares/(e)/.............. 0.33 19.24 2.83/(c)/ 38.01 .0318 19,198
1997 - Institutional Shares/(e)/........ 1.95 19.40 12.53/(c)/ 38.01 .0318 68,374
1997 - Service Shares/(e)/.............. 1.64 19.34 10.42/(c)/ 38.01 .0318 674
1996 - Class A Shares .................. 2.68 17.20 28.68 68.48 -- 330,860
1995 - Class A Shares................... (3.58) 14.52 (16.65) 84.54 -- 275,086
1994 - Class A Shares................... 3.75 18.10 26.13 60.04 -- 269,091
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 0.17 14.35 1.23/(c)/ 0.00 -- 66,063
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees or
expense limitations
===============================
Ratio of net Ratio of
Ratio of investment net investment
net income Ratio of income
expenses to (loss) to expenses (loss)
average net average net to average to average
assets assets net assets net assets
=============================================================
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... 1.69% (0.07)% 1.88% (0.26)%
1997 - Class B Shares/(e)/.............. 2.23/(d)/ (0.97)/(d)/ 2.38/(d)/ (1.12)/(d)/
1997 - Institutional Shares/(e)/........ 1.10/(d)/ 0.43/(d)/ 1.25/(d)/ 0.28/(d)/
1997 - Service Shares/(e)/.............. 1.60/(d)/ (0.40)/(d)/ 1.75/(d)/ (0.55)/(d)/
1996 - Class A Shares .................. 1.52 0.26 1.77 0.01
1995 - Class A Shares................... 1.73 0.40 1.98 0.15
1994 - Class A Shares................... 1.76 0.51 2.01 0.26
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 1.80/(d)/ (0.42)/(d)/ 2.58/(d)/ (1.20)/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
/(c)/Not annualized.
/(d)/Annualized.
/(e)/For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) Distributions to
from investment operations /(g)/ shareholders
--------------------------------------------- ------------------------------
Net
realized and
unrealized
Net Net gain on
asset Net realized and foreign
value, investment unrealized currency From net In excess
beginning income gain(loss) on related investment of net investment
of period (loss) investments transactions income income
----------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ --
1997 - Class B Shares/(e)/................ 17.31 (0.05) (0.48) (0.51) -- (0.03)
1997 - Institutional Shares/(e)/.......... 16.61 0.04 (0.11) (0.11) (0.04) (0.06)
1996 - Class A Shares..................... 13.31 0.17 3.44 (0.12) (0.17) (0.14)
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ 14.18 0.11 (0.89) 0.01 (0.10) --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Net
increase Net
(decrease) asset
in net value, Portfolio Average Net assets at
asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (000s)
------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $(0.18) $16.31 (1.01)% 48.40% $.0151 $263,014
1997 - Class B Shares/(e)/................ (1.07) 16.24 (6.02)/(c)/ 48.40 .0151 3,354
1997 - Institutional Shares/(e)/.......... (0.28) 16.33 (1.09)/(c)/ 48.40 .0151 13,322
1996 - Class A Shares..................... 3.18 16.49 26.49 88.80 -- 205,539
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ (0.87) 13.31 (5.46)/(c)/ 36.08/(c)/ -- 124,298
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio Ratio Ratio
of net of net Ratio of of net
expenses to investment expenses investment
Net assets at average income(loss) to average income(loss)
end of period net to average net to average
(000s) assets net assets assets net assets
-------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................................ $263,014 1.67% 0.20% 1.87% 0.00%
1997 - Class B Shares/(e)/........................... 3,354 2.21/(d)/ (0.56)/(d)/ 2.37/(d)/ (0.72)/(d)/
1997 - Institutional Shares/(e)/..................... 13,322 1.10/(d)/ 0.54/(d)/ 1.26/(d)/ 0.38/(d)/
1996 - Class A Shares................................ 205,539 1.77 1.05 2.02 0.80
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/........................... 124,298 1.90/(d)/ 1.83/(d)/ 2.38/(d)/ 1.35/(d)/
</TABLE>
- --------------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January 31,
1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of operations)
to January 31, 1997 for Institutional and Class B shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate on security transactions on which
commissions are charged. This rate may vary due to various types of
transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Goldman Sachs Equity Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Equity Portfolios, Inc. (a Maryland Corporation), comprising the
Balanced Fund, Select Equity Fund, Growth and Income Fund, Capital Growth Fund,
Small Cap Equity Fund, International Equity Fund and Asia Growth Fund, including
the statements of investments, as of January 31, 1997 and the related statements
of operations, the statements of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Goldman Sachs Equity
Portfolios, Inc. as of January 31, 1997 the results of their operations and the
changes in their net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------- ----------------------------------------
[This Page Intentionally Left Blank]
- -------------------------------------- ----------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Equity Portfolios, Inc.
Prospectus which contains facts concerning the Fund's objectives and policies,
management, expenses and other information.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------- ---------------------------------------------
DEAR SHAREHOLDERS:
The U.S. stock market handsomely rewarded investors during the six-month
period ended July 31, 1997. Despite predictions that the rally's momentum would
falter following robust gains in 1995 and 1996, the market defied expectations
by continuing its dramatic push into previously unexplored heights. Investors
in most European markets also fared well, while the performance of several
Asian markets was dampened by regional issues.
U.S. STOCK MARKET REACHED RECORD LEVELS AS VOLATILITY INCREASED
The U.S. stock market soared during the period under review, achieving an
impressive 22.6% gain, as measured by the Standard & Poor's 500 stock index. As
was the case for much of last year, the market was led by "mega-cap" stocks,
the largest capitalization stocks in the index. To a significant extent, the
market's rally was attributable to highly favorable economic conditions: low
inflation, low unemployment, strong productivity gains and healthy profits. As
the market extended its advance, however, volatility increased. This trend was
particularly evident during the first half of the period, when stronger-than-
expected economic data prompted Federal Reserve policy makers to raise the
Federal funds rate by a quarter-percentage point in March to 5.50%. The Fed's
increase--its first since February 1995--fanned fears of a series of rate
hikes, and caused the market to sell off sharply from mid-March through mid-
April.
By the end of April, however, newly released data reassured investors that
the market-friendly environment remained intact: Moderating growth made further
rate hikes appear less likely, inflation remained subdued and most companies
continued to report strong earnings. These favorable factors helped the market
quickly recoup its losses and propelled indexes to record highs throughout the
latter half of the period. By mid-July, the Dow Jones Industrial Average closed
above 8000 for the first time, only five months after it hit the 7000
milestone.
ECONOMIC ACTIVITY MODERATED DURING THE SPRING, FOLLOWING A ROBUST FIRST QUARTER
Real GDP surged at a 4.9% annualized rate during the first quarter of 1997,
spurred by an upswing in consumer spending, rising factory output and buoyant
construction outlays. During the second quarter, however, real GDP eased to a
somewhat more moderate 3.6% growth rate (annualized), partly because a cool
spring impacted weather-sensitive areas such as retail sales and construction.
In July, most economic data pointed toward strengthening growth, as indicated
by a tightening labor market, a rebound in consumer purchases and an increase
in home sales.
OUTLOOK: ECONOMIC GROWTH IS EXPECTED TO ACCELERATE DURING THE REMAINDER OF THE
YEAR
Despite slowing economic activity during the second quarter, Goldman Sachs'
economists expect above-average growth to resume later in the year. If growth
does accelerate, increasing pressure on labor resources is likely to cause wage
inflation to climb and trigger further
- -------------------------------- ---------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction/Market Overview......... 1
Goldman Sachs Balanced Fund.......... 3
Goldman Sachs CORE U.S. Equity Fund.. 12
Goldman Sachs CORE Large Cap Growth
Fund................................ 20
Goldman Sachs Capital Growth Fund.... 26
Goldman Sachs Mid Cap Equity Fund.... 32
</TABLE>
<TABLE>
<S> <C>
Goldman Sachs International Equity
Fund................................ 36
Goldman Sachs Small Cap Equity Fund.. 43
Goldman Sachs Asia Growth Fund....... 48
Financial Statements................. 54
Notes to Financial Statements........ 62
Financial Highlights................. 73
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Fed monetary tightening by year-end. While the stock market's recent gains have
been impressive, additional rate hikes could affect equity performance. As
always, it is important to maintain realistic expectations regarding your
equity investments' returns.
We appreciate your investment in Goldman Sachs equity funds and look forward
to continuing to serve your investment needs in the future.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
August 29, 1997
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Balanced Fund seeks to provide investors with a combination
of long-term growth of capital and current income by investing in a diversified
portfolio that includes both equity and fixed income securities. Under normal
market conditions, the fund is expected to maintain an asset mix of 45% to 65%
in equity securities, with the remainder (at a minimum 25%) in fixed income
senior securities. The fund's portfolio management team reviews its asset mix
on a regular basis and adjusts it to reflect changes in the economic
environment.
Stocks are selected using a value style, focusing on those stocks judged to
be inexpensive relative to their expected long-term earnings and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, the portfolio is actively
managed within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
PERFORMANCE REVIEW: SUCCESSFUL EQUITY AND FIXED INCOME INVESTMENTS
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET BENCHMARK
ASSET VALUE) TOTAL RETURN+
----------------- -------------
<S> <C> <C>
Class A* 15.42% 14.71%
Class B* 15.01% 14.71%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%) assuming
reinvestment of all dividends and interest.
During the period under review, both of the fund's share classes outperformed
the benchmark, as the accompanying table demonstrates. The equity and fixed
income portions of the fund both achieved favorable results, with equity
investments contributing most to relative outperformance. In addition, the
fund's asset mix yielded positive results. As of July 31, 1997, 56.4% of the
fund's net assets was invested in equities, 40.6% in fixed income and the
remainder in cash equivalents.
We are pleased to note that the fund fared well relative to its peers.
According to Lipper Analytical Services, Inc., Class A and B shares placed
within the top 15% of balanced funds (35th and 46th out of 317 funds for Class
A and B, respectively) for the 12-month period ended July 31, 1997. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results.)
HEALTHCARE, CONSUMER GOODS AND AIRLINE STOCKS WERE AMONG THE FUND'S BEST
PERFORMERS
The fund's top-performing stocks came from a diverse range of sectors,
including healthcare, consumer goods and airlines. AETNA, INC., a leading
healthcare provider, benefited from a friendlier regulatory environment and
consolidation in the healthcare industry. SUNBEAM CORP., INC., a consumer
products company, achieved strong results as investors responded positively to
its recent reforms, including major asset sales, improved distribution and a
new line of feature-laden products. CONTINENTAL AIRLINES, INC. performed well
as its improved service enabled it to continue to increase its share of
business traffic, which is typically more profitable than leisure travel. In
contrast, FRUIT OF THE LOOM, INC. was a disappointing performer as it was
impacted by a price war in screenprint tee shirts but held its prices steady in
order to maintain margins.
During the period, we significantly increased the fund's weighting in
technology stocks. New investments in the sector included two computer hardware
manufacturers: BAY NETWORKS, INC. (networking and
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
connectivity products) and QUANTUM CORP. (disk drives and other information
storage products).
TOP 10 EQUITY HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
Lear Corp. Autoparts/Original 2.6%
Equipment
Sunbeam Corp., 2.1
Inc. Appliances
Aetna, Inc. Healthcare 2.1
Management
Quantum Corp. Computer Component 2.1
Manufacturer
Unicom Corp. Electric Utility 2.0
Tosco Corp. Oil Refining and 2.0
Marketing
Lockheed Martin 2.0
Corp. Defense
Cigna Corp. Insurance 2.0
Morgan Stanley Financial Services 1.8
Dean Witter,
Discover & Co.
Avnet, Inc. Electronic 1.8
Components
Distributor
</TABLE>
FIXED INCOME HOLDINGS PERFORMED WELL AMID FAVORABLE CONDITIONS
Mortgage-backed securities (MBS) continued to account for the fund's largest
fixed income allocation at 13.7% of the portfolio's total net assets. The MBS
sector was one of the strongest performers during the period, benefiting from
declining volatility and stable mortgage prepayments. Corporate bonds, a 10.1%
allocation, also performed well as spreads continued to tighten amid positive
earnings growth and continued structural consolidation (e.g., mergers and
acquisitions activity, restructuring). Asset-backed securities (ABS) (6.0%)
experienced selling pressure early in the year, and then strengthened as
concerns regarding general credit deterioration and potentially vulnerable
insurance guarantees diminished. Emerging market debt was one of the smaller
portfolio allocations (3.0%), but significantly contributed to performance due
to a combination of positive emerging market country credit trends and global
liquidity. The remainder of the fixed income allocation was invested in U.S.
Treasuries (6.9%) to manage the fund's interest rate risk.
OUTLOOK
We remain committed to our strategy of identifying and purchasing stocks that
trade at a discount to their long-term earnings power and dividend-yielding
ability. In a market that has been characterized by speculation and momentum at
different times since the beginning of 1995, we believe that a value approach
is well suited to weather the ups and downs associated with a turbulent market.
In the fixed income markets, we are generally maintaining a neutral posture
as most sectors are currently trading at tight spreads. Regarding specific
sectors, support remains strong in the MBS market, but we believe spreads could
widen should volatility increase or investor demand diminish. In the ABS
sector, we expect spreads to stabilize or tighten modestly as new issuance
subsides and bargain hunters emerge, and will continue to emphasize issues with
tight underwriting standards and strong servicing capabilities. We have a
neutral view for the corporate sector, which is unlikely to experience much
further compression despite an anticipated reacceleration in economic activity
during the second half of the year. Finally, we are moderately optimistic
regarding the emerging debt sector, where we expect to shift the fund's
allocations among the different countries as we identify attractive investment
opportunities.
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
We will continue to carefully monitor the fund's asset allocation and adjust
its equity and fixed income weightings as economic and market conditions
change.
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ G. Lee Anderson
G. Lee Anderson
Portfolio Manager,
U.S. Active Equity Value
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
August 29, 1997
/s/ Jonathan A. Beinner
Jonathan A. Beinner
Co-Head,
U.S. Fixed Income
/s/ C. Richard Lucy
C. Richard Lucy
Co-Head,
U.S. Fixed Income
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--56.2%
AEROSPACE/DEFENSE--2.0%
25,100 Lockheed Martin Corp. $ 2,673,150
- ------------------------------------------------------
AIRLINES--2.4%
16,100 AMR Corp.* 1,731,756
39,000 Continental Airlines, Inc.* 1,462,500
- ------------------------------------------------------
3,194,256
- ------------------------------------------------------
APPLIANCE MANUFACTURER--2.1%
73,000 Sunbeam Corp. 2,856,125
- ------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--2.6%
71,700 Lear Corp.* 3,432,638
- ------------------------------------------------------
AUTO/VEHICLE--1.6%
51,600 Ford Motor Co. 2,109,150
- ------------------------------------------------------
BANKS--5.2%
20,600 BankAmerica Corp. 1,555,300
20,700 Chase Manhattan Corp. 2,350,744
12,500 Fleet Financial Group, Inc. 848,438
9,000 NationsBank Corp. 640,688
13,400 Republic of New York Corp. 1,547,700
- ------------------------------------------------------
6,942,870
- ------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION--0.8%
32,300 Owens Illinois Corp.* 1,114,350
- ------------------------------------------------------
CHEMICAL PRODUCTS--1.6%
31,200 Union Carbide Corp. 1,727,700
22,200 Geon Co. 427,350
- ------------------------------------------------------
2,155,050
- ------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--0.5%
19,600 MCI Communications, Inc. 692,125
- ------------------------------------------------------
DATACOM EQUIPMENT--1.2%
51,300 Bay Networks, Inc.* 1,564,650
- ------------------------------------------------------
DEFENSE--1.0%
17,300 McDonnell Douglas Corp. 1,323,450
- ------------------------------------------------------
ELECTRIC UTILITIES--2.8%
41,200 Long Island Lighting Co. 1,011,975
120,600 Unicom Corp. 2,736,113
- ------------------------------------------------------
3,748,088
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE--0.8%
26,100 Royal Caribbean Cruise Lines $1,035,844
- --------------------------------------------------
FOREST PRODUCTS--2.5%
18,600 Georgia Pacific Corp. 1,756,538
90,500 Stone Container Corp.* 1,504,563
- --------------------------------------------------
3,261,101
- --------------------------------------------------
HEALTHCARE MANAGEMENT--6.3%
24,200 Aetna Inc. 2,757,288
54,200 Columbia HCA Healthcare 1,747,950
46,000 Foundation Health Systems* 1,489,250
79,400 Tenet Healthcare Corp.* 2,377,038
- --------------------------------------------------
8,371,526
- --------------------------------------------------
HOME BUILDERS--2.4%
22,600 Centex Corp. 1,259,950
51,000 Lennar Corp. 1,899,750
- --------------------------------------------------
3,159,700
- --------------------------------------------------
INSURANCE BROKERS--0.3%
4,200 Loews Corp. 454,125
- --------------------------------------------------
INSURANCE-LIFE--2.0%
13,300 Cigna Corp. 2,653,350
- --------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--0.3%
9,200 Allmerica Financial Corp. 407,100
- --------------------------------------------------
INTEGRATED OIL--1.7%
15,600 Atlantic Richfield Co. 1,167,075
9,900 Texaco, Inc. 1,149,019
- --------------------------------------------------
2,316,094
- --------------------------------------------------
LOGISTICS/RAIL--0.7%
29,200 Canadian Pacific Ltd. 881,475
- --------------------------------------------------
OIL REFINING & MARKETING--2.0%
85,600 Tosco Corp. 2,680,350
- --------------------------------------------------
PERSONAL COMPUTERS-PERIPHERALS--2.1%
94,600 Quantum Corp* 2,749,313
- --------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND
SERVICES--1.8%
47,000 Morgan Stanley Dean Witter 2,458,688
- --------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS--1.8%
36,800 Avnet, Inc. $ 2,421,900
- -----------------------------------------------------
STEEL--1.0%
29,800 AK Steel Holding Corp. 1,367,075
- -----------------------------------------------------
SUPERMARKETS--2.1%
70,300 Fleming Companies, Inc. 1,120,406
41,200 Supervalu, Inc. 1,668,600
- -----------------------------------------------------
2,789,006
- -----------------------------------------------------
TEXTILES--1.3%
65,000 Fruit of the Loom, Inc.* 1,779,375
- -----------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--1.6%
33,500 Goodyear Tire & Rubber Co. 2,162,844
- -----------------------------------------------------
TOBACCO--0.8%
24,800 Philip Morris Companies, Inc. 1,119,100
- -----------------------------------------------------
TRANSPORTATION-MISCELLANEOUS--0.9%
33,400 CNF Transportation Inc. 1,164,825
- -----------------------------------------------------
TOTAL COMMON STOCKS
(COST $58,220,390) $ 75,038,693
- -----------------------------------------------------
PREFERRED STOCKS--0.2%
ENTERTAINMENT AND LEISURE--0.2%
3,000 Royal Caribbean Cruise Lines* $ 204,000
- -----------------------------------------------------
MEDIA/ENTERTAINMENT--0.0%
69 Time Warner, Inc. 78,853
- -----------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $210,450) $ 282,853
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--6.0%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 106,351
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 256,758
Case Equipment Loan Trust, Series 1995-A, Class A
51,206 7.30 03/15/02 51,581
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/06 140,612
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Chevy Chase Auto Receivables Trust, Series 1995-2, Class A
$ 55,501 5.80% 06/15/02 $ 55,449
Discover Card Master Trust 1994-2, Class A
70,000 6.03 10/06/04 70,568
Discover Card Master Trust 1996-4, Class A
740,000 6.05 10/16/13 749,479
Discover Card Master Trust 1996-4, Class B
420,000 6.23 10/16/13 421,575
DVI Equipment Lease
391,239 6.55 07/10/04 393,136
Fasco Auto Trust, Series 1996-1, Class A
211,701 6.65 11/15/01 215,935
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 201,686
First USA Credit Card Master Trust
350,000 5.77 04/17/00 350,000
JP Morgan Commercial Mortgage Finance Corp., Series 1997-C4
400,000 7.32 12/26/28 416,562
MBNA Credit Card Master Trust
1,050,000 5.94 04/15/09 1,046,388
Mid-State Trust, Series 4, Class A
898,191 8.33 04/01/30 982,558
Morgan Stanley Capital Commercial Mortgage, Inc., Series 1997-C1
400,000 7.46 05/15/06 417,422
Mortgage Capital Funding Inc., Series 1997, Class A3
500,000 7.29 03/20/07 522,895
Navistar Financial Trust, Series 1995-A, Class A2
97,049 6.55 11/20/01 97,656
Navistar Financial Trust, Series 1995-B, Class A3
96,077 6.05 04/15/02 96,256
PXRE Capital Trust I
65,000 8.85 02/01/27 70,185
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 728,217
Sears Credit Card Master Trust, Series 1995-3, Class A
70,000 7.00 10/15/04 71,640
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 118,077
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Standard Credit Card Master Trust, Series 1995-1, Class A
$ 360,000 8.25% 01/07/07 $ 395,773
- --------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $7,865,244) $ 7,976,759
- --------------------------------------------------------------------------------------------------
CORPORATE BONDS--10.1%
FINANCE BONDS--3.7%
Asia Pulp and Paper International Finance Co.
$ 250,000 8.30% 06/28/99 $ 249,373
100,000 10.25 10/01/00 103,678
BankAmerica Corp.
1,000,000 7.75 07/15/02 1,058,620
Capital One Bank
150,000 6.90 04/15/99 151,664
290,000 6.88 04/24/00 294,539
900,000 6.60 08/20/01 898,083
Conseco, Inc.
160,000 10.50 12/15/04 192,754
Conseco Finance
200,000 8.70 11/15/26 215,468
Continental Bank
100,000 12.50 04/01/01 119,738
Countrywide Funding Corp.
150,000 8.00 12/15/26 159,333
100,000 6.08 07/14/99 100,009
200,000 7.73 08/09/01 209,930
Edison Mission Energy Funding Corp.
94,758 6.77 09/15/03 95,689
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 252,110
Golden West Financial Corp.
200,000 10.25 12/01/00 223,420
Meditrust, Inc.
120,000 7.82 09/10/26 129,162
Signet Banking Corp.
500,000 9.63 06/01/99 528,390
Washington Real Estate
55,000 7.13 08/13/03 56,170
- --------------------------------------------------------------------------------------------------
TOTAL FINANCE BONDS
(COST $4,993,688) $ 5,038,130
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INDUSTRIAL BONDS--5.9%
360 Communications Co.
$ 255,000 7.13% 03/01/03 $ 260,138
Auburn Hills Trust
50,000 12.00 05/01/20 78,081
Blockbuster Entertainment
50,000 6.63 02/15/98 50,072
Chelsea GCA Realty
226,000 7.75 01/26/01 233,024
Chrysler Corp.
60,000 7.45 02/01/97 62,490
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,050
General Motors Acceptance Corp.
170,000 7.13 05/10/00 174,072
210,000 5.63 02/05/01 205,945
H + T Master Trust
220,000 8.18 08/15/02 220,000
Health & Retirement
250,000 6.20 07/09/07 250,000
Hertz Corp.
305,000 6.00 01/15/03 298,845
K Mart Corp.
40,000 9.55 06/30/98 40,570
40,000 9.60 09/15/98 40,500
Loewen Group International
200,000 7.75 10/15/01 203,500
Northwest Airlines
216,108 8.97 01/02/15 233,327
NWA Trust, Series A
66,300 8.26 03/10/06 71,090
NWCG Holding Corp.
450,000 6.81 06/15/99 400,721
Oryx Energy Co.
245,000 9.50 11/01/99 258,928
Owens-Illinois, Inc.
45,000 10.00 08/01/02 47,475
RJR Nabisco, Inc.
240,000 8.63 12/01/02 253,406
135,000 8.00 07/15/01 138,803
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 123,625
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INDUSTRIAL BONDS (CONTINUED)
Taubman Realty Group, Inc.
$ 230,000 8.00% 07/30/01 $ 241,155
TCI Communications, Inc.
20,000 6.82 09/15/10 20,043
Tele-Communications, Inc.
805,000 6.28 09/15/03 804,598
125,000 9.65 10/01/03 134,944
Tenet Healthcare Corp.
60,000 9.63 09/01/02 66,150
Time Warner, Inc.
375,000 7.45 02/01/98 377,149
750,000 7.95 02/01/00 777,878
250,000 7.98 08/15/04 265,603
445,000 9.63 05/01/02 501,092
Tosco Corp.
110,000 7.00 07/15/00 112,069
U.S. Home Corp.
170,000 7.95 03/01/01 169,575
US Air Inc.
327,134 8.93 04/15/08 366,184
USI American Holdings
60,000 7.25 12/01/06 60,838
Viacom International
95,000 10.25 09/15/01 104,025
160,000 9.13 08/15/99 163,800
- --------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS
(COST $7,707,711) $ 7,851,765
- --------------------------------------------------------------------------------------------------
UTILITY BONDS--0.4%
Arkla, Inc.
$ 250,000 9.20% 12/18/97 $ 252,398
Central Maine Power Co.
100,000 7.38 01/01/99 101,742
160,000 7.45 08/30/99 161,925
- --------------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS
(COST $521,661) $ 516,065
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $13,223,060) $ 13,405,960
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT--3.0%
Argentina Bocon
$ 124,502 5.70% 04/01/01 $ 120,232
Argentina Bontes
10,000 8.00 12/13/98 10,115
50,000 8.75 05/09/02 50,950
Asia Pulp and Paper International Finance Co.
40,000 10.25 10/01/00 41,200
Banco Nacional de Obras
20,000 9.63 11/15/03 21,383
Banco de Colombia
30,000 8.63 06/02/00 31,354
BCO de Colombia
110,000 8.63 06/02/00 114,963
Bridas Corp.
90,000 12.50 11/15/99 99,788
60,000 9.50 06/17/99 61,061
Cemex S.A.
50,000 12.75 07/15/06 59,948
Cemex S.A. + Tolmex
20,000 10.00 11/05/99 20,926
City of Moscow
120,000 9.50 05/31/00 122,400
Comision Federal Electric
360,000 8.00 08/04/97 360,011
Corp. Andina de Fomento
100,000 7.25 04/30/98 100,898
80,000 8.38 07/29/01 83,215
DGS International Finance
100,000 10.00 06/01/07 106,200
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,430
Empresa Col Petroleos
80,000 7.25 07/08/98 80,729
Financiera Energy Nacional
220,000 9.38 06/15/06 263,822
230,000 5.88 02/17/98 228,445
200,000 8.46 06/19/98 202,590
Groupo Iusacell
80,000 10.00 07/15/04 80,870
Grupo Industrial Durango
90,000 12.00 07/15/01 99,675
30,000 12.63 08/01/03 34,418
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT (CONTINUED)
Guangdong Enterprises
$ 100,000 8.88% 05/22/07 $ 105,562
Inst Fomento Industrial
210,000 8.38 07/29/01 218,440
Poland Communications, Inc.
90,000 9.88 11/01/03 91,532
Republic of Argentina
51,000 8.63 04/04/98 51,401
63,000 8.63 04/06/98 63,496
Republic of Croatia
80,000 7.00 02/27/02 79,477
Republic of Panama
446,158 7.03 05/10/02 446,171
Russian Federation
80,000 10.00 06/26/07 81,231
Sampoerna International Finance Co.
110,000 8.38 06/15/06 114,256
Trikem SA
100,000 10.63 07/24/07 101,241
YPF Sociedad Anonima
103,577 7.50 10/26/02 106,125
- ------------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $3,890,452) $ 3,965,555
- ------------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS--13.7%
Asset Securitization Corp.
$ 450,000 7.49% 04/14/27 $ 479,444
Collateralized Mortgage Obligation Trust Series 64, Class Z
457,920 9.00 11/20/20 513,905
Federal Home Loan Mortgage Corp.(FHLMC)
1,000,000 7.50 TBA-15yr(a) 2,009,430
1,000,000 6.35 03/25/18 1,000,310
Federal National Mortgage Association (FNMA)
1,000,000 6.50 TBA-30yr(a) 1,000,930
1,000,000 7.50 TBA-30yr(a) 1,016,250
4,000,000 7.00 TBA-30yr(a) 3,993,720
1,000,000 8.50 TBA-30yr(a) 1,041,870
1,000,000 6.55 10/25/20 1,003,430
279,391 6.50 09/01/25 273,630
329,685 6.50 10/01/25 322,887
383,168 6.50 11/01/25 376,462
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (CONTINUED)
First Union 1997C1 A2
$ 300,000 7.30% 04/18/29 $ 313,887
Government National Mortgage Association (GNMA)
3,000,000 8.00 TBA-30yr(a) 3,097,500
953,398 7.00 07/15/23 958,165
896,622 7.50 05/15/23 915,389
- ---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $18,087,031) $ 18,317,209
- ---------------------------------------------------------------------------------------------
SOVEREIGN CREDIT--0.8%
Province of Quebec
$ 200,000 13.25% 09/15/14 $ 235,528
Republic of Colombia
160,000 7.13 05/11/98 160,946
Republic of Croatia
100,000 7.00 02/27/02 100,554
State of Israel
190,000 6.38 12/15/05 184,399
United Mexican States
190,000 7.88 08/06/01 191,849
Republic of Argentina
JPY20,000,000 8.77 09/06/00 180,279
- ---------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(COST $1,051,516) $ 1,053,555
- ---------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--6.8%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13(d) $ 685,246
250,000 8.88 08/15/17 320,548
1,760,000 8.75 05/15/20(d) 2,256,654
170,000 7.88 02/15/21 200,573
280,000 7.63 02/15/25 325,674
United States Treasury Notes
450,000 6.88 08/31/99(d) 459,914
180,000 7.88 11/15/04(d) 199,715
1,250,000 6.13 07/31/00(d) 1,260,938
800,000 5.63 11/30/00 795,248
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (CONTINUED)
United States Treasury Principal Only Stripped Securities(b)
$ 80,000 5.75% 08/15/99 $ 71,279
2,520,000 6.11 05/15/05 1,578,805
1,990,000 6.52 05/15/20 461,700
2,290,000 6.52 08/15/20 522,830
- -----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $8,747,169) $ 9,139,124
- -----------------------------------------------------------------------------------------------
YANKEE BONDS--0.1%
Korea Electric Power
$ 92,815 7.40% 04/01/16 $ 98,403
- -----------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(COST $89,749) $ 98,403
- -----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--0.1%
Argentina Treasury Bill
$ 80,000 6.17%(b) 10/17/97 $ 79,721
Republic of Argentina
90,000 5.36(b) 08/15/97 89,933
- -----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $168,673) $ 169,654
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--12.1%
Joint Repurchase Agreement Account(d)
$16,200,000 5.84% 08/01/97 $ 16,200,000
- -----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $16,200,000) $ 16,200,000
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $127,753,734)(C) $145,647,765
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $18,844,921
Gross unrealized loss for investments in which
cost exceeds value (965,456)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain $17,879,465
- -----------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain
- -------------------------- --------- ---------- ----------
<S> <C> <C> <C>
September
2-Year U.S. Treasury Note 10 1997 $ 19,375
September
5-Year U.S. Treasury Note 6 1997 13,874
September
10-Year U.S. Treasury Bond 13 1997 32,158
September
30-Year U.S. Treasury Bond 12 1997 67,689
--------
$133,096
- -----------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + /-2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(b) The interest rate disclosed for these securities represents effective
yields to maturity.
(c) The aggregate cost for federal income tax purposes is $127,768,300.
(d) Portions of these securities are being segregated as collateral for futures
contracts, TBA securities and mortgage dollar rolls.
(e) Each 2-Year U.S. Treasury Note contract represents $200,000 in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year and 30-Year Treasury Bond
represents $100,000 in notional par value. The total net notional amount
and market value at risk are $5,100,000 and $5,567,000, respectively. The
determination of notional amounts does not consider market risk factors and
therefore notional amounts as presented here are indicative only of volume
of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs CORE U.S. Equity Fund is designed to provide investors with
a broadly diversified portfolio that can be used as a core holding within an
overall investment program. The fund's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of large-cap and blue-chip equity
securities representing all major sectors of the U.S. economy. The fund's
mandate is to remain fully invested while maintaining risk, style,
capitalization and industry characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's
performance relative to the market should result almost exclusively from stock
selection within sectors. We believe the fund offers investors an attractive
combination of value and growth, while seeking not to assume more risk than the
broad market.
The fund employs a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Global Investment Research Department
with quantitative analysis generated by a proprietary multifactor model
developed by the Asset Management Division. The model evaluates each stock
using many different criteria including valuation, momentum and safety. It also
objectively analyzes the impact of current economic conditions on different
types of stocks. Those stocks ranked highly by both the multifactor model and
by Goldman Sachs research are considered for the fund's portfolio.
NAME CHANGE
The name of the Goldman Sachs Select Equity Fund was changed in May to the
Goldman Sachs CORE U.S. Equity Fund. CORE stands for "Computer-Optimized,
Research-Enhanced," which, compared with its previous name, better describes
our strategy of using quantitative and fundamental research to pick stocks for
a diversified and risk-controlled portfolio. The fund's investment focus and
process remain the same.
PERFORMANCE REVIEW: SUCCESSFUL STOCK SELECTION DROVE THE FUND'S PERFORMANCE
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET S&P 500
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 22.08% 22.55%
Class B* 21.74% 22.55%
Institutional* 22.48% 22.55%
Service* 22.17% 22.55%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge.
We are pleased to report that the fund fared well compared with its peers.
For the five-year period ended July 31, 1997, the fund's Class A shares were
rated "four stars" (in a universe of 1,146 domestic equity funds) by
Morningstar, Inc., an independent mutual fund rating agency./1/
In addition, the fund's Institutional shares ranked within the top quartile
of the Lipper growth fund category (172 of 764) for the 12-month period ended
July 31, 1997, according to Lipper Analytical Services, Inc.
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five-, and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The fund's Class A shares received four stars and were rated among
2,040 domestic equity funds for the three-year period. The Morningstar rating
applies only to the fund's Class A shares; the fund's Class B, Institutional
and Service shares have not been rated. Class B, Institutional and Service
shares are subject to additional fees and expenses that may have the effect of
lowering performance and may affect any future Morningstar rating. Morningstar
rates funds against peers in the same category. In all, there are four
Morningstar categories (domestic equity, international equity, taxable bond and
municipal). Morningstar ratings range from five stars (highest) to one star
(lowest). Funds with five-star ratings are in the top 10% of their category,
four-star ratings in the next 22.5%, three stars the next 35%, two stars the
next 22.5% and one star the lowest 10% of their categories.
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results.) Class A, B and
Service shares also fared well, and they all ranked within the top third of the
Lipper growth fund category. (Class A, B and Service shares ranked 211, 240 and
197, respectively, out of 764 growth funds.)
Successful stock selection drove the fund's performance during the period.
During the first half of the period, the fund particularly benefited from the
direction set by our proprietary mutifactor model. Of the three investment
themes considered by the model--value, momentum, and safety--the portfolio had
an above-average tilt toward safety. This strategy worked in the fund's favor
as defensive value stocks generally outperformed volatile growth stocks beyond
the largest capitalization tier of the S&P 500. In addition, the qualitative
stock recommendations produced by the Goldman Sachs Global Investment Research
Department achieved strong results during the second quarter.
The fund's best performers came from a wide range of sectors, including
technology (MICROSOFT CORP., INTERNATIONAL BUSINESS MACHINES INC.), electrical
equipment (GENERAL ELECTRIC CO.), retailing (DAYTON HUDSON CORP.) and machinery
(CATERPILLAR, INC.).
PORTFOLIO COMPOSITION: THE FUND FAVORED DEFENSIVE, VALUE STOCKS
In general, the fund's sector exposures approximated that of the S&P 500
stock index, although its current tilt toward defensive, value stocks resulted
in a slight overweighting in "cheap" sectors (e.g., consumer durables) and less
volatile sectors (e.g., utilities and energy) and a slight underweighting in
"pricey" sectors (e.g., consumer nondurables) and cyclical sectors (e.g., basic
industries). These differences, as shown in Table II, stemmed from the fund's
bottom-up stock selection process, not from an economic forecast for specific
sectors.
The fund's valuation characteristics were slightly more attractive than those
of the benchmark. For example, the fund had a lower price/earnings ratio based
on 1997 estimated earnings than the S&P 500 (18.7x versus 20.8x) and a lower
price/book ratio (3.8x versus 4.0x). In other respects, the fund maintained
growth and risk characteristics in line with the S&P 500.
TABLE I
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
General Electric
Co. Electronics 4.2%
Exxon Corp. Petroleum and 2.8
Natural Gas
Intel Corp. Semiconductors and 2.2
Electronics
Microsoft Corp. Computer Software 1.8
Coca Cola Co. Beverages 1.7
General Motors Automobile 1.7
Corp. Manufacturer
Merck & Co.,
Inc. Pharmaceuticals 1.6
GTE Corporation Telecommunications 1.6
Mobil Petroleum and 1.5
Corporation Natural Gas
Bristol-Myers
Squibb Co. Pharmaceuticals 1.5
</TABLE>
TABLE II
SECTOR BREAKOUT AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
INDUSTRY SECTORS PORTFOLIO S&P 500 INDEX DIFFERENCE
---------------- ------------- ------------- ----------
<S> <C> <C> <C>
Capital Spending 17.8% 18.6% -0.8%
Consumer 17.5 19.9 -2.4
Nondurables
Finance 15.9 17.1 -1.2
Consumer
Services 10.9 11.7 -0.8
Utilities 9.3 8.5 0.8
Energy 9.1 8.1 1.0
Basic Industry 5.9 6.9 -1.0
Miscellaneous 4.5 5.5 -1.0
Consumer
Durables 4.2 2.4 1.8
Cash (Equitized 3.0 0.0 3.0
with S&P 500
futures)
Transportation 1.9 1.3 0.6
</TABLE>
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OUTLOOK
We intend to maintain a balanced approach by considering each of our
investment themes (value, momentum and safety) when making investment
decisions. In the near term, however, recent cautionary signals--such as
increasing stock market volatility and record-low dividend yields--have led us
to adopt a more defensive posture. As a result, we are focusing primarily on
low-risk stocks with attractive valuations, while slightly reducing our weight
on momentum.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
August 29, 1997
14
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.6%
ADVERTISING--0.3%
27,400 Omnicom Group $ 1,912,863
- -----------------------------------------------------
AEROSPACE--0.7%
42,600 United Technologies Corp. 3,602,363
- -----------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT--1.2%
24,500 Case Corp. 1,529,719
43,100 Conagra, Inc. 3,030,469
47,800 Tenneco, Inc. 2,228,675
- -----------------------------------------------------
6,788,863
- -----------------------------------------------------
AIRLINES--1.1%
23,400 AMR Corp.* 2,516,963
36,600 Delta Air Lines, Inc. 3,252,825
- -----------------------------------------------------
5,769,788
- -----------------------------------------------------
APPLIANCE MANUFACTURER--0.5%
76,500 Sunbeam Corp. 2,993,063
- -----------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--0.3%
22,600 Cummins Engine, Inc. 1,774,100
- -----------------------------------------------------
AUTO/VEHICLE--2.5%
112,900 Ford Motor Co. 4,614,788
150,400 General Motors Corp. 9,306,000
- -----------------------------------------------------
13,920,788
- -----------------------------------------------------
AUTOMOBILES & AUTOMOBILE PARTS--0.3%
42,500 Genuine Parts Co. 1,386,563
- -----------------------------------------------------
BANK HOLDING COMPANIES--0.4%
25,400 Comerica, Inc. 1,920,875
- -----------------------------------------------------
BANKS--4.8%
32,750 Banc One Corp. 1,838,094
46,900 Bank of New York, Inc. 2,277,581
41,500 Chase Manhattan Corp. 4,712,844
25,200 Citicorp. 3,420,900
27,800 First Bank System, Inc. 2,474,200
33,600 First Chicago Corp. 2,549,400
94,600 NationsBank Corp. 6,734,338
10,000 Wells Fargo & Company 2,749,375
- -----------------------------------------------------
26,756,732
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BEVERAGES--2.5%
135,800 Coca Cola Co. $ 9,404,150
112,700 Pepsico, Inc. 4,317,819
- -----------------------------------------------------------
13,721,969
- -----------------------------------------------------------
BIOTECHNOLOGY--0.2%
14,700 Amgen, Inc.* 864,544
- -----------------------------------------------------------
BUILDING MATERIALS--0.3%
38,000 USG Corp.* 1,786,000
- -----------------------------------------------------------
BUSINESS SERVICES--0.5%
53,500 Automatic Data Processing, Inc. 2,648,250
- -----------------------------------------------------------
CHEMICAL PRODUCTS--0.7%
40,300 Du Pont (E.I.) de Nemours & Co. 2,697,581
44,500 IMC Global, Inc. 1,404,531
- -----------------------------------------------------------
4,102,112
- -----------------------------------------------------------
CHEMICALS-COMMODITY--1.4%
44,900 Dow Chemicals Co. 4,265,500
67,300 Monsanto Co. 3,352,381
- -----------------------------------------------------------
7,617,881
- -----------------------------------------------------------
COMMERCIAL SERVICES--0.3%
31,800 Interim Services, Inc.* 1,448,888
- -----------------------------------------------------------
COMMUNICATIONS SERVICES COMPANIES--0.4%
73,800 Airtouch Communications, Inc.* 2,430,788
- -----------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--3.6%
52,400 Ameritech Corp. 3,533,725
48,500 Bellsouth Corp. 2,297,688
185,100 GTE Corp. 8,607,150
49,900 Sprint Corp. 2,470,050
87,200 Worldcom, Inc.* 3,046,550
- -----------------------------------------------------------
19,955,163
- -----------------------------------------------------------
CONSUMER GOODS--0.5%
42,000 Nike, Inc. 2,617,125
- -----------------------------------------------------------
CONSUMER STAPLES--1.7%
50,500 American Home Products Corp. 4,163,094
32,600 Procter & Gamble Co. 4,959,275
- -----------------------------------------------------------
9,122,369
- -----------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
15
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
DEFENSE--1.7%
75,000 Boeing Co. $ 4,410,938
36,200 Textron, Inc. 2,536,263
36,000 TRW, Inc. 2,106,000
- --------------------------------------------------------------
9,053,201
- --------------------------------------------------------------
DEPARTMENT STORES--3.6%
105,300 Dayton Hudson Corp. 6,805,013
37,100 Federated Department Stores, Inc.* 1,625,444
27,300 Fred Meyer, Inc.* 1,564,631
64,200 Sears Roebuck & Co. 4,064,663
150,700 Walmart Stores, Inc. 5,660,669
- --------------------------------------------------------------
19,720,420
- --------------------------------------------------------------
DIVERSIFIED MANUFACTURING--0.6%
36,900 Allied Signal, Inc. 3,404,025
- --------------------------------------------------------------
ELECTRIC UTILITIES--2.6%
74,600 Duke Power Co. 3,781,288
125,800 Edison International, Inc. 3,176,450
21,300 Empresa Nacional de Electric ADR 1,797,188
42,900 Teco Energy, Inc. 1,088,588
90,700 Texas Utilities Co. 3,214,181
57,600 Unicom Corp. 1,306,800
- --------------------------------------------------------------
14,364,495
- --------------------------------------------------------------
ELECTRICAL--0.3%
51,200 Cinergy Corp. 1,721,600
- --------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--4.6%
37,300 Emerson Electric Co. 2,200,700
327,000 General Electric Co. 22,951,313
- --------------------------------------------------------------
25,152,013
- --------------------------------------------------------------
ENTERPRISE SYSTEMS--3.2%
76,000 Compaq Computer Corp.* 4,341,500
63,700 Hewlett Packard Co. 4,462,981
65,300 International Business Machines 6,905,475
49,900 Sun Microsystems, Inc.* 2,279,806
- --------------------------------------------------------------
17,989,762
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE--0.8%
53,642 Walt Disney, Co. $ 4,334,944
- -----------------------------------------------------------------
FINANCIAL SERVICES--4.0%
25,700 American Express Co. 2,152,375
33,000 American Financial Group 1,575,750
90,700 BankAmerica Corp. 6,847,850
91,700 Federal National Mortgage Association 4,338,556
76,600 Providian Financial Corp. 3,001,763
60,033 Travelers Group, Inc. 4,318,624
- -----------------------------------------------------------------
22,234,918
- -----------------------------------------------------------------
FOOD--0.7%
35,100 Interstate Bakeries Corp. 2,141,100
7,800 Unilever, Inc. 1,700,400
- -----------------------------------------------------------------
3,841,500
- -----------------------------------------------------------------
FOOD PRODUCERS--0.6%
33,500 Dean Foods Co. 1,614,281
16,000 Ralston Purina Co. 1,444,000
- -----------------------------------------------------------------
3,058,281
- -----------------------------------------------------------------
FOREST PRODUCTS--1.4%
80,000 Avery Dennison Corp. 3,530,000
28,000 Georgia Pacific Corp. 2,644,250
26,600 Kimberly Clark Corp. 1,348,288
- -----------------------------------------------------------------
7,522,538
- -----------------------------------------------------------------
GAS DISTRIBUTION & PIPELINE--0.6%
45,100 Columbia Gas Systems, Inc. 3,100,625
- -----------------------------------------------------------------
GROCERY PRODUCTS--0.4%
97,500 IBP, Inc. 2,218,125
- -----------------------------------------------------------------
HEALTH & MEDICAL SERVICES--2.0%
62,800 Abbott Laboratories 4,109,475
85,400 Johnson & Johnson 5,321,488
28,900 Lincare Holdings, Inc.* 1,416,100
- -----------------------------------------------------------------
10,847,063
- -----------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES--0.2%
31,900 Alberto Culver Co. Class B 895,194
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTHCARE MANAGEMENT--0.8%
62,600 Columbia HCA Healthcare $ 2,018,850
51,800 Wellpoint Health Networks* 2,551,150
- --------------------------------------------------------------
4,570,000
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.1%
58,800 Gillette Co. 5,821,200
- --------------------------------------------------------------
INDUSTRIAL--0.7%
61,400 Corning, Inc. 3,795,288
- --------------------------------------------------------------
INDUSTRIAL MACHINERY--0.7%
70,800 Caterpillar, Inc. 3,964,800
- --------------------------------------------------------------
INFORMATION MANAGEMENT--0.9%
189,700 Dun & Bradstreet Corp. 5,121,900
- --------------------------------------------------------------
INSURANCE--0.3%
12,900 MBIA, Inc. 1,522,200
- --------------------------------------------------------------
INSURANCE SERVICES--0.3%
35,600 Protective Life Corp. 1,811,150
- --------------------------------------------------------------
INSURANCE SPECIALTY--0.3%
40,900 Everest Reinsurance Holdings 1,584,875
- --------------------------------------------------------------
INSURANCE-LIFE--0.7%
18,300 Cigna Corp. 3,650,850
- --------------------------------------------------------------
INSURANCE-MULTI-LINE--0.3%
22,654 Aegon N V Amer Reg 1,718,872
- --------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.4%
25,356 Allstate Corp. 2,003,124
54,075 American International Group, Inc. 5,758,988
- --------------------------------------------------------------
7,762,112
- --------------------------------------------------------------
INTEGRATED OIL--6.5%
21,600 Amoco Corp. 2,030,400
41,800 Atlantic Richfield Co. 3,127,163
240,500 Exxon Corp. 15,452,125
82,200 Phillips Petroleum Co. 3,786,338
104,000 Royal Dutch Petroleum 5,817,500
27,200 Texaco, Inc. 3,156,900
55,000 Unocal Corp. 2,200,000
- --------------------------------------------------------------
35,570,426
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INVESTMENT BROKERS & MANAGERS--1.1%
49,200 Merrill Lynch Co. $ 3,465,525
40,800 Salomon, Inc. 2,588,250
- ---------------------------------------------------------
6,053,775
- ---------------------------------------------------------
LOGISTICS/RAIL--0.8%
37,900 Norfolk Southern Corp. 4,197,425
- ---------------------------------------------------------
MACHINERY AND EQUIPMENT--0.4%
28,600 Ingersoll-Rand Co. 1,946,588
- ---------------------------------------------------------
MEDIA/ENTERTAINMENT--0.6%
40,500 King World Productions, Inc.* 1,635,188
52,600 Meredith Corp. 1,456,363
- ---------------------------------------------------------
3,091,551
- ---------------------------------------------------------
MISCELLANEOUS MANUFACTURER--0.3%
79,200 Coltec Industries, Inc.* 1,742,400
- ---------------------------------------------------------
NONFERROUS METALS--0.6%
47,200 Alumax, Inc.* 2,000,100
15,500 Phelps Dodge Corp. 1,318,469
- ---------------------------------------------------------
3,318,569
- ---------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.9%
42,000 Miller Herman, Inc. 2,084,250
35,600 Xerox Corp. 2,928,100
- ---------------------------------------------------------
5,012,350
- ---------------------------------------------------------
OIL & GAS--2.6%
58,600 Ensco International, Inc.* 3,874,925
106,700 Mobil Corp. 8,162,550
60,100 Rowan Companies, Inc.* 1,975,788
- ---------------------------------------------------------
14,013,263
- ---------------------------------------------------------
OIL & GAS EXPLORATION--0.5%
101,900 Marine Drilling Companies* 2,528,394
- ---------------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--1.6%
63,000 Creative Technology* 1,283,625
29,700 Eastman Kodak Co. 1,989,900
74,400 Quantum Corp.* 2,162,250
90,200 Western Digital Corp.* 3,472,700
- ---------------------------------------------------------
8,908,475
- ---------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS--5.7%
103,800 Bristol-Myers Squibb $ 8,141,813
18,200 Eli Lilly & Co. 2,056,600
43,900 Forest Laboratories, Inc.* 1,997,450
84,000 Merck & Co., Inc. 8,730,750
56,000 Pfizer, Inc. 3,339,000
93,000 Schering Plough Corp. 5,074,313
13,500 Warner Lambert Co. 1,885,781
- --------------------------------------------------------------
31,225,707
- --------------------------------------------------------------
PRINTING--0.3%
51,400 Lexmark International Group, Inc.* 1,673,713
- --------------------------------------------------------------
RESTAURANTS--0.3%
28,000 McDonalds Corp. 1,505,000
- --------------------------------------------------------------
RESTAURANTS & HOTELS--0.3%
23,800 HFS, Inc.* 1,386,350
- --------------------------------------------------------------
RETAIL--1.5%
65,000 American Stores Co. 1,641,250
87,600 Best Buy Co., Inc.* 1,138,800
49,950 Home Depot, Inc. 2,491,256
44,800 Ross Stores, Inc. 1,416,800
58,400 TJX Companies, Inc. 1,744,700
- --------------------------------------------------------------
8,432,806
- --------------------------------------------------------------
RETAIL TRADE--0.4%
47,100 Gap, Inc. 2,093,006
- --------------------------------------------------------------
SAVINGS AND LOANS--0.6%
60,600 HF Ahmanson & Co. 3,223,163
- --------------------------------------------------------------
SECURITY--0.5%
30,400 Tyco International Ltd. 2,462,400
- --------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES--0.1%
13,800 Morgan Stanley Dean Witter 721,913
- --------------------------------------------------------------
SEMICONDUCTORS--3.9%
32,800 Advanced Micro Devices, Inc.* 1,150,050
132,400 Intel Corp. 12,155,975
33,700 Micron Technology, Inc.* 1,640,769
58,400 Motorola, Inc. 4,690,250
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS (CONTINUED)
48,100 National Semiconductor Corp.* $ 1,515,150
- -----------------------------------------------------------
21,152,194
- -----------------------------------------------------------
SOFTWARE & SERVICES--2.0%
68,700 Microsoft Corp.* 9,721,050
24,000 Oracle Corp.* 1,306,500
- -----------------------------------------------------------
11,027,550
- -----------------------------------------------------------
SPECIALTY RETAIL--0.3%
34,700 Tiffany & Co. 1,568,006
- -----------------------------------------------------------
SUPERMARKETS--0.6%
58,567 Safeway, Inc.* 3,140,655
- -----------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--0.7%
43,303 Lucent Technologies, Inc. 3,678,049
- -----------------------------------------------------------
TEXTILES--0.3%
32,400 Sara Lee Corp. 1,419,525
- -----------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--0.3%
29,100 Goodyear Tire & Rubber Co. 1,878,769
- -----------------------------------------------------------
TOBACCO--1.9%
176,500 Philip Morris Companies, Inc. 7,964,563
75,300 RJR Nabisco, Inc. 2,470,781
- -----------------------------------------------------------
10,435,344
- -----------------------------------------------------------
TRANSPORTATION--0.4%
52,400 Shell Transport & Trading PLC 2,338,350
- -----------------------------------------------------------
UTILITIES--1.6%
38,200 Cia de Telecomunicaciones Chile 1,258,213
94,900 Dominion Resources, Inc. 3,487,575
42,100 DQE, Inc. 1,328,781
50,700 Telecom Argentina ADR 2,931,076
- -----------------------------------------------------------
9,005,645
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $364,176,160) $528,674,399
- -----------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS(B)--0.1%
$ 150,000 U.S. Treasury Bill
4.81%, 08/28/97 $ 149,459
145,000 U.S. Treasury Bill
4.91%, 09/18/97 144,926
50,000 U.S. Treasury Bill
4.93%, 09/18/97 49,971
65,000 U.S. Treasury Bill
4.86%, 09/18/97 64,780
115,000 U.S. Treasury Bill
5.03%, 9/18/97 114,863
- ---------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $521,989) $ 523,999
- ---------------------------------------------------------------
REPURCHASE AGREEMENT--2.4%
$12,900,000 Joint Repurchase Agreement Account
5.84%, 08/01/97(b) $ 12,900,000
- ---------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $12,900,000) $ 12,900,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS
(COST $377,598,149)(A) $542,098,398
- ---------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $166,979,947
Gross unrealized loss for investments in which
cost exceeds value (2,842,693)
- ---------------------------------------------------------------
Net unrealized gain $164,497,254
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Futures contracts open at July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(c) Month Gain
- ------------------- --------- ---------- ----------
<S> <C> <C> <C>
September
S&P 500 Stock Index 25 1997 364,677
- ----------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $377,601,144.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and market value at risk are $1,250,000 and
$11,974,375, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder
in the Goldman Sachs CORE Large Cap Growth Fund. In the future, we will be
sending you annual and semiannual reports that describe the fund's performance,
as well as information regarding specific holdings. This semiannual report
covers the abbreviated period from May 1, 1997, when the fund began operations,
through July 31, 1997.
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs CORE Large Cap Growth Fund is designed to provide investors
with a broadly diversified portfolio of growth-oriented equity securities of
large-cap U.S. issuers. The selected securities typically have higher
prospective growth rates than the general domestic economy. The fund's
portfolio is designed to maintain risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. Therefore, the fund's
performance relative to the Growth Index comes primarily from stock selection
within sectors.
The fund employs a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Global Investment Research Department
with quantitative analysis generated by a proprietary multifactor model
developed by the Asset Management Division. The model evaluates each stock
using many different criteria including valuation, momentum and safety. It also
objectively analyzes the impact of current economic conditions on different
types of stocks. Those stocks ranked highly by both the multifactor model and
by Goldman Sachs research are considered for the fund's portfolio.
PERFORMANCE REVIEW: STOCK SELECTION BENEFITED PERFORMANCE, BUT RESULTS WERE
DAMPENED BY DEFENSIVE POSTURE
PERFORMANCE SUMMARY: MAY 1, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN RUSSELL 1000
(BASED ON NET GROWTH INDEX
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 19.50% 21.37%
Class B* 19.40% 21.37%
Institutional* 19.50% 21.37%
Service* 19.40% 21.37%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge. Performance for Class A, B, Institutional and Service
shares is from their inception through the end of the period.
The fund's performance during the period was primarily driven by specific
stock selection. Within the growth universe, the fund focused on more stable
companies trading at reasonable valuations, as our proprietary multifactor
model emphasized stocks with lower price/earnings ratios and less potential for
earnings disappointments. In addition, qualitative stock recommendations
produced by the Goldman Sachs Global Investment Research Department also
benefited the fund's performance.
Given cautionary market conditions (i.e., increasing volatility and record-
low dividend yields), we maintained a "safety-first" stock-selection bias. This
approach led us to seek stocks with relatively stable characteristics (i.e.,
predictable earnings and less volatile prices) relative to the large-cap growth
universe. ALTHOUGH DEFENSIVE STOCKS OUTPERFORMED, AIDING OUR "STOCK-SELECTION"
RETURNS, OUR IMPLICIT CAUTION (OR LOWER BETA) HURT THE PORTFOLIO'S RELATIVE
PERFORMANCE. Additionally, May proved to be a difficult month for momentum
strategies, which led the fund to trail the benchmark for the period despite
achieving healthy gains in June.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
The fund's best performing stocks during the period came from a wide range of
sectors. These included financial holdings such as AMERICAN INTERNATIONAL
GROUP, INC., TRAVELERS, INC. and MERRILL LYNCH & CO., INC., pharmaceutical
companies such as PFIZER INC. and WARNER LAMBERT CO., and computer manufacturer
COMPAQ COMPUTER CORP.
PORTFOLIO COMPOSITION
As of July 31, 1997, the fund held 139 stocks. The fund's fundamental
characteristics were generally more attractive than those of the benchmark. For
example, within the growth universe, the fund had a lower price/earnings ratio
based on 1997 estimated earnings than the Russell 1000 Growth Index (20.1x
versus 25.5x) and a lower price/book ratio (4.1x versus 6.4x), while having a
higher five-year earnings-per-share growth projection (26% versus 24%).
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY LINE OF BUSINESS TOTAL NET ASSETS
------- ---------------- ----------------
<S> <C> <C>
Intel Corp. Semiconductors 4.2%
and Electronics
Microsoft Corp. Computer Software 3.5
Dayton Hudson Department Stores 2.8
Corp.
General Electric
Co. Electronics 2.8
American Property/Casualty 2.8
International Insurance
Group, Inc.
Corning Inc. Glass Products 2.2
Manufacturer
Pfizer Inc. Pharmaceuticals 2.0
Philip Morris Tobacco and Food 1.9
Companies, Inc. Products
Gillette Co. Cosmetics and 1.9
Toiletries
Abbott Health & Medical 1.9
Laboratories Services
</TABLE>
OUTLOOK
We intend to maintain a balanced approach by considering all of our
investment themes (value, momentum and safety) when making investment
decisions. In the near term, however, recent cautionary signals such as
increasing market volatility and record-low dividend yields have led us to
adopt a slightly more defensive posture. Therefore, we are currently favoring
less volatile stocks selling at reasonable valuations, while avoiding stocks
whose primary attractions are strong prior earnings and price momentum. Despite
these near-term preferences, we continue to adhere to our primary investment
style as defined by the Russell 1000 Growth Index. As a result, we will
continue to have a significant growth tilt relative to the overall market.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
August 29, 1997
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------
<C> <S> <C>
COMMON STOCKS--95.8%
AEROSPACE--0.2%
600 United Technologies Corp. $ 50,738
- ---------------------------------------------------
AEROSPACE/DEFENSE--0.6%
1,700 Gulfstream Aerospace Corp.* 45,263
5,700 Rohr Inc.* 135,375
- ---------------------------------------------------
180,638
- ---------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT--0.9%
6,100 Tenneco, Inc. 284,413
- ---------------------------------------------------
AIRLINES--1.6%
2,000 Delta Air Lines, Inc. 177,750
4,200 UAL Corp.* 344,663
- ---------------------------------------------------
522,413
- ---------------------------------------------------
APPLIANCE MANUFACTURER--0.9%
2,900 Creative Technology* 59,088
5,500 Sunbeam Corp. 215,188
- ---------------------------------------------------
274,276
- ---------------------------------------------------
BANKS--0.5%
2,500 NationsBank Corp. 177,969
- ---------------------------------------------------
BEVERAGES--0.8%
3,800 Coca Cola Co. 263,150
- ---------------------------------------------------
BIOTECHNOLOGY--0.4%
2,200 Amgen, Inc.* 129,388
- ---------------------------------------------------
BROADCAST MEDIA--0.1%
900 Belo A H Corp 40,050
- ---------------------------------------------------
BUILDING MATERIALS--0.4%
2,500 USG Corp.* 117,500
- ---------------------------------------------------
BUSINESS SERVICES--0.5%
17,000 Medaphis Corp.* 153,000
- ---------------------------------------------------
CHEMICAL PRODUCTS--0.6%
1,900 Cytec Industries, Inc.* 75,050
3,900 IMC Global Inc. 123,094
- ---------------------------------------------------
198,144
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS-COMMODITY--0.9%
1,700 Dow Chemicals Co. $ 161,500
2,700 Monsanto Co. 134,494
- -----------------------------------------------
295,994
- -----------------------------------------------
COMMERCIAL SERVICES--0.3%
2,500 Interim Services, Inc.* 113,906
- -----------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--2.4%
13,100 GTE Corp. 609,150
2,000 Tellabs Inc.* 119,750
1,900 Worldcom, Inc.* 66,381
- -----------------------------------------------
795,281
- -----------------------------------------------
CONSUMER GOODS--0.5%
2,900 Nike, Inc. 180,706
- -----------------------------------------------
CONSUMER PRODUCTS--0.5%
4,300 Blyth Industries Inc* 154,531
- -----------------------------------------------
CONSUMER STAPLES--1.6%
3,600 Procter & Gamble Co. 547,650
- -----------------------------------------------
DATACOM EQUIPMENT--0.8%
3,300 Cisco Systems, Inc.* 262,556
- -----------------------------------------------
DEPARTMENT STORES--4.4%
14,600 Dayton Hudson Corp. 943,525
3,400 Fred Meyer Inc.* 194,863
2,000 Sears Roebuck & Co. 126,625
4,900 Walmart Stores, Inc. 184,056
- -----------------------------------------------
1,449,069
- -----------------------------------------------
DIVERSIFIED MANUFACTURING--0.8%
5,700 Acx Technologies Inc.* 144,281
1,800 Dover Corp. 128,475
- -----------------------------------------------
272,756
- -----------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--
3.6%
13,300 General Electric Co. 933,494
3,300 Jabil Circuit Inc.* 160,669
1,500 Linear Technology Corp. 100,313
- -----------------------------------------------
1,194,476
- -----------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERPRISE SYSTEMS--2.0%
2,300 Avid Technology Inc.* $ 79,063
4,600 Hewlett Packard Co. 322,288
6,600 Silicon Graphics Inc.* 165,000
2,500 Sun Microsystems, Inc.* 114,219
- -------------------------------------------------------------
680,570
- -------------------------------------------------------------
ENTERTAINMENT AND LEISURE--2.6%
9,400 Carnival Cruise Lines Corp. Class A 395,975
4,100 Hollywood Entertainment Co.* 76,875
5,000 Walt Disney, Co. 404,063
- -------------------------------------------------------------
876,913
- -------------------------------------------------------------
FINANCIAL SERVICES--2.6%
1,200 American Express Co. 100,500
2,100 BankAmerica Corp. 158,550
1,500 CMAC Investment Corp. 70,781
3,500 Federal National Mortgage Association 165,594
4,900 Travelers Group, Inc. 352,494
- -------------------------------------------------------------
847,919
- -------------------------------------------------------------
FOOD--0.5%
2,800 Interstate Bakeries Corp. 170,800
- -------------------------------------------------------------
FOREST PRODUCTS--0.5%
4,100 Avery Dennison Corp. 180,913
- -------------------------------------------------------------
GAS DISTRIBUTION & PIPELINE--0.6%
2,700 Columbia Gas Systems, Inc. 185,625
- -------------------------------------------------------------
HEALTH & MEDICAL SERVICES--4.3%
9,500 Abbott Laboratories 621,656
1,200 Biomet Inc. 23,925
4,400 Dura Pharmaceuticals Inc.* 171,600
2,600 Health Management Association* 83,038
5,300 Johnson & Johnson 330,256
2,400 Lincare Holdings Inc.* 117,600
3,800 Prime Hospitality Corp.* 69,825
- -------------------------------------------------------------
1,417,900
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH SUPPLIERS/SERVICES--0.7%
4,900 Alberto Culver Co., Class B $ 137,506
900 Medtronic Inc. 78,525
- -----------------------------------------------------
216,031
- -----------------------------------------------------
HEALTHCARE MANAGEMENT--1.3%
5,800 Columbia HCA Healthcare 187,050
3,200 Quest Diagnostics Inc.* 55,600
4,100 Wellpoint Health Networks* 201,925
- -----------------------------------------------------
444,575
- -----------------------------------------------------
HOUSEHOLD DURABLES--0.5%
3,000 Ethan Allen Interiors Inc. 159,000
- -----------------------------------------------------
HOUSEHOLD PRODUCTS--2.2%
6,300 Gillette Co. 623,700
3,500 Premark International Inc. 110,469
- -----------------------------------------------------
734,169
- -----------------------------------------------------
INDUSTRIAL--2.2%
11,700 Corning Inc. 723,206
- -----------------------------------------------------
INDUSTRIAL MACHINERY--1.6%
6,800 Caterpillar, Inc. 380,800
2,700 Tecumseh Products Co. Class A 151,875
- -----------------------------------------------------
532,675
- -----------------------------------------------------
INFORMATION MANAGEMENT--1.1%
13,100 Dun & Bradstreet Corp. 353,700
- -----------------------------------------------------
INSURANCE SERVICES--1.9%
2,000 AMBAC Inc. 170,375
2,500 Conseco, Inc. 101,875
3,000 MGIC Investment Corp. 157,688
2,700 Protective Life Corp. 137,363
1,300 SunAmerica, Inc. 78,650
- -----------------------------------------------------
645,951
- -----------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE-PROPERTY AND CASUALTY--2.8%
8,700 American International Group, Inc. $ 926,550
- -----------------------------------------------------------
INTEGRATED OIL--1.2%
3,700 Exxon Corp. 237,725
2,000 Norsk Hydro ADR 104,500
600 Phillips Petroleum Co. 27,638
1,000 Unocal Corp. 40,000
- -----------------------------------------------------------
409,863
- -----------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.5%
4,400 Banctec Inc.* 107,525
800 Pitney-Bowes Inc. 60,100
- -----------------------------------------------------------
167,625
- -----------------------------------------------------------
OIL & GAS--2.8%
5,400 El Paso Natural Gas Co. 312,188
3,800 Ensco International Inc.* 251,275
4,900 Mobil Corp. 374,850
- -----------------------------------------------------------
938,313
- -----------------------------------------------------------
OIL & GAS EXPLORATION--1.3%
16,000 Marine Drilling Companies* 397,000
1,800 Union Texas Petroleum Holdings Inc. 37,463
- -----------------------------------------------------------
434,463
- -----------------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--5.2%
7,500 Compaq Computer Corp.* 428,438
2,200 Dell Computer Corporation* 188,100
7,400 Komag Inc.* 154,013
2,400 Quantum Corp.* 69,750
14,500 Read Rite Corp.* 375,188
13,300 Western Digital Corp.* 512,050
- -----------------------------------------------------------
1,727,539
- -----------------------------------------------------------
PHARMACEUTICALS--3.8%
1,400 Merck & Co. 145,513
11,100 Pfizer, Inc. 661,838
3,000 Schering Plough Corp. 163,688
2,200 Warner Lambert Co. 307,313
- -----------------------------------------------------------
1,278,352
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RECREATIONAL PRODUCTS--0.3%
3,200 Mattel, Inc. $ 111,200
- ---------------------------------------------------------------
RESTAURANTS & HOTELS--0.4%
2,507 HFS, Inc.* 146,033
- ---------------------------------------------------------------
RETAIL--3.3%
22,200 Best Buy Co. Inc.* 288,600
4,059 CVS Corporation 230,856
10,000 Ross Stores, Inc. 316,250
8,800 TJX Companies, Inc. 262,900
- ---------------------------------------------------------------
1,098,606
- ---------------------------------------------------------------
SECURITY--1.4%
5,600 Tyco International Ltd. 453,600
- ---------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES--1.9%
2,800 Bear Stearns Companies Inc. 114,275
2,400 Merrill Lynch Co. 169,050
5,500 Salomon, Inc. 348,906
- ---------------------------------------------------------------
632,231
- ---------------------------------------------------------------
SEMICONDUCTORS--5.9%
7,400 Advanced Micro Devices Inc.* 259,463
15,200 Intel Corp. 1,395,550
2,000 Microchip Technology* 74,500
1,100 Micron Technology 53,556
5,900 National Semiconductor Corp.* 185,850
- ---------------------------------------------------------------
1,968,919
- ---------------------------------------------------------------
SOFTWARE & SERVICES--5.5%
4,600 Cadence Design Systems, Inc.* 204,413
1,500 Computer Associates International, Inc. 102,094
3,100 Electronic Data Systems 134,075
8,200 Microsoft Corp.* 1,160,300
3,200 Oracle Corp. 174,200
4,000 Sybase Inc.* 59,000
- ---------------------------------------------------------------
1,834,082
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL--2.8%
9,600 Footstar Inc.* $ 256,800
2,700 Gap, Inc. 119,981
2,700 Limited Inc. 60,244
9,000 Pier 1 Imports Inc. 158,625
4,000 Tiffany & Co. 180,750
7,800 Zale Corp.* 169,650
- -----------------------------------------------------
946,050
- -----------------------------------------------------
STEEL--0.5%
2,800 AK Steel Holding Corp. 128,450
1,900 British Steel PLC ADR 52,844
- -----------------------------------------------------
181,294
- -----------------------------------------------------
SUPERMARKETS--1.7%
4,100 Kroger Company* 121,206
6,400 Safeway, Inc.* 343,200
1,500 Smith's Food & Drug Center* 89,063
- -----------------------------------------------------
553,469
- -----------------------------------------------------
TECHNICAL SERVICES--0.4%
2,400 3Com Corp.* 131,250
- -----------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--1.1%
4,600 Motorola Inc. 369,438
- -----------------------------------------------------
TEXTILES--0.8%
4,100 Burlington Industries, Inc.* 53,044
4,000 Jones Apparel Group Inc* 207,750
- -----------------------------------------------------
260,794
- -----------------------------------------------------
TOBACCO--2.7%
14,300 Philip Morris Companies, Inc. 645,288
7,800 RJR Nabisco, Inc. 255,938
- -----------------------------------------------------
901,226
- -----------------------------------------------------
UTILITIES--0.7%
7,600 DQE Inc. 239,875
- -----------------------------------------------------
WASTE MANAGEMENT--0.1%
1,000 U.S.A. Waste Services Inc* 40,313
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ----------------------------------------------------------------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE--0.8%
7,000 Tech Data Corp* $ 259,859
- ----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $28,026,861) $31,839,495
- ----------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ----------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT--2.4%
$800,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 800,000
- ----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $800,000) $ 800,000
- ----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $28,826,861)(A) $32,639,495
- ----------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $ 3,958,026
Gross unrealized loss for investments in
which cost exceeds value (155,914)
- ----------------------------------------------------------------
Net unrealized gain $ 3,802,112
- ----------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $28,837,383.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
25
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
primarily through investments in large-capitalization growth stocks. To meet
its objective, the fund is managed with a "growth at a reasonable price"
investment style, which means we utilize extensive fundamental research to
identify companies in a diversified range of industries that we believe offer
attractive growth potential at a reasonable price.
The fund's investment management team believes that wealth is created through
the long-term ownership of growing businesses. We view each stock purchase as
if we were buying the entire business. To implement this investment strategy,
we focus on growing companies with characteristics such as strong brand
franchises, dominant market share, recurring revenue, product pricing
flexibility, long product life cycles, high returns on invested capital, high
profit margins, strong free cash flow, excellent management and favorable long-
term prospects. Finally, we will buy a stock meeting our rigorous criteria only
if it trades at a reasonable discount to the company's intrinsic value.
PERFORMANCE REVIEW: BOTH SHARE CLASSES OUTPERFORMED THE BENCHMARK
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET S&P 500
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 23.25% 22.55%
Class B* 22.74% 22.55%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
We are pleased to note that the fund continued to perform well compared with
its peers. For the five- and one-year periods ended July 31, 1997, the fund's
Class A shares were rated "four stars" (in universes of 1,146 and 2,040
domestic equity funds for the five- and one-year periods, respectively) by
Morningstar, Inc., an independent mutual fund rating agency./1/ The fund also
fared well versus its peers in the Lipper growth fund category, placing in the
top 15% (83 and 101 out of 764 funds for Class A and B shares, respectively)
for the 12-month period and in the top quartile (70 out of 286 funds for Class
A shares) for the five-year period, as of July 31, 1997, according to Lipper
Analytical Services, Inc. (Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results. Class B shares were not ranked for the five-year period because they
did not exist during the entire period.)
INVESTMENTS IN PHARMACEUTICAL, FINANCIAL AND CONSUMER PRODUCTS COMPANIES
BENEFITED PERFORMANCE
The strongest contributors to the fund's performance included pharmaceutical
companies BRISTOL-MYERS SQUIBB CO. and PFIZER INC. These stocks were buoyed by
a number of positive factors, including new product introductions, a benign
political environment, a more accommodative FDA, strong unit growth, powerful
free cash flow and reasonable valuations. Over the coming decades, we believe
these companies are positioned to
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The one-year rating is calculated using the same methodology, but is
not a component of the overall rating. The fund's Class A shares received three
stars for the three-year period and were rated among 2,040 domestic equity
funds. The Morningstar rating applies only to the fund's Class A shares; the
fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are four Morningstar categories
(domestic equity, international equity, taxable bond and municipal).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
benefit as the baby boomers age and require more health-related products and
services.
In the financial sector, two of the fund's commercial bank holdings,
BANKAMERICA CORP. and NATIONSBANK CORP., were prime beneficiaries of the
"Goldilocks" economy. This favorable environment, which has been characterized
by steady economic growth, modest loan demand, low inflation and stable
interest rates, contributed to strong earnings gains for both banks. In
addition, MBNA CORP., the second largest credit card lender in the world,
appreciated due to surging growth in credit card accounts, new affiliations
with sponsoring organizations for its affinity cards and the rapid growth of
its U.K. business.
Several producers of household products also performed well. These included
companies with world-class franchises and/or strong brand names such as PROCTER
& GAMBLE CO., GILLETTE CO. and COLGATE-PALMOLIVE CO., all of which reported
solid earnings gains and high returns on equity. These companies are benefiting
from strong international growth as capitalism spreads throughout the world and
per capita income rises.
An investment that lagged during the period was GAYLORD ENTERTAINMENT CO., a
diversified entertainment and communications company, as investors responded
negatively to the sale of its two cable channels (The Nashville Network and
Country Music Television) to Westinghouse Electric Corp. Under terms of the
agreement, Gaylord will receive a fixed dollar amount of Westinghouse stock,
which minimized the company's risk but also limited its upside potential in the
surging stock market. We continue to believe Gaylord is attractively valued.
NEW POSITIONS IN SEVERAL MEDIA STOCKS
Among the new positions added during the period were media stocks such as
GANNETT CO., INC., TRIBUNE CO. and NEW YORK TIMES CO., all of which have
dominant local franchises in newspapers and broadcasting. These companies have
reported strong year-to-date earnings gains as they have benefited from healthy
advertising revenue and reduced newsprint costs. Sales included FISHER
SCIENTIFIC INTERNATIONAL, INC., a maker of scientific instruments, supplies and
equipment, after it appreciated strongly due to takeover rumors.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY LINE OF BUSINESS TOTAL NET ASSETS
------- ---------------- ----------------
<S> <C> <C>
BankAmerica
Corp. Commercial Bank 3.4%
Banc One Corp. Commercial Bank 3.1
Intel Corp. Semiconductors and 3.0
Electronics
General Electric
Co. Electronics 2.9
Pfizer Inc. Pharmaceuticals 2.9
Bristol-Myers Pharmaceuticals 2.9
Squibb Co.
NationsBank
Corp. Commercial Bank 2.8
MBNA Corp. Specialty Finance 2.6
and Agencies
Lucent 2.4
Technologies Telecommunications
Co. Equipment
Texaco Inc. International 2.3
Integrated Oil
Company
</TABLE>
OUTLOOK
In our opinion, the outlook for the economy and the stock market appears
attractive, with low inflation, stable interest rates and modest economic
growth expected to help the fund's holdings produce favorable earnings gains.
However, we do expect increased volatility in the stock market as a result of
options and futures expirations, as well as investors' perceptions of inflation
and interest rate fluctuations.
During the past six months, we increased the fund's diversification among
industry sectors and increased its holdings of large-cap growth stocks. We
believe the fund is currently well positioned to benefit from the positive
investing climate that we anticipate.
27
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ George D. Adler
George D. Adler
Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
August 29, 1997
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
/s/ Ernest C. Segundo, Jr.
Ernest C. Segundo, Jr.
Portfolio Manager,
U.S. Active Equity Growth
/s/ David G. Shell
David G. Shell
Portfolio Manager,
U.S. Active Equity Growth
28
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--98.1%
ADVERTISING & MARKETING--1.7%
711,580 Valassis Communications, Inc.* $ 19,968,714
- --------------------------------------------------------------------
ALCOHOL--0.7%
207,700 Anheuser Busch Companies, Inc. 8,918,119
- --------------------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--0.8%
206,600 Lear Corp.* 9,890,975
- --------------------------------------------------------------------
BANKS--7.2%
649,522 Banc One Corp. 36,454,422
468,700 NationsBank Corp. 33,365,581
253,400 State Street Bank Corp. 14,206,238
- --------------------------------------------------------------------
84,026,241
- --------------------------------------------------------------------
BEVERAGES--2.7%
234,500 Coca Cola Co. 16,239,125
408,100 Pepsico Inc. 15,635,331
- --------------------------------------------------------------------
31,874,456
- --------------------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION--0.3%
99,700 Sherwin Williams Co. 3,196,631
- --------------------------------------------------------------------
BUSINESS SERVICES--1.0%
289,400 First Data Corp. 12,625,075
- --------------------------------------------------------------------
CABLE/TELEVISION COMMUNICATIONS--0.3%
69,000 Cablevision Systems Corp. Class A* 4,096,875
- --------------------------------------------------------------------
CHEMICAL PRODUCTS--0.5%
86,100 Du Pont (E.I.) de Nemours & Co. 5,763,319
- --------------------------------------------------------------------
CHEMICALS-COMMODITY--0.4%
88,700 Monsanto Co. 4,418,369
- --------------------------------------------------------------------
CHEMICALS-SPECIALTY--1.0%
26,900 Betzdearbon, Inc. 1,761,950
101,200 Minnesota Mining and Manufacturing Co. 9,588,700
- --------------------------------------------------------------------
11,350,650
- --------------------------------------------------------------------
COMMERCIAL SERVICES--0.9%
226,500 Ecolab Inc. 10,574,719
- --------------------------------------------------------------------
COMMUNICATIONS SERVICES COMPANIES--0.2%
56,900 Airtouch Communications, Inc.* 1,874,144
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER STAPLES--3.8%
143,700 American Home Products Corp. $ 11,846,269
49,200 Amway Asia Pacific Ltd. 1,891,125
44,400 Clorox Co. 6,199,350
160,940 Procter & Gamble Co. 24,482,998
- -------------------------------------------------------------
44,419,742
- -------------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--1.2%
530,700 Tele-Communications, Inc.* 13,566,019
- -------------------------------------------------------------
COSMETICS--1.0%
168,100 Avon Products Inc. 12,197,756
- -------------------------------------------------------------
DATACOM EQUIPMENT--0.4%
62,100 Cisco Systems, Inc.* 4,940,831
- -------------------------------------------------------------
DEFENSE--1.5%
226,800 McDonnell Douglas Corp. 17,350,200
- -------------------------------------------------------------
DEPARTMENT STORES--1.3%
69,900 Federated Dept. Stores, Inc.* 3,062,494
329,500 Walmart Stores, Inc. 12,376,844
- -------------------------------------------------------------
15,439,338
- -------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.5%
107,400 American Standard Companies* 5,336,438
- -------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--5.9%
485,100 General Electric Co. 34,047,956
386,400 Intel Corp. 35,476,350
- -------------------------------------------------------------
69,524,306
- -------------------------------------------------------------
ENTERPRISE SYSTEMS--1.3%
87,400 Hewlett Packard Co. 6,123,463
79,100 International Business Machines 8,364,825
- -------------------------------------------------------------
14,488,288
- -------------------------------------------------------------
ENTERTAINMENT AND LEISURE--1.2%
112,100 Mirage Resorts, Inc.* 2,998,675
130,400 Walt Disney, Co. 10,537,950
- -------------------------------------------------------------
13,536,625
- -------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
29
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES--6.2%
527,400 BankAmerica Corp. $ 39,818,700
453,000 Federal Home Loan Mortgage Corp. 16,336,313
345,300 Federal National Mortgage Association 16,337,006
- -------------------------------------------------------------------
72,492,019
- -------------------------------------------------------------------
FOOD--3.4%
111,600 Campbell Soup Co. 5,789,250
133,100 Kellogg Company 12,228,563
218,900 Nabisco Holdings Corp. 9,303,250
160,480 William Wrigley Jr. Co. 12,346,930
- -------------------------------------------------------------------
39,667,993
- -------------------------------------------------------------------
FOOD PRODUCERS--0.5%
64,800 Ralston Purina Co. 5,848,200
- -------------------------------------------------------------------
FOREST PRODUCTS--0.8%
97,300 Georgia Pacific Corp. 9,188,769
- -------------------------------------------------------------------
FUNERAL SERVICES--1.1%
379,500 Service Corp. International 12,903,000
- -------------------------------------------------------------------
HEALTH & MEDICAL SERVICES--1.8%
331,900 Johnson & Johnson 20,681,519
- -------------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES--0.5%
35,470 Perkin-Elmer Corp. 2,895,239
64,500 U.S. Surgical Corp. 2,394,563
- -------------------------------------------------------------------
5,289,802
- -------------------------------------------------------------------
HEALTHCARE MANAGEMENT--2.0%
104,720 Aetna Inc. 11,931,535
164,950 Columbia HCA Healthcare 5,319,638
219,000 Tenet Healthcare Corp.* 6,556,313
- -------------------------------------------------------------------
23,807,486
- -------------------------------------------------------------------
HOTELS & RESTAURANTS--1.2%
202,220 Marriott International, Inc. 13,902,625
- -------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.2%
118,100 Colgate Palmolive Co. 8,946,075
173,100 Gillette Co. 17,136,900
- -------------------------------------------------------------------
26,082,975
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL--0.5%
97,900 Corning Inc. $ 6,051,444
- -----------------------------------------------------------------
INFORMATION MANAGEMENT--1.0%
180,770 Reuters Holdings PLC 11,682,261
- -----------------------------------------------------------------
INSURANCE SERVICES--1.1%
4,800 AMBAC Financial Group, Inc. 408,900
214,100 SunAmerica, Inc. 12,953,050
- -----------------------------------------------------------------
13,361,950
- -----------------------------------------------------------------
INSURANCE-LIFE--0.5%
210,100 Nationwide Financial Services, Inc. 6,355,525
- -----------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--0.8%
90,000 American International Group, Inc. 9,585,000
- -----------------------------------------------------------------
INTEGRATED OIL--4.4%
52,200 Amoco Corp. 4,906,800
47,400 Atlantic Richfield Co. 3,546,113
74,300 Exxon Corp. 4,773,775
164,800 Royal Dutch Petroleum 9,218,500
227,900 Texaco, Inc. 26,450,644
76,200 Unocal Corp. 3,048,000
- -----------------------------------------------------------------
51,943,832
- -----------------------------------------------------------------
LOGISTICS/RAIL--0.3%
31,800 Norfolk Southern Corp. 3,521,850
- -----------------------------------------------------------------
MANUFACTURING--0.2%
53,400 Millipore Corp. 2,359,613
- -----------------------------------------------------------------
MEDIA--0.2%
154,200 Tele Communications Inc.* 2,640,675
- -----------------------------------------------------------------
MEDIA/ENTERTAINMENT--3.8%
54,500 Central Newspapers, Inc. 3,804,781
106,900 Gannett Co. 10,616,506
166,200 Gaylord Entertainment Co. 3,853,763
133,100 New York Times Co. 6,688,275
237,610 Time Warner Inc. 12,964,596
114,300 Tribune Co. 6,050,756
- -----------------------------------------------------------------
43,978,677
- -----------------------------------------------------------------
MISCELLANEOUS-CONSUMER--0.5%
76,800 HBO & Company 5,942,400
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NONFERROUS METALS--0.3%
42,400 Aluminum Company of America $ 3,752,400
- ---------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.3%
49,000 Xerox Corp. 4,030,250
- ---------------------------------------------------------
OIL & GAS--1.6%
181,800 Mobil Corp. 13,907,700
71,400 Schlumberger Ltd. 5,453,175
- ---------------------------------------------------------
19,360,875
- ---------------------------------------------------------
PACKAGING--0.3%
105,500 Owens Illinois Corp.* 3,639,750
- ---------------------------------------------------------
PHARMACEUTICALS--10.5%
428,800 Bristol-Myers Squibb 33,634,000
159,340 Eli Lilly & Co. 18,005,420
143,200 Merck & Co. 14,883,850
565,820 Pfizer, Inc. 33,737,018
237,800 Schering Plough Corp. 12,974,963
60,400 Sigma Aldrich Corp. 2,091,350
55,800 Warner Lambert Co. 7,794,563
- ---------------------------------------------------------
123,121,164
- ---------------------------------------------------------
RECREATIONAL PRODUCTS--0.3%
97,300 Hasbro Inc. 2,985,894
- ---------------------------------------------------------
RESTAURANTS--0.2%
54,300 McDonalds Corp. 2,918,625
- ---------------------------------------------------------
RETAIL--0.9%
82,300 CVS Corporation 4,680,813
122,200 Home Depot, Inc. 6,094,725
- ---------------------------------------------------------
10,775,538
- ---------------------------------------------------------
RETAIL TRADE--1.2%
259,230 Walgreen Co. 14,646,495
- ---------------------------------------------------------
SEMICONDUCTORS--0.7%
124,800 Avnet Inc. 8,213,400
- ---------------------------------------------------------
SOFTWARE & SERVICES--3.4%
76,900 Autodesk Inc. 3,258,638
58,600 Intuit Inc.* 1,475,988
147,700 Microsoft Corp.* 20,899,550
148,900 Oracle Corp.* 8,105,744
36,100 Peoplesoft, Inc.* 2,111,850
102,500 Sterling Commerce, Inc.* 3,862,969
- ---------------------------------------------------------
39,714,739
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY FINANCE--2.6%
683,925 MBNA Corp. $ 30,776,625
- -----------------------------------------------------------------
SPECIALTY RETAIL--1.8%
90,100 Autozone, Inc.* 2,579,113
205,800 Tandy Corp. 12,232,238
174,300 Toys R US Inc.* 5,937,094
- -----------------------------------------------------------------
20,748,445
- -----------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--2.4%
335,960 Lucent Technologies, Inc. 28,535,603
- -----------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--0.5%
86,300 Goodyear Tire & Rubber Co. 5,571,731
- -----------------------------------------------------------------
TOBACCO--1.8%
336,800 Philip Morris Companies, Inc. 15,198,100
202,000 UST Inc. 5,870,625
- -----------------------------------------------------------------
21,068,725
- -----------------------------------------------------------------
UTILITIES--0.5%
79,300 Aes Corp.* 6,264,700
- -----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $798,962,978) $1,152,790,404
- -----------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- -----------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--2.3%
$27,500,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 27,500,000
- -----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $27,500,000) $ 27,500,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $826,462,978)(A) $1,180,290,404
- -----------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 354,450,568
Gross unrealized loss for investments in which
cost exceeds value (1,068,462)
- -----------------------------------------------------------------
Net unrealized gain $ 353,382,106
- -----------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $826,908,298.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
31
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Mid Cap Equity Fund seeks long-term capital appreciation
primarily by investing at least 65% of its total assets in equities with market
capitalizations of between $500 million and $10 billion at the time of
investment. However, the fund currently intends to emphasize investments in
companies with market capitalizations of under $5 billion at the time of
investment. The fund is managed with a value style, which means we focus on
companies whose stocks we believe are inexpensive relative to their expected
long-term earnings growth and their asset value. Investments may include well-
known companies that are temporarily out of favor due to cyclical economic
conditions or are experiencing near-term difficulties the portfolio managers
judge to be temporary in nature. In-depth fundamental research of a company's
financial structure, its competitive position in the market and its
management's commitment to increasing shareholder value are all critical parts
of the fund's investment approach. Though we are not sector investors, we
closely monitor the fund's sector and industry exposures compared with the
benchmark in an effort to avoid unintentional over- or underweightings.
PERFORMANCE REVIEW: FUND ACHIEVED STRONG RESULTS
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
FUND TOTAL RUSSELL
RETURN MIDCAP
(BASED ON NET INDEX TOTAL
ASSET VALUE) RETURN
------------- -----------
<S> <C> <C>
Institutional* (1/31/97-7/31/97) 26.37% 17.63%
Service* (7/18/97-7/31/97) 2.87% N/A
</TABLE>
* Institutional and Service share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Service shares is from their inception date through the
end of the period.
WE ARE PLEASED TO NOTE THAT IN ADDITION TO SIGNIFICANTLY OUTPERFORMING THE
MID-CAP BENCHMARK DURING THE PERIOD, THE FUND'S INSTITUTIONAL SHARES ALSO
OUTPERFORMED THE BROADER LARGE-CAP MARKET, AS REPRESENTED BY THE S&P 500.
During the period, the market rally continued to be led by the largest, most
liquid stocks, which many investors perceived to be the most convenient vehicle
for rapid investment. As a result, the S&P 500 stock index, which is heavily
weighted toward large-cap stocks, returned 22.6%. In contrast, the mid-cap
sector of the market returned 17.6% (as measured by the Russell Midcap Index)
and small caps returned 13.1% (as measured by the Russell 2000 index).
FUND PERFORMED WELL RELATIVE TO ITS PEERS
The fund also fared very well compared with its peers. For the 12-month
period ended July 31, 1997, the fund's Institutional shares ranked second out
of 198 mid-cap funds, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. The fund's Service shares
were not ranked because they did not exist during the entire 12-month period.)
TOP PERFORMERS INCLUDED COMPANIES BENEFITING FROM RESTRUCTURING PROGRAMS AND
ACQUISITIONS
The fund's best performers during the period included several companies that
benefited from major restructuring initiatives. INTERNATIONAL MULTIFOODS CORP.,
a distributor of specialty foods, appreciated due to its new management's focus
on turning around its vending distribution business and the proposed sale of
its Canada Frozen bakery products unit. SUNBEAM CORP., INC., a leading consumer
products company, performed well as investors responded positively to its
dramatic reforms, which included major asset sales, improved distribution and a
new line of products. LENNAR CORP., a diversified homebuilder, announced its
intention to spin off its commercial real estate business and merge its
homebuilding operations with a major California builder. SHOPKO STORES, INC., a
leading regional retailer, decided to end its ownership by SuperValu, Inc. by
repurchasing
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
approximately 8.2 million shares of its common stock, which helped the market
focus on ShopKo's competitive strengths.
Other holdings contributed to the fund's positive results when they initiated
or accepted takeover offers. ROYAL CARIBBEAN CRUISE LINES LTD., the second
largest cruise operator, appreciated when it agreed to acquire Celebrity Cruise
Lines, and AMERICAN STATES FINANCIAL CORP., a property/casualty insurer, was
acquired by Safeco Corp. at a premium.
SPECIFIC ENERGY- AND UTILITY-RELATED STOCKS LAGGED
Not all of the fund's holdings fulfilled our expectations. UNICOM CORP., an
electric utility, was impacted by negative press and regulatory rulings, but we
believe the market has overreacted to these issues and continue to have
confidence in the company's fundamentals. In addition, we expect Unicom to
benefit from a recent change in senior management and an improving operating
environment. TOSCO CORP., an oil refiner and marketer, suffered from soft
margins in its West Coast refining operations due to excess supply during the
first half of the year. However, we are optimistic that the long-term supply-
and-demand situation will improve.
PORTFOLIO CHANGES
New positions included LEAR CORP., the world's largest supplier of automotive
interior systems, which appears to be well positioned to benefit from
automakers' trend toward outsourcing, and two computer hardware manufacturers:
BAY NETWORKS, INC., (networking and connectivity products) and QUANTUM CORP.
(disk drives and other information storage products).
During the period, we sold TERADYNE, INC., a manufacturer of semiconductor
testing equipment, and DECISIONONE CORP., the leading independent provider of
computer support services to U.S. companies, after they appreciated and reached
our price targets.
OUTLOOK
We remain committed to our strategy of identifying and purchasing stocks that
trade at a discount to their
TOP 10 EQUITY HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL NET
COMPANY LINE OF BUSINESS ASSETS
------- ---------------- ------------
<S> <C> <C>
Lear Corp. Autoparts/Original 3.9%
Equipment
Tosco Corp. Oil Refining and 3.2
Marketing
ShopKo Stores,
Inc. Discount Retailer 3.1
Quantum Corp. Computer Component 3.0
Manufacturer
Sunbeam Corp.,
Inc. Appliances 2.8
Darden 2.8
Restaurants Restaurants and
Inc. Hotels
Owens & Minor Health 2.7
Inc. Suppliers/Services
Goodyear Tire & Tire and Rubber 2.6
Rubber Co. Products
Quest
Diagnostics, Clinical
Inc. Laboratories 2.5
Republic New 2.5
York Corp. Banks
</TABLE>
intrinsic value. In a market that has been characterized by speculation and
momentum at different times since the beginning of 1995, we believe that a
value approach is well suited to weather the ups and downs associated with a
turbulent market.
/s/ Eileen A. Aptman /s/ Ronald E. Gutfleish
Eileen A. Aptman Ronald E. Gutfleish
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ G. Lee Anderson
G. Lee Anderson
Portfolio Manager,
U.S. Active Equity Value
August 29, 1997
33
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.2%
AIRLINES--2.0%
102,400 Continental Airlines, Inc.* $ 3,840,000
- -------------------------------------------------------
APPLIANCE MANUFACTURER--2.8%
138,200 Sunbeam Corp. 5,407,075
- -------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--3.9%
154,800 Lear Corp.* 7,411,050
- -------------------------------------------------------
BANKS--3.7%
176,400 National Bank of Canada 2,297,706
40,700 Republic of New York Corp. 4,700,850
- -------------------------------------------------------
6,998,556
- -------------------------------------------------------
CHEMICAL PRODUCTS--1.7%
60,800 Union Carbide Corp. 3,366,800
- -------------------------------------------------------
CHEMICALS-COMMODITY--0.8%
75,600 Geon Co. 1,455,300
- -------------------------------------------------------
DATACOM EQUIPMENT--4.6%
132,600 Bay Networks Inc* 4,044,300
271,200 Quest Diagnostics Inc.* 4,712,100
- -------------------------------------------------------
8,756,400
- -------------------------------------------------------
DEPARTMENT STORES--3.1%
199,900 ShopKo Stores Inc.* 5,772,113
- -------------------------------------------------------
ELECTRIC UTILITIES--5.8%
242,100 Central Maine Power Co. 3,268,350
125,400 Long Island Lighting Co. 3,080,138
201,200 Unicom Corp. 4,564,725
- -------------------------------------------------------
10,913,213
- -------------------------------------------------------
ENTERTAINMENT AND LEISURE--2.0%
96,400 Royal Caribbean Cruise Lines 3,825,875
- -------------------------------------------------------
FINANCIAL SERVICES--1.9%
75,800 American States Financial Corp. 3,519,963
- -------------------------------------------------------
FOOD--2.1%
142,000 International Multifoods Corp. 4,011,500
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FOREST PRODUCTS--3.4%
31,000 Georgia Pacific Corp. $ 2,927,563
208,300 Stone Container Corp.* 3,462,988
- -----------------------------------------------------
6,390,551
- -----------------------------------------------------
HEALTH & MEDICAL SERVICES--2.1%
297,700 Perrigo Co.* 3,870,100
- -----------------------------------------------------
HEALTHCARE MANAGEMENT--5.2%
118,700 Foundation Health Systems* 3,842,913
85,000 Sierra Health Services, Inc.* 2,794,375
105,200 Tenet Healthcare Corp.* 3,149,425
- -----------------------------------------------------
9,786,713
- -----------------------------------------------------
HOME BUILDERS--3.4%
44,900 Centex Corp. 2,503,175
104,600 Lennar Corp. 3,896,350
- -----------------------------------------------------
6,399,525
- -----------------------------------------------------
INSURANCE SPECIALTY--1.5%
80,900 Old Rep International Corp. 2,831,500
- -----------------------------------------------------
INSURANCE-LIFE--3.4%
68,849 American General Corp. 3,666,209
36,900 Reliastar Financial Corp. 2,829,769
- -----------------------------------------------------
6,495,978
- -----------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.8%
74,800 Allmerica Financial Corp. 3,309,900
- -----------------------------------------------------
MEDIA/ENTERTAINMENT--1.3%
78,200 Carmike Cinemas* 2,473,075
- -----------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES--4.8%
160,700 Imation Corporation* 3,947,194
347,200 Owens & Minor Inc. 5,164,600
- -----------------------------------------------------
9,111,794
- -----------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES--2.2%
52,300 Unionbancal Corporation 4,066,325
- -----------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
OIL REFINING & MARKETING--6.3%
415,100 Groupe AB SA ADR* $ 3,242,969
192,400 Tosco Corp. 6,024,525
60,500 Valero Energy Corp.* 2,601,500
- -----------------------------------------------------
11,868,994
- -----------------------------------------------------
PACKAGING--1.5%
83,200 Owens Illinois Corp.* 2,870,400
- -----------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--3.0%
196,400 Quantum Corp* 5,707,875
- -----------------------------------------------------
PHARMACEUTICALS--1.7%
65,935 Block Drug Co. 3,115,429
- -----------------------------------------------------
RESTAURANTS--2.8%
560,300 Darden Restaurants, Inc. 5,357,869
- -----------------------------------------------------
SEMICONDUCTORS--4.0%
62,600 Avnet Inc. 4,119,863
130,462 Vishay Intertechnology, Inc.* 3,489,859
- -----------------------------------------------------
7,609,722
- -----------------------------------------------------
STEEL--1.7%
70,300 AK Steel Holding Corp. 3,225,013
- -----------------------------------------------------
SUPERMARKETS--3.4%
168,800 Fleming Companies, Inc. 2,690,250
90,600 Supervalu, Inc. 3,669,300
- -----------------------------------------------------
6,359,550
- -----------------------------------------------------
TEXTILES--4.0%
168,000 Angelica Corp. 3,234,000
161,200 Fruit of The Loom, Inc.* 4,412,850
- -----------------------------------------------------
7,646,850
- -----------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--2.6%
76,200 Goodyear Tire & Rubber Co. 4,919,663
- -----------------------------------------------------
TRANSPORTATION-MISCELLANEOUS--1.7%
89,800 CNF Transportation Inc. 3,131,769
- -----------------------------------------------------
TOTAL COMMON STOCKS
(COST $136,678,430) $181,826,440
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Description Value
- --------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--2.9%
$5,600,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 5,600,000
- --------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $5,600,000) $ 5,600,000
- --------------------------------------------------------------
TOTAL INVESTMENTS
(COST $142,278,430)(A) $187,426,440
- --------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 48,533,786
Gross unrealized loss for investments in which
cost exceeds value (3,408,004)
- --------------------------------------------------------------
Net unrealized gain $ 45,125,782
- --------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $142,300,658.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment
opportunities. While the fund does not allocate assets across specific
countries based on top-down economic or market forecasts, the portfolio
managers strive to manage risk by remaining diversified by country and industry
sector and by closely monitoring economic and political events in countries in
which the fund does invest.
MARKET OVERVIEW: EUROPEAN MARKETS PERFORMED BEST WHILE ASIA LAGGED
During the six-month period under review, slower than expected economic
growth persisted in several European and Asian countries while growth in other
countries, such as the U.K., accelerated. Most European equity markets
continued to perform very well, buoyed by healthy earnings and an increased
focus on improving shareholder value. In Asia, several markets posted strong
results while others were impacted by a variety of regional and country-
specific issues.
..Europe. Europe's overall economic recovery continued, but growth for specific
countries was mixed. The economies of the U.K., Spain, the Netherlands and
parts of Scandinavia showed the most improvement, while those of Germany and
France were disappointing despite signs of a moderate upturn. The climate for
equities in continental Europe remained positive, as stocks continued to
benefit from loose monetary policies, subdued inflation and the strong U.S.
dollar. During the period under review, the European equity markets climbed
26.1%, as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies. However, the performance of U.K. equities lagged most European
markets as the strong pound sterling impacted the profitability of export-
dependent companies. In addition, investors feared further monetary tightening
would be necessary to rein in the U.K.'s rising inflationary pressures.
..Japan. For the six-month period ended July 31, Japanese stocks (as measured by
the TOPIX index in yen without dividends reinvested) rose 12.5%,
underperforming most other equity markets. Though Japan's economy strengthened,
the recovery remained fragile and investors lacked confidence in the
sustainability of corporate profits. With future earnings uncertain, investors
focused on international blue-chip stocks that benefited from the weakness of
the yen, and shied away from the rest of the market. Despite these concerns,
the market strengthened during the second half of the period, when healthy
demand from pension plans and foreign investors helped support equity prices.
..Asia (ex-Japan). The Asian stock markets returned 1.3% during the period, as
measured by the Morgan Stanley Capital International All Country Asia Free
(Ex Japan) Index (without dividends reinvested). The weak performance indicated
by the Index masks the extreme divergence of performance among the individual
Asian markets. For example, India rose 26.1%, Hong Kong returned 17.3%,
Thailand fell 7.4% and the Philippines dropped 22.7% (all in local currency
terms). Among the key events affecting the Asian markets during the period were
the July handover of Hong Kong to China and the devaluation of the Thai baht.
Though investor optimism regarding the handover helped buoy the region's
performance, the Thai devaluation sparked currency turmoil that impacted
several markets, such as the Philippines.
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
PERFORMANCE REVIEW: FUND OUTPERFORMED THE BENCHMARK PRIMARILY DUE TO SUCCESSFUL
STOCK SELECTION
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN FT/S&P ACTUARIES
(BASED ON NET EUROPE & PACIFIC
ASSET VALUE) INDEX TOTAL RETURN
----------------- ------------------
<S> <C> <C>
Class A* 20.81% 16.72%
Class B* 20.48% 16.72%
Institutional* 21.19% 16.72%
Service* 20.89% 16.72%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge.
During the period, all of the fund's share classes outperformed the
benchmark, the Financial Times/S&P Actuaries Europe & Pacific Index ("Europac")
unhedged. (Europac is a capitalization-weighted composite of approximately
1,500 stocks from 23 countries in Europe and the Asia-Pacific region and is
calculated on a monthly basis.) We are also pleased to note that the fund
continued to perform well compared with its peers. For the three-year period
ended July 31, 1997, the fund's Class A shares were rated "four stars" (in a
universe of 555 international equity funds) by Morningstar, Inc., an
independent mutual fund rating agency./1/
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The Morningstar rating applies only to the fund's Class A shares; the
fund's Class B, Institutional and Service shares have not been rated. Class B,
Institutional and Service shares are subject to additional fees and expenses
that may have the effect of lowering performance and may affect any future
Morningstar rating. Morningstar rates funds against peers in the same category.
In all, there are four Morningstar categories (domestic equity, international
equity, taxable bond and municipal). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
The fund's strong performance can primarily be attributed to successful stock
selection across regions. In addition, several of the fund's country weightings
favorably contributed to its results. These included an overweighting in
Europe, which performed well during the period, and a relative underweighting
in Japan and other Asian markets, which were generally weaker.
Europe. As of July 31, the fund was overweighted in European stocks relative
to the Index, 56.8% versus 53.0%. Two of the fund's best performers in the
region were temporary employment agencies ADECCO (Switzerland) and RANDSTAD
HOLDINGS (Netherlands), which appreciated due to earnings upgrades and a
cyclical upturn in the temporary employment industry. A number of technology-
related holdings also achieved strong results, including ASM LITHOGRAPHY (Dutch
manufacturer of wafer steppers), SGS THOMSON (French semiconductor
manufacturer), MISYS (British software manufacturer) and ERICSSON (Swedish
supplier of mobile handsets and infrastructure). In contrast, RENTOKIL GROUP
(British environmental services) suffered when the strong pound sterling
translated into weaker foreign earnings, which fueled concerns regarding the
company's ability to match its prior 20% annualized earnings growth record.
New European investments included ASM Lithography, one of only three volume
manufacturers of wafer stepper machines used in the manufacturing of
semiconductors. This stock performed very well since it was added, as noted.
Sales during the period included Randstad Holdings, which reached our price
target.
Japan. As of July 31, the fund's 30.5% allocation in Japan was underweighted
compared with the benchmark (32.6%). The Japanese portion of the fund
significantly outperformed the TOPIX index, as it held a large number of
internationally competitive export-oriented companies that fared well during
the period. SMC CORP., a manufacturer of pneumatic control devices used in
automated assembly lines, continued to benefit from its dominant market share
in Japan and successful
37
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
expansion of its overseas operations. CANON, INC., a manufacturer of office
equipment, cameras and computer peripherals, performed well due to good
earnings results and a bright outlook for PC peripherals. TDK CORP., an
electronic components manufacturer, continued to surprise the market with
better than expected profits resulting from its strong market position in
"magneto-resistive" type of hard disk drive heads. However, the performance of
MITSUBISHI HEAVY INDUSTRIES LTD. was disappointing due to a difficult pricing
outlook for the domestic electric power generation market. Japanese positions
initiated during the period include NINTENDO, one of the largest video game
manufacturers, which is positioned to benefit from Nintendo 64, its new game
platform, and ONO PHARMACEUTICAL CO., which introduced a new anti-asthma drug
with substantial market potential.
Asia-Pacific. The portfolio was underweighted in Asia (outside Japan)
compared with the benchmark, 8.7% versus 10.1%. One of the fund's best
performers in the region was ASIA SATELLITE TELECOMMUNICATION HOLDINGS LTD., a
leading satellite owner and operator in the Asia-Pacific region. The company
performed well when satellite utilization and transponder rates remained firm,
which eased market concerns that an impending oversupply of transponders would
impact the profitability of Asian satellite operators. In contrast, COMMERCE
ASSET HOLDINGS, the fifth largest financial group in Malaysia, came under
pressure due to concerns of a slowdown in future earnings growth resulting from
tighter monetary conditions, a more difficult operating environment for its
merchant banking and stockbrokerage businesses, and potential deterioration in
the credit quality of its loan portfolio. A new addition was VILLAGE ROADSHOW,
an Australian media and entertainment company with interests in cinema, radio,
theme park and resort businesses. The company appears to be well positioned to
benefit from aggressive expansion in Europe and Asia, as well as from a number
of partnerships that are expected to give it a competitive advantage.
PORTFOLIO COMPOSITION: DIVERSIFICATION BY COUNTRY AND INDUSTRY
As of July 31, 1997, 96.2% of the fund's net assets were invested in equities
and the remainder (4.8%) was invested in cash equivalents. The fund was widely
diversified by both country and industry, with positions in 60 companies based
in 16 countries. In terms of total net assets, the fund's five largest country
exposures were Japan (30.5%), the U.K. (13.5%), Sweden (7.6%), Switzerland
(7.0%) and Germany (6.9%).
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY (Line of Business) COUNTRY NET ASSETS
-------------------------- ------- ----------
<S> <C> <C>
Novartis Switzerland 3.6%
Pharmaceuticals
Rentokil Group U.K. 3.1
Environmental
Services
ASM Lithography Netherlands 2.9
Manufacturer of
Wafer Steppers
SMC Corp. Japan 2.8
Manufacturer of
Industrial
Controls
Canon, Inc. Japan 2.8
Office Equipment
Manufacturer
Hoechst Germany 2.7
Chemical and Drug
Manufacturer
Mitsubishi Heavy
Industries, Ltd. Japan 2.4
Heavy Machinery
Manufacturer
Bank of Ireland Ireland 2.4
Commercial Bank
Electrocomponents U.K. 2.4
Catalog
Distributor of
Industrial
Components
Adecco SA Switzerland 2.3
Commercial
Services
</TABLE>
38
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
OUTLOOK
We remain optimistic regarding the performance of European equities, given
the current favorable environment of low interest rates, contained
inflationary pressures and improved economic growth prospects. Furthermore,
currency devaluation relative to the U.S. dollar and the British pound is
helping strengthen European corporate competitiveness, while corporate
restructuring and the focus on enhancing shareholder value are trends that we
expect to continue unabated.
In Japan, we believe the market may consolidate in the short term, as
investors have become more cautious regarding the economic outlook due to
indications of economic softening. However, Japanese equities should continue
to benefit from a number of factors: Corporate fundamentals are expected to
remain sound, particularly for manufacturing companies; inflationary pressures
are still virtually nonexistent; and interest rates are unlikely to rise to
levels that would be harmful to the stock market.
We are generally positive on the long-term outlook of other Asian markets.
However, we remain cautious over the near term as the volatility of these
markets will be higher due to uncertainties resulting from the delinking of a
number of currencies from the U.S. dollar. Select Asian equities remain
attractively valued on a historical basis and are expected to benefit from a
pickup in export growth, improved inflation and a modest economic recovery
throughout the region subsequent to the currency devaluations. We will manage
our exposure in a conservative manner as we remain committed to our long-term
investment style.
FORTHCOMING MANAGEMENT TEAM CHANGES
During the period, Goldman Sachs Asset Management International continued to
expand and strengthen its global investment team. With growth comes change,
however, and we are sorry to announce that Messrs. Jack and Jongen, two of the
portfolio managers of the European portion of the fund, will be leaving
Goldman Sachs in September to pursue other opportunities. To ensure decision-
making continuity and a smooth transition, Messrs. Jack and Jongen have taken
an active role in integrating new members into the team. For example, James
Hordern, a specialist in European equities, joined the firm from Mercury Asset
Management in July, and we expect to add another senior European portfolio
manager shortly. The fund's investment process will continue to be based on a
team approach, which enables it to benefit from the contribution of several
viewpoints and a continuity of style, unlike an investment approach that is
dependent on specific individuals.
/s/ Ivor H. Farman
Ivor H. Farman
Portfolio Manager, London
/s/ Alessandro P. G. Lunghi
Alessandro P. G. Lunghi
Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Portfolio Manager, Singapore
August 29, 1997
39
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.2%
AUSTRALIAN DOLLAR--3.0%
1,060,422 Australia & New Zealand
Bank Group (Commercial
Banks) $ 8,479,696
2,982,818 Village Roadshow
(Entertainment
& Leisure) 7,958,141
992,791 Woodside Petroleum, Ltd.
(Oil & Gas) 8,420,543
- ---------------------------------------------------
24,858,380
- ---------------------------------------------------
BRITISH POUND STERLING--13.5%
2,670,475 Electrocomponents
(Electronics) 19,806,549
1,857,248 Farnell Electronics
(Electronics) 15,633,965
754,039 Misys PLC (Business
Services) 18,806,989
7,108,918 Rentokil Group (Business
Services) 25,371,412
819,521 Siebe (Engineering) 14,792,264
1,053,405 Standard Chartered
(Banking) 17,363,097
- ---------------------------------------------------
111,774,276
- ---------------------------------------------------
DEUTSCHE MARK--6.9%
141,131 Adidas AG (Textiles) 16,552,259
88,741 Fresenius AG (Health
Care) 18,213,660
483,530 Hoechst AG (Health Care) 22,670,802
- ---------------------------------------------------
57,436,721
- ---------------------------------------------------
FRENCH FRANC--6.1%
90,735 CLF Dexia France
(Financial Services) 8,976,498
25,428 Comptoirs Modernes
(Retail Trade) 12,291,282
105,352 Credit Local de France
(Financial Services) 10,422,572
208,421 SGS Thomson
Microelectronics
(Electronics) 18,839,444
- ---------------------------------------------------
50,529,796
- ---------------------------------------------------
HONG KONG DOLLAR--3.5%
4,000,037 Asia Satellite Telephone
(Utility) 12,011,735
1,388,900 Dao Heng Bank Group
(Commercial Bank) 8,467,043
692,678 Sun Hung Kai Properties
Co.
(Real Estate) 8,700,411
- ---------------------------------------------------
29,179,189
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
IRISH POUND--2.4%
1,640,114 Bank of Ireland (Commercial Banks) $ 20,028,917
- ---------------------------------------------------------------------------
ITALIAN LIRA--3.9%
2,415,600 Ente Nazionale Idrocarburi (Oil & Gas) 14,097,734
3,811,980 Telecom Italia Mobile (Utility) 12,836,950
3,392,066 Telecom Italia Mobile (Di Risp Shares) (Utility) 5,853,045
- ---------------------------------------------------------------------------
32,787,729
- ---------------------------------------------------------------------------
JAPANESE YEN--30.5%
268,459 Aderans Company Ltd. (Retail Trade) 7,508,232
109,000 Autobachs Seven Co.
(Automobiles & Automobile Parts) 8,141,613
726,265 Canon, Inc.
(Office Equipment Manufacturer) 23,196,295
152,252 Hoya Corp. (Electronics) 7,718,732
285,108 Inaba Denkisangyo
(Electronics) 4,456,694
220,000 Ito En (Beverages) 4,926,067
397,497 Kokuyo Co., Ltd. (Computers/Office) 9,504,997
195,615 Kyocera Corp. (Electronics) 16,859,087
339,776 Max Co. (Office Equipment Manufacturer) 5,655,756
260,750 Mirai Industry Co. (Electronics) 5,177,545
2,853,707 Mitsubishi Heavy Industries Ltd. (Machinery) 20,133,884
2,639,790 Mitsui Marine & Fire (Insurance) 18,133,918
151,642 Nintendo (Toys) 15,375,614
253,000 Ono Pharmaceutical (Pharmaceuticals) 8,807,435
498,354 Santen Pharmaceutical Co. (Pharmaceuticals) 8,674,349
111,323 Sanyo Shinpan Financial (Financial) 6,753,689
357,654 Shimachu Co. (Retail-Furniture) 9,277,547
238,511 SMC Corp. (Machinery) 23,579,033
407,129 Taikisha Ltd. (Machinery) 6,157,675
376,002 Takeda Chemical Industry (Pharmaceuticals) 11,405,552
223,037 TDK Corp. (Consumer Goods) 19,222,453
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPANESE YEN (CONTINUED)
409,835 Tostem Corp. (Building Materials) $ 9,211,331
122,727 York Benimaru (Food-Retailer) 3,411,676
- ------------------------------------------------------------------------
253,289,174
- ------------------------------------------------------------------------
MALAYSIAN RINGGIT--1.0%
1,645,557 Commerce Asset Holdings
(Commercial Banks) 4,117,792
581,000 United Engineers Malaysia (Engineering) 4,053,232
- ------------------------------------------------------------------------
8,171,024
- ------------------------------------------------------------------------
NETHERLANDS GUILDER--6.5%
173,039 Aegon (Insurance) 13,120,017
292,315 ASM Lithography HL
(Electronics-Semiconductors) 23,728,652
131,669 Wolters Kluwer (Publishing) 17,324,701
- ------------------------------------------------------------------------
54,173,370
- ------------------------------------------------------------------------
PHILIPPINE PESO--0.3%
13,746,266 Metro Pacific Corp.
(Wholesale Trade) 2,166,784
- ------------------------------------------------------------------------
PORTUGUESE ESCUDO--1.4%
682,475 Elec de Portugal (Utility) 11,562,336
- ------------------------------------------------------------------------
SINGAPORE DOLLAR--1.0%
1,850,266 Parkway Holdings (Conglomerate) 8,489,767
83 Singapore Land (Real Estate) 409
- ------------------------------------------------------------------------
8,490,176
- ------------------------------------------------------------------------
SPANISH PESETA--1.6%
60,358 Banco Popular (Commercial Banks) 13,357,266
- ------------------------------------------------------------------------
SWEDISH KRONA--7.6%
395,232 Ericsson Telecommunications (Computer/Office) 17,805,028
572,104 Securitas AB (Business Services) 16,632,389
648,000 Sparbanken Sverige (Banking) 14,210,348
4,685,493 Swedish Match AB (Tobacco) 14,854,823
- ------------------------------------------------------------------------
63,502,588
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWISS FRANC--7.0%
49,797 Adecco SA (Commercial Services) $ 19,371,530
6,384 Cie Financier Richemont AG (Consumer Goods) 9,402,497
18,330 Novartis AG (Pharmaceuticals) 29,381,753
- -------------------------------------------------------------------------
58,155,780
- -------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $634,200,651) $799,463,506
- -------------------------------------------------------------------------
SHORT-TERM OBLIGATION--4.8%
$39,478,820 State Street Bank & Trust Euro-Time Deposit,
5.69%, 08/01/1997 $ 39,478,820
- -------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(COST $39,478,820) $ 39,478,820
- -------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $673,679,471)(A) $838,942,326
- -------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $178,334,650
Gross unrealized loss for investments in which cost
exceeds value (18,650,863)
- -------------------------------------------------------------------------
Net unrealized gain $159,683,787
- -------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $679,258,539.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
41
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
- -------------------------------------------
<S> <C>
COMMON STOCK INDUSTRY CONCENTRATIONS
- -------------------------------------------
Automobiles & Automobile Parts 1.0%
Banking 3.8%
Beverages 0.6%
Building Materials 1.1%
Business Services 7.3%
Commercial Banks 6.6%
Commercial Services 2.3%
Computers/Office 3.3%
Conglomerate 1.0%
Consumer Goods 3.4%
Electronics 10.6%
Electronics-Semiconductors 2.9%
Engineering 2.3%
Entertainment & Leisure 1.0%
Financial 0.8%
Financial Services 2.3%
Food Retailer 0.4%
Health Care 4.8%
Insurance 3.8%
Machinery 6.0%
Office Equipment Manufacturer 3.5%
Oil & Gas 2.7%
Pharmaceuticals 7.0%
Publishing 2.1%
Real Estate 1.0%
Retail-Furniture 1.1%
Retail Trade 2.4%
Textiles 2.0%
Tobacco 1.8%
Toys 1.9%
Utility 5.1%
Wholesale Trade 0.3%
- -------------------------------------------
Total Common Stocks 96.2%
- -------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
42
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Small Cap Equity Fund seeks long-term capital appreciation,
primarily through investments in equity securities of U.S. companies with
market capitalizations of $1 billion or less. The fund is managed according to
a "business value" approach to investing, which means we look for attractive
companies with high or improving returns on capital that we believe can achieve
solid, sustainable growth, as well as generate free cash after investing for
future growth. This approach differs markedly from many emerging growth small-
cap funds that invest in companies with high price-to-earnings multiples solely
on the basis of rapid, but frequently unsustainable, growth rates. Our rigorous
fundamental research includes meeting with a company's management and examining
a company's competitors, customers and suppliers.
NAME CHANGE
To more closely reflect the fund's value investment style, its name was
changed in August from the Goldman Sachs Small Cap Equity Fund to the Goldman
Sachs Small Cap Value Fund. Please note that the fund's objective and
investment focus remain the same.
PERFORMANCE REVIEW: FUND SIGNIFICANTLY OUTPERFORMED THE BENCHMARK
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET RUSSELL 2000
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 17.65% 13.07%
Class B* 17.26% 13.07%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Overall, small-cap stocks continued to lag large-cap stocks during the
period, primarily due to the relatively weak performance of emerging growth
small caps early in the year. Though the emerging growth sector strengthened
during the second quarter, small-cap stocks with value characteristics, which
the fund emphasizes, significantly outperformed small-cap growth stocks for the
period as a whole. The period was marked by significant volatility, with the
Russell 2000 down nearly 10% toward the end of April, and then rebounding to
close up 13% at the end of July. The turbulence was primarily driven by
concerns over tightening monetary policy in the first quarter, which faded as
more moderate growth was reported in the second quarter.
THE FUND'S CLASS A AND CLASS B SHARES BOTH SIGNIFICANTLY OUTPERFORMED THE
BENCHMARK DURING THE PERIOD, PRIMARILY DUE TO SUCCESSFUL STOCK SELECTION IN A
WIDE RANGE OF INDUSTRIES. In general, the fund's best performers achieved
strong results relative to the benchmark due to several reasons:
..The stock prices of several holdings rebounded when company fundamentals
stabilized and began to improve after previous earnings disappointments or
operational difficulties. These included health-related companies such as
MARINER HEALTH GROUP INC. and SUN HEALTHCARE GROUP INC. (providers of long-term
care services) as well as specialty retailers such as GENERAL NUTRITION COS.
INC. (vitamins and nutrition supplements) and J. BAKER, INC. (men's apparel and
discount licensed shoe departments). The solid performance of Mariner Health
Group and Sun Healthcare Group was particularly notable as the healthcare
sector was among the weakest overall performers in the Russell 2000 over the
period.
..A number of stocks appreciated when their continued strong underlying growth
began to be more widely recognized by the market. These included two of the
fund's restaurant investments, IHOP CORP. and MORTON'S RESTAURANT GROUP, INC.;
financial stocks such as IPC HOLDINGS LTD. (catastrophe reinsurance) and HORACE
MANN EDUCATORS CORP. (property, casualty and life insurance for the educator
market); CARBIDE/GRAPHITE GROUP, INC. (a manufacturer of electrodes for steel
mini-
43
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
mills); and MOVADO GROUP INC. (owner of the Movado, Concord and Esquire watch
brands).
..Some holdings performed well when they received and accepted merger proposals.
These included HERITAGE MEDIA CORP. (in-store marketing products and services),
DECISIONONE CORP. (computer support provider) and LESLIE'S POOLMART, INC.
(swimming pool supplies).
An investment that did not meet our expectations was GROUPE AB, the largest
independent provider of content for French television, which declined due to
concerns over the potential cancellation of a major customer's expected youth
programming orders. We believe the market has overreacted to this news as
Groupe AB has the potential to benefit from the distribution of its library of
youth programming to other television broadcasters. In addition, the company
has large upside opportunity as one of three main providers of direct-to-home
satellite services in the French market.
NEW INVESTMENTS IN HEALTHCARE AND BASIC INDUSTRY, SALES IN SEVERAL HOLDINGS
New investments in healthcare during the period included QUEST DIAGNOSTICS,
INC., one of the top three clinical laboratories in the U.S., which is
positioned to benefit from its turnaround plan, and PHYSICIANS RESOURCE GROUP
INC., the leading provider of physician practice management services to
ophthalmic practices. In basic industry, new investments included FEDDERS
CORP., the largest manufacturer of room air conditioners in North America,
which has exciting international growth opportunities, and REXEL INC., a well-
managed, expanding distributor of electrical products to the construction and
utility industries.
During the period, we sold a number of holdings (e.g., HORACE MANN EDUCATORS
CORP., THE MORNINGSTAR GROUP and AMERICAN SAFETY RAZOR CO.) after they reached
our target prices. Though the fund's cash position increased significantly as a
result of new sales, we are gradually reinvesting the cash as we identify
attractive investments that meet our disciplined selection criteria.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
Movado Group, Luxury Watch 4.3%
Inc. Distributor
Friedman's, Inc. Jewelry Retailer 3.6
Groupe AB Media Content 3.5
Provider
Heritage Media Media/Marketing 3.2
Corp. Services
J. Baker, Inc. Specialty Apparel 2.8
Landstar System
Inc. Trucking 2.8
Quest
Diagnostics, Clinical
Inc. Laboratories 2.5
Terra Nova 2.5
Bermuda Property/Casualty
Holdings Insurance
Morton's Restaurants 2.5
Restaurant
Group, Inc.
DecisionOne Computer Support 2.5
Corp. Provider
</TABLE>
OUTLOOK
The stock market as a whole has reached historically high valuations as a
result of the most recent rally. However, we believe the outlook for small-cap
stocks is potentially more positive than that of large caps, as small-cap
valuations have remained at relatively modest levels. If the investment
environment becomes more volatile due to a deterioration in sentiment, stock
selection will play an increasingly important role in determining returns. We
remain optimistic that our disciplined, bottom-up investment approach will
enable us to continue to identify attractive opportunities.
/s/ Paul D. Farrell /s/ Matthew B. McLennan
Paul D. Farrell Matthew B. McLennan
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
August 29, 1997
44
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--83.3%
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--2.0%
889,700 APS Holding Corp.* $ 6,394,719
- ---------------------------------------------------------------
BANKS--0.8%
63,325 Banca U.S.* 1,021,116
94,200 Northwest Savings Bank 1,660,275
- ---------------------------------------------------------------
2,681,391
- ---------------------------------------------------------------
COMMERCIAL PRODUCTS--3.0%
211,000 Figgie International, Inc. Class A* 3,006,750
239,300 Figgie International, Inc. Class B* 3,305,331
194,600 Spartech Corp. 2,991,975
- ---------------------------------------------------------------
9,304,056
- ---------------------------------------------------------------
COMMERCIAL SERVICES--3.1%
151,700 Black Box Corp.* 5,537,050
74,600 Galileo International Inc.* 1,967,575
539,200 Opinion Research Corp.* 2,089,400
- ---------------------------------------------------------------
9,594,025
- ---------------------------------------------------------------
COMMUNICATIONS-MEDIA SERVICES--1.6%
176,700 Rural Cellular Corp.* 1,833,263
78,300 Telephone & Data Systems, Inc. 3,004,763
- ---------------------------------------------------------------
4,838,026
- ---------------------------------------------------------------
DATACOM EQUIPMENT--2.5%
327,700 DecisionOne Corp.* 7,598,544
- ---------------------------------------------------------------
ELECTRIC UTILITIES--2.4%
538,800 Central Maine Power Co. 7,273,800
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT--4.3%
187,700 Carbide/Graphite Group* 5,443,300
378,300 Fedders Corp Class A* 2,246,156
258,100 Fedders Corp. 1,564,731
214,900 Rexel, Inc.* 3,921,925
- ---------------------------------------------------------------
13,176,112
- ---------------------------------------------------------------
ENGINEERING--0.2%
59,500 RCM Technologies* 654,500
- ---------------------------------------------------------------
ENTERTAINMENT AND LEISURE--1.3%
11,600 CMP Media Inc.* 313,200
70,100 Royal Caribbean Cruise Lines 2,782,094
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE (CONTINUED)
44,700 Silverleaf Resorts, Inc.* $ 877,238
- ---------------------------------------------------------
3,972,532
- ---------------------------------------------------------
FINANCIAL SERVICES--0.9%
118,500 Amerin Corp.* 2,918,063
- ---------------------------------------------------------
FOOD--0.4%
259,900 Cadiz Land Co., Inc.* 1,348,231
- ---------------------------------------------------------
FOOD PRODUCERS--1.0%
374,600 Alpine Lace Brands, Inc.* 3,043,625
- ---------------------------------------------------------
HEALTH & MEDICAL SERVICES--1.9%
82,100 Matria Healthcare, Inc.* 369,450
61,100 Perrigo Co.* 794,300
564,100 Physicians Resource Group I* 4,724,338
- ---------------------------------------------------------
5,888,088
- ---------------------------------------------------------
HEALTHCARE MANAGEMENT--7.3%
443,200 Mariner Health Group, Inc.* 5,955,500
445,300 Quest Diagnostics Inc.* 7,737,088
164,200 Sierra Health Services, Inc.* 5,398,075
168,300 Sun Healthcare Group, Inc.* 3,565,856
- ---------------------------------------------------------
22,656,519
- ---------------------------------------------------------
HOME FURNISHING & SERVICES--0.7%
197,600 Congoleum Corp.* 2,198,300
- ---------------------------------------------------------
INSURANCE-LIFE--0.3%
37,300 ARM Financial Group, Inc.* 773,975
- ---------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--7.0%
142,700 IPC Holdings Ltd. 4,245,325
117,700 Scpie Holdings, Inc. 3,104,338
126,600 Seibels Bruce Group* 1,076,100
301,900 Symons International Group* 5,660,625
329,600 Terra Nova Bermuda Holdings 7,663,200
- ---------------------------------------------------------
21,749,588
- ---------------------------------------------------------
JEWELRY--4.3%
458,075 Movado Group, Inc. 13,284,175
- ---------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
45
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MEDIA--3.7%
1,369,400 Groupe AB SA ADR* $ 10,698,438
34,400 Scientific Games Holdings, Inc.* 597,270
- --------------------------------------------------------------
11,295,708
- --------------------------------------------------------------
MEDIA/ENTERTAINMENT--1.1%
432,300 International Post Ltd.* 1,296,900
367,400 Platinum Entertainment, Inc.* 2,158,475
- --------------------------------------------------------------
3,455,375
- --------------------------------------------------------------
PACKAGING--0.6%
93,600 Shorewood Packaging Corp.* 1,977,300
- --------------------------------------------------------------
PHARMACEUTICALS--0.5%
87,900 Chirex, Inc.* 1,505,288
- --------------------------------------------------------------
RADIO AND TELEVISION BROADCASTING--4.8%
562,800 Heritage Media Corp.* 9,919,350
370,200 Pegasus Communications, Inc.* 4,905,150
- --------------------------------------------------------------
14,824,500
- --------------------------------------------------------------
REAL ESTATE--1.1%
186,800 Insignia Financial Group, Inc.* 3,549,200
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--1.0%
132,900 Boykin Lodging Trust Inc 3,148,069
- --------------------------------------------------------------
RECREATIONAL PRODUCTS--0.8%
335,800 DSI Toys Inc.* 2,518,500
- --------------------------------------------------------------
RESTAURANTS & HOTELS--3.4%
90,700 IHOP Corp.* 2,879,725
362,000 Mortons Restaurant Group, Inc.* 7,602,000
- --------------------------------------------------------------
10,481,725
- --------------------------------------------------------------
RETAIL HARDGOODS--3.7%
731,000 Brookstone Inc.* 6,487,625
290,700 Finlay Enterprises, Inc.* 4,941,900
- --------------------------------------------------------------
11,429,525
- --------------------------------------------------------------
SPECIALTY FINANCE--1.3%
341,500 Long Beach Financial Corp.* 3,927,250
- --------------------------------------------------------------
SPECIALTY RETAIL--9.5%
720,100 Friedmans, Inc.* 11,071,538
43,100 General Nutrition Companies, Inc.* 1,228,350
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL (CONTINUED)
67,100 Hibbett Sporting Goods, Inc.* $ 1,526,525
999,300 J. Baker, Inc. 8,743,875
34,900 Linens N'things, Inc.* 981,563
765,300 Loehmann's, Inc.* 5,309,269
125,400 Multiple Zones International, Inc.* 603,488
- ---------------------------------------------------------------
29,464,608
- ---------------------------------------------------------------
STEEL--1.3%
84,400 J & L Specialty Steel, Inc. 1,139,400
153,500 Lukens Inc. 2,935,688
- ---------------------------------------------------------------
4,075,088
- ---------------------------------------------------------------
TEXTILES--1.8%
151,800 Pluma, Inc.* 2,191,613
144,900 Synthetic Industries, Inc.* 3,396,086
- ---------------------------------------------------------------
5,587,699
- ---------------------------------------------------------------
TRUCKING--3.7%
193,400 Allied Holdings, Inc.* 2,949,350
341,900 Landstar Systems, Inc.* 8,547,500
- ---------------------------------------------------------------
11,496,850
- ---------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $230,250,550) $258,084,954
- ---------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.1%
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 446,250
- ---------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $498,537) $ 446,250
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Contracts Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS--0.3%
500 S&P 500 Index Put Strike 900
exp.09/97 $ 518,750
200 S&P 500 Index Put Strike 825
exp.09/97 47,500
300 S&P 500 Index Put Strike 775
exp.09/97 30,000
350 S&P 500 Index Put Strike 800
exp.09/97 48,125
500 S&P 500 Index Put Strike 875
exp.09/97 325,000
- ------------------------------------------------------------------------------
969,375
- ------------------------------------------------------------------------------
TOTAL OPTIONS
(COST $3,270,771) $ 969,375
- ------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS--16.1%
$49,800,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 49,800,000
- ------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $49,800,000) $ 49,800,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $283,819,858)(A) $309,300,579
- ------------------------------------------------------------------------------
<CAPTION>
Contracts Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS WRITTEN--(0.2%)
CALL OPTIONS WRITTEN
500 Black Box Corp., Call Strike $35 expiring 09/20/97 262,500
500 Black Box Corp., Call Strike $40 expiring 09/20/97 100,000
400 General Nutrition Companies, Inc., Call Strike $25
expiring 10/18/97 185,000
400 Royal Caribbean Cruise Lines Call Strike $40
expiring 09/20/97 80,000
- ------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $528,963) 627,500
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Description Value
- -------------------------------
<C> <S> <C>
FEDERAL INCOME TAX
INFORMATION:
Gross
unrealized
gain for
investments in
which value
exceeds cost $ 52,656,504
Gross
unrealized
loss for
investments in
which cost
exceeds value (27,422,188)
- -------------------------------
Net unrealized
gain $ 25,234,316
- -------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $284,066,263.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
47
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets: China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its price-
to-book value and the predictability of its earnings stream as among the best
measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers
and competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell
a position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in a country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
MARKET OVERVIEW: REGIONAL FACTORS DAMPENED PERFORMANCE OF SEVERAL KEY MARKETS
Asian stock markets returned 1.3% during the period, as measured by the MSCI
All Country Asia Free (Ex Japan) Index (without dividends reinvested). During
the first half of the period, several key issues dampened the region's
performance, including continued uncertainty in Thailand, the results of the
Indian budget process and several weaker than expected Asian economic
indicators. In May and June, the Asian equity markets improved as earlier
concerns eased and investors grew increasingly optimistic regarding the Hong
Kong handover. The period closed on a volatile note, however, when Thailand's
devaluation of the baht sparked currency turmoil throughout the region,
particularly the ASEAN (Association of South East Asian Nations) countries.
On an individual country level, Taiwan and India were two of the strongest
performing markets, rising 31.4% and 26.7%, respectively (in U.S. dollar
terms). Taiwan's market benefited from local liquidity, an accommodative
monetary policy and a constant inflow of foreign capital, all of which helped
it reach a seven-year record high in July. In India, stocks briefly came under
pressure due to political uncertainty but recovered when Indian politicians
renewed their commitment to liberalization and deregulation. Hong Kong, the
most heavily weighted country in the Index, also performed well, particularly
during the latter half of the period when property stocks rebounded on
positive sentiment related to the July handover and China-related "red-chip"
stocks soared on investor excitement over China's potential asset injections.
In contrast, several markets experienced sharp declines. Thailand was one of
the weakest performers, as it suffered from an overextended financial sector,
sharp downgrades to earnings forecasts and an uncertain political outlook. The
Thai situation impacted countries such as Malaysia and the Philippines, where
spillover concerns regarding a run on their respective currencies led
investors to decrease their weightings in those stock markets.
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
PERFORMANCE REVIEW: TOP PERFORMING STOCKS IN A VARIETY OF MARKETS
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET MSCI AC ASIA FREE
ASSET VALUE) (EX JAPAN) INDEX+
----------------- -----------------
<S> <C> <C>
Class A* 1.29% 1.30%
Class B* 0.99% 1.30%
Institutional* 1.59% 1.30%
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge.
+ Represents a price-only index that does not reflect reinvested dividends.
Though the region's performance was generally weak, the fund benefited from
our specific stock selections. Several of the fund's country weightings also
worked in its favor, such as its overweighting in Hong Kong, which performed
well, and its underweighting in Thailand and Malaysia, two of the weakest
markets. Conversely, the fund's overweighting in the Philippines was negative
for the portfolio.
The fund's top performers came from a variety of different countries. In
India, HINDUSTAN LEVER, LTD., which is 51% owned by Unilever, appreciated as
its core business in detergents and soaps achieved strong growth rates and its
merger with Brooke Bond Lipton India Ltd. was finally approved by the Indian
Supreme Court. TAIWAN-SOGO SHINKONG, a Taiwan-based security services company
that controls approximately 38% of the market, recorded strong results driven
by increased demand for its products following several high-profile kidnappings
in Taiwan.
The fund's overweighting in Hong Kong's banking sector also contributed
significantly to performance as our bank stocks did very well, particularly in
May. HSBC HOLDINGS PLC, a banking and financial services organization, rose
approximately 50% during the period due to a favorable re-rating and strong
earnings fueled by fast growth in the Hong Kong banking market. Other favorable
investments in the sector were WING HANG BANK LTD., the portfolio's largest
holding as of July 31, and DAO HENG BANK GROUP LTD., a new position added
during the period.
PORTFOLIO COMPOSITION
As of July 31, 1997, 93.6% of the fund's net assets was invested in equities
and 6.0% was in cash equivalents, with the remainder in other securities. By
country, the portfolio's five largest allocations were in Hong Kong (40.6%),
Malaysia (12.1%), Singapore (10.5%), India (6.2%) and Taiwan (6.1%). Compared
with the Index, as of the end of the period, the portfolio was overweighted in
Hong Kong and the Philippines and underweighted in Malaysia, Indonesia,
Thailand and Taiwan.
The fund's 40.6% allocation in Hong Kong included 4.4% in China-based
companies that are traded on the Hong Kong stock exchange. The fund has not
made any direct investments in China due to its poor regulatory environment and
generally weak company management. Instead, we seek to participate in China's
growth potential through China-related stocks in other countries or stocks of
companies that operate in China but are listed on the Hong Kong exchange, where
companies are required to meet higher standards. We expect these management
issues and stock market regulations to continue under Hong Kong's new China-
appointed Special Administrative Region (SAR) government. In addition, we
expect to limit the fund's exposure to "red-chip" stocks traded in Hong Kong,
as most of them are trading at a substantial premium to their asset values with
little or no fundamental justification.
PORTFOLIO CHANGES INCLUDED NEW POSITIONS IN HEALTHCARE AND PROPERTY DEVELOPMENT
STOCKS
During the period, we added a number of stocks to the portfolio. In March, we
initiated a position in PARKWAY HOLDINGS (Singapore), the largest healthcare
group in the region, which is currently focusing on
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
regional expansion and has established hospitals in Indonesia, Malaysia and
India. Another new investment was NEW WORLD DEVELOPMENT, a Hong Kong-based
property developer with rapidly increasing exposure to projects in China. New
World Development is expected to be one of the prime beneficiaries of the land
supply policies of the new SAR government. During the period, we sold
METROPOLITAN BANK AND TRUST, the largest bank in the Philippines, due to its
expensive valuation and a deterioration of the company's fundamentals.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY (LINE OF BUSINESS) COUNTRY NET ASSETS
-------------------------- ------- ----------
<S> <C> <C>
Wing Hang Bank Ltd. Hong Kong 4.1%
Banking and
Finance
Taiwan-Sogo
Shinkong Taiwan 4.0
Consumer Goods and
Services
Dao Heng Bank Group
Ltd. Hong Kong 3.7
Banking and
Finance
Hutchison Whampoa Hong Kong 3.7
Conglomerate
Hong Kong Electric
Holdings Hong Kong 3.7
Utilities
New World
Development Hong Kong 3.5
Real Estate
HKR International
Ltd. Hong Kong 3.4
Real Estate
Asia Satellite
Telecommunications Hong Kong 3.4
Telecommunications
Dah Sing Financial Hong Kong 3.3
Banking and
Finance
Hindustan Lever,
Ltd. India 3.3
Consumer Products
</TABLE>
OUTLOOK
We are generally positive on the long-term outlook of the Asian markets.
However, we remain cautious over the near term as the volatility of these
markets will be higher due to uncertainties resulting from the delinking of a
number of currencies from the U.S. dollar. Select Asian equities remain
attractively valued on a historical basis and are expected to benefit from a
pickup in export growth, improved inflation and a modest economic recovery
throughout the region subsequent to the currency devaluations. We will manage
our exposure in a conservative manner as we remain committed to our long-term
investment style.
We intend to focus our investments in those countries with strong domestic
growth. We expect to maintain the fund's overweighting in Hong Kong, as we
anticipate most companies will continue to perform well under its new China-
appointed government. Hong Kong's political situation is currently marked by
concerns that China might implement drastic changes that could jeopardize the
existing laissez-faire environment that Hong Kong has thrived on, as well as
rumors that the SAR government may introduce measures to cool the property
sector. However, we believe the Hong Kong equity market will benefit from
strong earnings momentum and increased exposure to the recovering Chinese
economy. We also favor some of the smaller Asian markets where we expect
macroeconomic conditions to improve. In particular, subsequent to their
currency devaluations, both the Philippines and Indonesia should enjoy better
economic climates amongst the Asian countries, and should continue to record
improved export growth and healthy corporate profits.
In contrast, we intend to limit our exposure to Thailand, which continues to
experience structural problems. To rebuild the Thai economy, Thailand will need
to implement a series of fiscal tightenings and a comprehensive restructuring
in the months and years ahead to correct the past misallocation of resources.
We will also remain underweighted in Malaysia, where economic overheating
remains a concern.
In general, we expect Asian markets will benefit over time as foreign
investment in the region increases. Therefore, we urge investors to be prepared
to withstand periods of volatility and to view the fund as a long-term
investment opportunity.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
August 29, 1997
51
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
July 31, 1997
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--89.4%
HONG KONG DOLLAR--40.6%
3,049,000 Asia Satellite Telephone (Telecommunications) $ 9,155,861
17,231,000 Beijing Datang Power Gen-H
(Utility) 8,735,121
1,420,600 Dah Sing Financial
(Banking) 9,063,951
1,660,000 Dao Heng Bank Group
(Banking) 10,119,729
6,103,440 HKR International Ltd. (Real Estate) 9,183,736
2,447,500 Hong Kong Electric Holdings (Utility) 9,989,151
95,283 HSBC Holdings (Banking) 3,322,752
1,028,000 Hutchison Whampoa (Diversified) 10,024,411
1,309,000 New World Development Co.
(Real Estate) 9,425,476
670,000 Sun Hung Kai Properties Co.
(Real Estate) 8,415,563
916,000 Swire Pacific Ltd. "A" (Diversified) 8,695,641
1,877,000 Wing Hang Bank Ltd.
(Banking) 11,224,424
11,000,000 Zhejiang Expressway (Construction) 3,267,678
- -------------------------------------------------------------------------------
110,623,494
- -------------------------------------------------------------------------------
INDIAN RUPEE--6.2%
190,000 Colgate Palmolive (Consumer Goods and Services) 1,716,627
227,600 Hindustan Lever Ltd.
(Consumer Goods and Services) 9,047,889
427,000 ITC Ltd. (Consumer Goods and Services) 6,160,667
644 Larsen & Toubro Ltd. (Heavy Industry) 4,858
350 Mahindra & Mahindra Ltd.
(Automotive) 4,309
400 Niit Limited (Technology) 5,065
- -------------------------------------------------------------------------------
16,939,415
- -------------------------------------------------------------------------------
INDONESIAN RUPIAH--6.0%
2,374,750 Indofoods Sukses Makmur--Foreign (Consumer Goods and
Services) 4,949,288
464,300 Peregrine Indo Food ADR (Food) 1,420,758
2,346,000 PT Bank of Bali--Foreign (Banking) 6,504,207
2,613,000 PT Jaya Real Property--Foreign
(Real Estate) 3,497,323
- -------------------------------------------------------------------------------
16,371,576
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MALAYSIAN RINGGIT--11.9%
1,703,800 Commerce Asset Holdings
(Banking) $ 4,263,537
1,919,000 Road Builder Malaysia Holdings
(Construction & Infrastructure) 8,003,412
1,695,000 Tenaga National Berhad (Utility) 6,812,133
1,470,000 UMW Holdings Berhad
(Automotive) 5,796,398
1,081,000 United Engineers Malaysia (Construction
and Infrastructure) 7,541,384
- -----------------------------------------------------------------------------
32,416,864
- -----------------------------------------------------------------------------
NEW TAIWAN DOLLAR--6.1%
2,673,750 Kindom Construction Co. Ltd.
(Real Estate) 5,869,207
2,791,677 Taiwan-Sogo Shinkong (Consumer Goods and Services) 10,894,349
- -----------------------------------------------------------------------------
16,763,556
- -----------------------------------------------------------------------------
PHILIPPINE PESO--5.3%
7,971,000 Ayala Land Inc. "B" (Real Estate) 5,809,373
1,169,570 Manila Electric Co., Class B
(Utility) 4,995,452
23,028,400 Metro Pacific Corp., Class A
(Diversified) 3,629,900
- -----------------------------------------------------------------------------
14,434,725
- -----------------------------------------------------------------------------
SINGAPORE DOLLAR--10.5%
858,000 City Developments (Real Estate) 7,290,463
356,750 Keppel Land Warrants (Real Estate) 329,808
949,800 Overseas Union Bank--Foreign (Banking) 6,165,855
1,860,000 Parkway Holdings (Consumer
Goods and Services) 8,534,430
337,000 Singapore Press Holdings--Foreign (Media) 6,391,340
- -----------------------------------------------------------------------------
28,711,896
- -----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SOUTH KOREAN WON--2.7%
7,132 Samsung Fire & Marine Insurance
(Financial Services) $ 2,931,332
4,758 SK Telecom (Telecommunications) 3,536,424
86,920 SK Telecom ADR (Telecommunications) 999,579
- ---------------------------------------------------------------------
7,467,335
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $211,826,215) $243,728,861
- ---------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.2%
MALAYSIAN RINGITT--0.2%
MYR1,024,000 United Engineers Malaysia (Construction)
4.00%, 05/22/99 $ 628,954
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $521,580) $ 628,954
- ---------------------------------------------------------------------
STRUCTURED NOTES--4.4%
$ 1,000,000 SK Telecom $ 981,300
783,987 Taiwan Index Linked Note 10,928,779
- ---------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(COST $10,935,000) $ 11,910,079
- ---------------------------------------------------------------------
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
EQUITY LINKED NOTE--0.2%
$ 1,308 SK Telecom (Telecommunications) $ 690,716
- ---------------------------------------------------------------------
TOTAL EQUITY LINKED NOTE
(COST $667,627) $ 690,716
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM OBLIGATIONS--6.0%
$16,284,594 State Street Bank & Trust Euro-Time Deposit
5.687%, 08/01/97 $ 16,284,594
- ------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $16,284,594) $ 16,284,594
- ------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $240,235,016)(A) $273,243,209
- ------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 42,057,404
Gross unrealized loss for investments in which cost
exceeds value (13,554,092)
- ------------------------------------------------------------------------
Net unrealized gain $ 28,503,312
- ------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $243,331,769.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
<TABLE>
- ----------------------------
<S> <C> <C>
COMMON STOCKS INDUSTRY
CONCENTRATIONS
- ----------------------------
Automotive 2.1%
Banking 18.5%
Construction and
Infrastructure 6.9%
Consumer Goods and
Services 15.1%
Diversified 8.2%
Engineering + Others 0.2%
Financial Services 1.1%
Food 0.5%
Heavy Industry 0.0%
Media 2.3%
Real Estate 18.3%
Technology 0.0%
Telecommunications 5.0%
Utility 11.2%
- ----------------------------
TOTAL COMMON STOCKS 89.6%
- ----------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
53
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
-------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(identified cost $127,753,734, $377,598,149,
$28,826,861, $826,462,978, $142,278,430,
$673,679,471, $283,819,858 and $240,235,016,
respectively) $145,647,765 $542,098,398
Cash, at value 24,774 93,046
Receivables:
Investment securities sold 3,238,030 --
Forward foreign currency exchange contracts -- --
Fund shares sold 879,535 5,489,136
Dividends and interest 651,887 496,369
Variation margin 9,657 20,000
Deferred organization expenses, net 29,512 --
Other assets 70,779 11,347
- ------------------------------------------------------------------------------
TOTAL ASSETS 150,551,939 548,208,296
- ------------------------------------------------------------------------------
LIABILITIES:
Options Written, at value (premium received,
$528,963) -- --
Payables:
Investment securities purchased 16,714,962 --
Forward foreign currency exchange contracts 11,101 --
Fund shares repurchased 80,696 123,745
Capital gains tax -- --
Amounts owed to affiliates 184,578 780,165
Variation margin -- --
Accrued expenses and other liabilities 39,439 128,711
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 17,030,776 1,032,621
- ------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 108,955,474 354,693,448
Accumulated undistributed (distributions in
excess of) net investment income (loss) 339,584 2,043,010
Accumulated undistributed (distributions in
excess of) net realized gain (loss) on
investment, option and futures transactions 6,207,098 25,574,291
Accumulated net realized foreign currency
loss (2,148) --
Net unrealized gain on investments, options
and futures 18,014,255 164,864,926
Net unrealized gain (loss) on translation of
assets and liabilities denominated in
foreign currencies 6,900 --
- ------------------------------------------------------------------------------
NET ASSETS $133,521,163 $547,175,675
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class A Class B
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Total shares of beneficial
interest outstanding, $.001 par
value
(100,000,000 and 25,000,000
shares authorized for each
Class A and B, respectively) 5,812,234 434,759 11,508,646 1,352,331
Net asset and Class A redemption
value per share(a) $21.38 $21.30 $28.47 $28.23
Maximum public offering price
per share (Class A
NAV X 1.0582) $22.62 $21.30 $30.13 $28.23
<CAPTION>
Institutional Service Institutional Service
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Total shares of beneficial
interest outstanding, $.001 par
value
(50,000,000 shares per each
class authorized) -- -- 6,121,100 197,898
Net asset value, offering and
redemption price per share -- -- $28.71 $28.43
- -------------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B shares are subject to a contingent deferred sales
charge assessed on the amount equal to the lesser of the current net asset
value or the original purchase price of the shares.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP CAPITAL GROWTH MID CAP INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
GROWTH FUND FUND EQUITY FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$32,639,495 $1,180,290,404 $187,426,440 $838,942,326 $309,300,579 $273,243,209
10,398 54,166 43,278 160,110 210,038 2,861,814
-- -- 819,883 457,596 1,947,290 --
-- -- -- 7,725,121 -- --
1,001,965 4,256,988 1,044,197 5,090,337 3,836,809 350,379
21,085 897,205 152,413 468,788 69,615 422,050
-- -- -- -- -- --
47,479 -- 51,544 7,346 6,789 61,377
47,701 9,494 66,516 524,549 750 24,844
- ------------------------------------------------------------------------------------------------
33,768,123 1,185,508,257 189,604,271 853,376,173 315,371,870 276,963,673
- ------------------------------------------------------------------------------------------------
-- -- -- -- 627,500 --
407,378 8,221,644 359,116 15,473,640 4,112,414 783,887
-- -- -- 707,762 -- --
612 311,158 -- 4,371,624 343,333 482,630
-- -- -- -- -- 1,408,129
42,652 1,795,928 107,071 1,646,456 543,850 596,421
-- -- -- -- -- 779,796
90,508 60,368 44,441 464,249 4,781 225,073
- ------------------------------------------------------------------------------------------------
541,150 10,389,098 510,628 22,663,731 5,631,878 4,275,936
- ------------------------------------------------------------------------------------------------
29,040,278 691,258,887 120,969,622 614,334,694 256,493,400 256,752,469
24,537 609,537 580,925 1,036,836 (620,559) (792,684)
349,524 129,423,309 22,395,086 45,368,038 28,484,967 (12,411,607)
-- -- -- (1,890,238) -- (2,433,287)
3,812,634 353,827,426 45,148,010 211,562,708 25,382,184 39,610,602
-- -- -- (39,699,596) -- (8,037,756)
- ------------------------------------------------------------------------------------------------
$33,226,973 $1,175,119,159 $189,093,643 $830,712,442 $309,739,992 $272,687,737
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class A
- ------------- ------- ------------- ------- ------------- ------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2,468,215 312,763 56,181,750 818,966 -- -- 30,913,314 2,125,041 11,816,017 783,168 15,499,590
$11.95 $11.94 $20.62 $20.46 -- -- $23.34 $23.18 $24.63 $24.42 $16.52
$12.65 $11.94 $21.82 $20.46 -- -- $24.70 $23.18 $26.06 $24.42 $17.48
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service Institutional
- ------------- ------- ------------- ------- ------------- ------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
155 150 -- -- 7,989,163 87 2,461,067 89,276 -- -- 685,661
$11.95 $11.94 -- -- $23.67 $23.67 $23.51 $23.38 -- -- $16.59
<CAPTION>
Class B
- -------
<S> <C>
319,335
$16.40
$16.40
Service
- -------
<S> <C>
--
--
</TABLE>
55
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends(a) (including $65,234 received from
affiliated issuers for Small Cap Equity) $ 486,754 $ 4,172,206
Interest(b) 1,633,213 283,272
- ---------------------------------------------------------------------------------
TOTAL INCOME 2,119,967 4,455,478
- ---------------------------------------------------------------------------------
EXPENSES:
Management fees 332,006 1,669,777
Distribution fees 139,549 413,921
Authorized dealer service fees 127,694 352,253
Custodian fees 50,207 62,893
Transfer agent fees 99,878 240,104
Professional fees 35,455 29,552
Registration fees 15,137 54,862
Amortization of deferred organization expenses 6,661 --
Trustee fees 1,202 3,091
Other 10,294 48,453
- ---------------------------------------------------------------------------------
TOTAL EXPENSES 818,083 2,874,906
Less--expenses reimbursed and fees waived by
Goldman Sachs (289,609) (462,438)
- ---------------------------------------------------------------------------------
NET EXPENSES 528,474 2,412,468
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,591,493 2,043,010
- ---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions (including realized
gains of $2,634,349 on sales of investments in
affiliated issuers for Small Cap Equity) 5,165,557 20,056,208
Futures transactions 64,054 1,115,559
Foreign currency related transactions (14,723) --
Net change in unrealized gain (loss) on:
Investments 9,359,807 73,407,077
Futures 42,885 272,877
Translation of assets and liabilities
denominated in foreign currencies 19,468 --
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT,
OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS 14,637,048 94,851,721
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $16,228,541 $96,894,731
- ---------------------------------------------------------------------------------
</TABLE>
(a) For the Balanced, CORE U.S. Equity, CORE Large Cap Growth, Capital Growth,
Mid Cap Equity, International Equity and Asia Growth Funds, taxes withheld
on dividends were $744, $20,389, $408, $42,487, $4,487, $909,357 and
$201,084, respectively.
(b) For the Balanced Fund, taxes withheld on interest were $2,724.
(c) CORE Large Cap Growth Fund commenced operations on May 1, 1997.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND(C) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 69,444 $ 6,813,967 $ 1,183,533 $ 5,932,214 $ 722,690 $ 2,369,480
9,091 868,702 94,041 858,131 595,147 473,203
- --------------------------------------------------------------------------------------------------------
78,535 7,682,669 1,277,574 6,790,345 1,317,837 2,842,683
- --------------------------------------------------------------------------------------------------------
43,779 4,891,228 592,506 3,437,442 1,226,018 1,360,100
15,564 1,241,280 -- 868,168 326,906 335,767
14,589 1,222,807 -- 790,939 306,505 325,580
22,154 63,364 18,791 474,368 36,394 232,094
12,099 450,925 31,600 420,003 265,468 214,033
18,627 32,460 31,072 36,142 32,119 37,005
17,155 32,147 13,894 83,971 20,320 45,375
2,521 -- 8,512 7,227 6,678 15,736
126 7,847 1,278 5,544 1,706 2,373
4,577 69,092 12,670 68,155 12,586 20,217
- --------------------------------------------------------------------------------------------------------
151,191 8,011,150 710,323 6,191,959 2,234,700 2,588,280
(97,193) (1,213,570) (38,816) (464,116) (296,304) (269,236)
- --------------------------------------------------------------------------------------------------------
53,998 6,797,580 671,507 5,727,843 1,938,396 2,319,044
- --------------------------------------------------------------------------------------------------------
24,537 885,089 606,067 1,062,502 (620,559) 523,639
- --------------------------------------------------------------------------------------------------------
349,524 115,156,585 14,892,426 42,837,306 21,099,362 4,610,560
-- -- -- -- -- (994,498)
-- -- -- (972,391) -- (2,021,368)
3,812,634 101,151,901 23,232,147 99,071,315 20,776,667 6,596,227
-- -- -- -- -- --
-- -- -- (7,290,060) -- (6,042,525)
- --------------------------------------------------------------------------------------------------------
4,162,158 216,308,486 38,124,573 133,646,170 41,876,029 2,148,396
- --------------------------------------------------------------------------------------------------------
$4,186,695 $217,193,575 $38,730,640 $134,708,672 $41,255,470 $ 2,672,035
- --------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
-------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 1,591,493 $ 2,043,010
Net realized gain on investment, option and
futures transactions 5,229,611 21,171,767
Net realized loss on foreign currency
related transactions (14,723) --
Net change in unrealized gain on
investments, options and futures 9,402,692 73,679,954
Net change in unrealized gain (loss) on
translation of assets and liabilities
denominated in foreign currencies 19,468 --
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 16,228,541 96,894,731
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (1,375,790) --
Class B shares (56,323) --
Institutional shares -- --
Service shares -- --
- ----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,432,113) --
- ----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 40,396,833 99,586,343
Reinvestment of dividends and distributions 1,224,846 --
Cost of shares repurchased (6,417,071) (45,139,094)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 35,204,608 54,447,249
- ----------------------------------------------------------------------------
Total increase (decrease) 50,001,036 151,341,980
NET ASSETS:
Beginning of period 83,520,127 395,833,695
- ----------------------------------------------------------------------------
End of period $133,521,163 $547,175,675
- ----------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income (loss) $ 339,584 $ 2,043,010
- ----------------------------------------------------------------------------
</TABLE>
(a) CORE Large Cap Growth Fund commenced operations on May 1, 1997.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND(A) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 24,537 $ 885,089 $ 606,067 $ 1,062,502 $ (620,559) $ 523,639
349,524 115,156,585 14,892,426 42,837,306 21,099,362 3,616,062
-- -- -- (972,391) -- (2,021,368)
3,812,634 101,151,901 23,232,147 99,071,315 20,776,667 6,596,227
-- -- -- (7,290,060) -- (6,042,525)
- --------------------------------------------------------------------------------------------------------------
4,186,695 217,193,575 38,730,640 134,708,672 41,255,470 2,672,035
- --------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
29,901,684 95,800,041 6,949,969 191,045,207 73,020,425 46,386,178
-- -- -- -- -- --
(861,406) (61,741,484) (1,840,296) (119,570,466) (20,270,709) (56,060,080)
- --------------------------------------------------------------------------------------------------------------
29,040,278 34,058,557 5,109,673 71,474,741 52,749,716 (9,673,902)
- --------------------------------------------------------------------------------------------------------------
33,226,973 251,252,132 43,840,313 206,183,413 94,005,186 (7,001,867)
-- 923,867,027 145,253,330 624,529,029 215,734,806 279,689,604
- --------------------------------------------------------------------------------------------------------------
$33,226,973 $1,175,119,159 $189,093,643 $ 830,712,442 $309,739,992 $272,687,737
- --------------------------------------------------------------------------------------------------------------
$ 24,537 $ 609,537 $ 580,925 $ 1,036,836 $ (620,559) $ (792,684)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment,
option and futures transactions 3,956,460 15,032,718
Net realized gain on options written -- --
Net realized gain (loss) on foreign currency
related transactions 12,575 --
Net change in unrealized gain (loss) on
investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation
of assets and liabilities denominated in
foreign currencies (12,568) --
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 11,302,273 67,658,142
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option
and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- ----------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
- ----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 27,303,030 149,961,461
- ----------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
NET ASSETS:
Beginning of year 50,928,007 193,874,478
- ----------------------------------------------------------------------------
End of year $83,520,127 $395,833,695
- ----------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income $ 180,204 $ --
- ----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,337,292 $ 1,726,659 $ (242,737) $ (1,551,590) $ 538,846
53,687,297 13,627,039 16,714,697 28,767,853 (7,436,150)
-- 40,466 -- -- --
-- -- 146,694 -- (1,099,538)
145,350,120 14,749,074 60,236,901 22,913,571 5,823,115
-- -- (28,245,657) -- (599,549)
- ------------------------------------------------------------------------------------
204,374,709 30,143,238 48,609,898 50,129,834 (2,773,276)
- ------------------------------------------------------------------------------------
(5,948,617) -- -- -- (206,784)
-- -- -- -- --
-- (1,837,675) (106,712) -- --
-- -- -- -- --
(258,749) -- -- -- --
(12,838) -- -- -- (5,064)
-- (25,142) -- -- (83,075)
-- -- -- -- --
(91,862,169) -- (5,358,559) (10,210,264) --
(179,327) -- (159,717) (149,626) --
-- (6,629,058) (689,171) -- --
-- -- (3,947) -- --
- ------------------------------------------------------------------------------------
(98,261,700) (8,491,875) (6,318,106) (10,359,890) (294,923)
- ------------------------------------------------------------------------------------
76,008,897 3,933,239 321,475,961 56,119,213 144,448,826
90,088,874 8,489,760 5,481,492 9,876,571 221,279
(229,399,817) (24,491,993) (75,580,037) (95,024,895) (67,451,011)
- ------------------------------------------------------------------------------------
(63,302,046) (12,068,994) 251,377,416 (29,029,111) 77,219,094
- ------------------------------------------------------------------------------------
42,810,963 9,582,369 293,669,208 10,740,833 74,150,895
881,056,064 135,670,961 330,859,821 204,993,973 205,538,709
- ------------------------------------------------------------------------------------
$ 923,867,027 $145,253,330 $624,529,029 $215,734,806 $279,689,604
- ------------------------------------------------------------------------------------
$ (275,552) $ (25,142) $ (25,666) $ -- $ (1,316,323)
- ------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
1. ORGANIZATION
Effective May 1, 1997, the Goldman Sachs Equity Portfolios, Inc. was
reorganized from a Maryland corporation to a Delaware business trust named the
Goldman Sachs Trust (the "Trust"). The Trust includes the Equity Portfolios,
collectively the "Funds" or individually a "Fund". The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. Included in this report are the
financial statements for the Goldman Sachs Balanced Fund ("Balanced Fund"),
Goldman Sachs CORE U.S. Equity Fund ("CORE U.S. Equity Fund"), Goldman Sachs
CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
Capital Growth Fund ("Capital Growth Fund"), Goldman Sachs Mid Cap Equity Fund
("Mid Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap
Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth Fund"). At July
31, 1997, the CORE U.S. Equity, CORE Large Cap Growth, International Equity and
Asia Growth Funds offer four classes of shares--Class A, Class B, Institutional
and Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares--Class A and Class B. The Mid Cap Equity Fund offers two
classes of shares--Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
Investments in securities traded on a U.S. or foreign securities exchange or
the NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked price, and securities traded on a foreign exchange
will be valued at the official bid price. Unlisted equity and debt securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices. Debt securities are valued at prices supplied
by an independent pricing service, which reflect broker/dealer-supplied
valuations and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued at
fair value using methods approved by the Board of Trustees of the Trust.
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value of the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums
on U.S. Government and Corporate bonds. In addition, it is the Funds' policy to
accrue for estimated capital gains taxes on foreign securities held by the
Funds subject to such taxes.
C. Mortgage Dollar Rolls
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities in the current month for delivery and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date. For
financial reporting and tax reporting purposes, the Fund treats mortgage dollar
rolls
62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale.
D. Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
on currency exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
E. Forward Foreign Currency Exchange Contracts
Certain of the Funds are authorized to enter into forward foreign currency
exchange contracts for the purchase of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The Balanced, International Equity and
Asia Growth Funds may enter into such contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable
translation rates and any resulting unrealized gains or losses are recorded in
the funds' financial statements. The Funds record realized gains or losses at
the time the forward contract is offset by entry into a closing transaction or
extinguished by delivery of the currency. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
F. Short Securities Positions
The Funds (other than the CORE U.S. Equity and CORE Large Cap Growth Funds) may
enter into covered short sales. Short securities positions are accounted for at
cost and subsequently marked to market to reflect the current market value of
the position. The market value of the short position is recorded as a liability
on the fund's records and any difference between this market value and cash
received is reported as unrealized gain or loss. Gains and losses are realized
when a short position is closed out by delivering securities back to the
broker.
G. Federal Taxes
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their investment company taxable income and capital gains
to their shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
63
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
I. Expenses
Expenses incurred by the Funds which do not specifically relate to an
individual Fund are allocated to the Funds based on each Fund's relative
average net assets for the period.
Class A and Class B shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses
which are directly attributable to such shares. Each class of Shares separately
bears their respective class-specific transfer agency fees. Service shares
separately bear a service fee.
J. Option Accounting Principles
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When a written call option is exercised, the funds
realize a gain or loss from the sale of the underlying security, and the
proceeds of the sale are increased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the funds purchase upon exercise.
There is a risk of loss from a change in value of such options which may exceed
the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds
the premium paid is recorded as an investment and subsequently marked-to-market
to reflect the current market value of the option. If an option which the Funds
have purchased expires on the stipulated expiration date, the funds will
realize a loss in the amount of the cost of the option. If the funds enter into
a closing sale transaction, the funds will realize a gain or loss, depending on
whether the sale proceeds from the closing sale transaction are greater or less
than the cost of the option. If the Funds exercise a purchased put option, the
funds will realize a gain or loss from the sale of the underlying security, and
the proceeds from such sale will be decreased by the premium originally paid.
If the Funds exercise a purchased call option, the cost of the security which
the funds purchase upon exercise will be increased by the premium originally
paid.
K. Futures Contracts
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The CORE U.S. Equity and CORE Large Cap Growth Funds may
enter into such transactions only with respect to the S&P 500 Index or a
representative index, respectively. A Fund will engage in futures transactions
only for bona fide hedging purposes as defined in regulations of the CFTC or to
seek to increase total return to the extent permitted by such regulations. The
use of futures contracts involve, to varying degrees, elements of market risk
which may exceed the amounts recognized in the Statements of Assets and
Liabilities.
Upon entering into a futures contract, the Funds are required to deposit with
a broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Funds each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss
equal to the difference between the value of the futures contract to sell and
the futures contract to buy. Futures contracts are valued at the most recent
price, unless such price does not reflect the fair market value of the
contract, in which case the position will be valued using methods approved by
the Board of Trustees of the Trust.
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Certain risks may arise upon entering into futures contracts. The predominant
risk is that the changes in the value of the futures contract may not directly
correlate with changes in the value of the underlying securities. This risk may
decrease the effectiveness of the Funds' hedging strategies and may also result
in a loss to the Funds.
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration Agreements
were combined into an Investment Management Agreement (the "Agreement")
encompassing the same services and fee structure. Goldman Sachs Asset
Management ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser to the Balanced, CORE Large Cap
Growth, Mid Cap Equity and Small Cap Equity Funds; Goldman Sachs Funds
Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, acts as investment
adviser to the CORE U.S. Equity and Capital Growth Funds; and Goldman Sachs
Asset Management International ("GSAM International") acts as investment
adviser to the International Equity and Asia Growth Funds. Under the
Agreements, GSAM, GSFM and GSAM International (the "Investment Advisors"),
subject to the general supervision of the Trust's Board of Trustees, manage the
Fund's portfolios. As compensation for the services rendered under the
Agreements, the assumption of the expenses related thereto and administering
the Funds' business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .65%,
..75%, .75% and 1.00% of the average daily net assets of the Balanced, CORE
Large Cap Growth, Mid Cap Equity and Small Cap Equity Funds, respectively. GSFM
is entitled to a fee of .75% and 1.00% of the average daily net assets of the
CORE U.S. Equity and Capital Growth Funds, respectively. GSAM International is
entitled to a fee for the International Equity and Asia Growth Funds of 1.00%
and 1.00% of the average daily net assets for those funds, respectively.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, CORE U.S. Equity, CORE Large Cap Growth, Mid Cap
Equity, International Equity and Asia Growth Funds (excluding management,
service, distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced and CORE Large Cap Growth
Funds, transfer agent fees) until further notice to the extent such expenses
exceed .10%, .06%, .05%, .06%, .20% and .24% of the average daily net assets of
the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B contingent deferred sales charge imposed and has advised
the Trust that it retained approximately $126,000, $318,000, $34,000, $420,000,
$840,000, $212,000, $546,000 during the six months ended July 31, 1997 for the
Balanced, CORE U.S. Equity, CORE Large Cap Growth, Capital Growth,
International Equity, Small Cap Equity and Asia Growth Funds, respectively.
The Trust, on behalf of each Fund, other than the Mid Cap Equity Fund, has
adopted a Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1.
Under the Distribution Plan, Goldman Sachs is entitled to a quarterly fee from
each Fund for distribution services equal, on an annual basis, to .25% and .75%
of a Fund's average daily net assets attributable to Class A and Class B
shares, respectively.
The Trust, on behalf of each Fund, other than the Mid Cap Equity Fund, has
adopted an Authorized Dealer Service Plan (the "Service Plan") pursuant to
which Goldman Sachs and Authorized Dealers are compensated for providing
personal and account maintenance services. Each Fund pays a fee under its
Service Plan equal, on an annual basis, to .25% of its average daily net assets
attributable to Class A and Class B shares. Goldman Sachs also serves as the
Transfer Agent of the funds for a fee.
65
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
For the six months ended July 31, 1997, the Manager and Distributor have
voluntarily agreed to waive certain fees and reimburse other expenses as
follows (in thousands):
<TABLE>
<CAPTION>
Waivers
------------------ Reimburse-
Class A Reimburse- ment
Fund Management 12b-1 ment Outstanding
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced $ -- $ 122 $168 $52
CORE U.S. Equity 356 51 55 10
CORE Large Cap Growth 9 14 74 48
Capital Growth -- 1,214 -- --
Mid Cap Equity -- -- 39 9
International Equity 344 120 -- --
Small Cap Equity -- 296 -- --
Asia Growth 190 51 28 17
</TABLE>
The Investment Manager and Distributor may discontinue or modify such waivers
and limitations in the future at their discretion.
At July 31, 1997, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Authorized
Distri- Dealer Transfer
Fund Management butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ 69 $ 12 $ 71 $ 33 $ 185
CORE U.S. Equity 259 139 260 122 780
CORE Large Cap Growth 15 1 15 12 43
Capital Growth 955 20 646 175 1,796
Mid Cap Equity 107 -- -- -- 107
International Equity 617 420 427 182 1,646
Small Cap Equity 250 22 168 104 544
Asia Growth 198 143 156 99 596
</TABLE>
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options) for the six months ended July 31, 1997,
were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- ---- ------------ ------------
<S> <C> <C>
Balanced $129,509,183 $ 94,675,496
CORE U.S. Equity 167,742,702 121,365,630
CORE Large Cap Growth 32,152,475 4,475,138
Capital Growth 455,703,046 432,962,894
Mid Cap Equity 59,312,478 55,776,587
International Equity 237,116,150 148,697,747
Small Cap Equity 118,941,639 104,800,391
Asia Growth 134,170,651 151,973,563
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$77,260,237 and $68,674,762, respectively.
For the six months ended July 31, 1997, written put option transactions in
the Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- --------------- --------- --------
<S> <C> <C>
Balance outstanding at beginning of period 0 $ 0
Options written 1,800 528,963
- --------------------------------------------------------------
Balance outstanding, end of period 1,800 $528,963
- --------------------------------------------------------------
</TABLE>
Certain risks arise related to call and put options from the possible inability
of counterparties to meet the terms of their contracts.
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
At July 31, 1997, the International Equity Fund had the following outstanding
forward foreign currency exchange contracts:
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT UNREALIZED
SALE CONTRACTS DATE CURRENT VALUE GAIN (LOSS)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR
expiring 9/18/97 $ 22,928,352 $ 22,877,160 $ 51,192
DEUTSCHE MARK expiring 8/21/97 23,195,818 21,660,471 1,535,347
expiring 9/11/97 15,822,424 15,344,454 477,970
FRENCH FRANC expiring 10/23/97 40,939,929 40,045,646 894,283
HONG KONG DOLLAR
expiring 8/8/97 18,484,541 18,491,623 (7,082)
expiring 8/8/97 5,803,189 5,802,003 1,186
JAPANESE YEN expiring 9/22/97 74,555,000 71,008,671 3,546,329
expiring 10/22/97 9,761,324 9,593,392 167,932
- -----------------------------------------------------------------------------
Total Foreign Currency Sale Contracts $211,490,577 $204,823,420 $6,667,157
- -----------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. At July 31, 1997, the
International Equity Fund had sufficient cash and securities to cover any
commitments under these contracts.
The Balanced and International Equity Funds have recorded a "Receivable for
forward foreign currency exchange contracts" and "Payable for forward foreign
currency exchange contracts" resulting from open and closed but not settled
forward foreign currency exchange contracts of $0 and $11,101 and $7,725,121
and $707,762, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$1,050,882 and $700,680 respectively, and a payable of $11,101 for the Balanced
Fund related to forward contracts closed but not settled as of July 31, 1997.
For the six months ended July 31, 1997, Goldman Sachs earned approximately
$12,000, $162,000, $14,000, $14,000, and $71,000 of brokerage commissions from
portfolio transactions executed on behalf of the Balanced, Capital Growth, Mid
Cap Equity, Small Cap Equity and Asia Growth Funds.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
67
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfer uninvested cash balances into
joint accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At July 31, 1997, the Balanced, CORE
U.S. Equity, CORE Large Cap Growth, Capital Growth, Mid Cap Equity and Small
Cap Equity Funds had undivided interests in the repurchase agreements in the
following joint account which equaled $16,200,000, $12,900,000, $800,000,
$27,500,000, $5,600,000 and $49,800,000, respectively, in principal amount. At
July 31, 1997, the repurchase agreements held in this joint account, along with
the corresponding underlying securities (including the type of security, market
value, interest rate and maturity date) were as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns Securities, Inc., dated 07/31/97, repurchase price $100,016,250
(FNMA: $48,113,651, 5.50%-7.50%, 02/01/01-06/01/10; FHLMC: $55,056,251,
7.00%, 03/01/12)
$100,000,000 5.85% 08/01/97 $100,000,000
JP Morgan Securities, Inc., dated 07/31/97, repurchase price $80,013,000
(FNMA: $81,948,067, 6.76%-6.99%, 07/09/07-07/16/07)
80,000,000 5.85% 08/01/97 80,000,000
Lehman Government Securities, dated 07/31/97, repurchase price $28,004,480
(U.S. Treasury Note: $28,554,949, 6.75%, 04/30/00)
28,000,000 5.76% 08/01/97 28,000,000
Nomura Securities, Inc., dated 07/31/97, repurchase price $50,008,125 (GNMA:
$51,000,001, 7.00%-7.50%, 01/01/00-10/15/26)
50,000,000 5.85% 08/01/97 50,000,000
- ---------------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $258,000,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Funds, except the CORE U.S. Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the six months ended July 31,
1997, the Funds did not have any borrowings under these facilities.
8. TRANSACTIONS WITH AFFILIATED COMPANIES
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the six months ended July 31, 1997 which are considered to
be affiliates of Small Cap Equity and which are still held as of period end are
as follows (dollar amounts in thousands):
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alpine Lace Brands, Inc. $ -- $ -- $ -- $-- $ 3,044
APS Holding Corp. 759 -- -- -- 6,395
J. Baker, Inc. -- 970 (802) 30 8,744
Brookstone, Inc. -- -- -- -- 6,488
Congoleum Corp. -- 336 96 -- 2,198
International Post Ltd. -- -- -- -- 1,297
Loehmann's Inc. 6,413 -- -- -- 5,309
Mortons Restaurant Group, Inc. -- 764 392 -- 7,602
Movado Group, Inc. -- 5,361 2,948 35 13,284
Opinion Research Corp. -- -- -- -- 2,089
Pegasus Communications Corp. 1,153 -- -- -- 4,905
Platinum Entertainment Corp. 265 -- -- -- 2,158
Seibels Bruce Group 890 -- -- -- 1,076
- -------------------------------------------------------------------------------
</TABLE>
9. OTHER MATTERS
As of July 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 13% and 96% of
the outstanding shares of the CORE US Equity and Mid Cap Equity Funds,
respectively.
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the six months ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund CORE U.S. Equity CORE Large Cap Growth Capital Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,737,618 $33,943,369 2,647,977 $ 65,826,339 2,541,195 $26,311,995 4,685,824 $ 84,105,240
Reinvestment of
dividends and
distributions 59,887 1,173,108 -- -- -- -- -- --
Shares repurchased (321,372) (6,246,538) (828,137) (20,340,078) (72,980) (857,534) (3,525,798) (61,466,440)
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,476,133 28,869,939 1,819,840 45,486,261 2,468,215 25,454,461 1,160,026 22,638,800
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 328,037 6,453,464 667,031 16,620,871 313,111 3,587,107 641,628 11,694,801
Reinvestment of
dividends and
distributions 2,626 51,738 -- -- -- -- -- --
Shares repurchased (8,564) (170,533) (58,922) (1,454,365) (348) (3,872) (15,902) (275,044)
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
322,099 6,334,669 608,109 15,166,506 312,763 3,583,235 625,726 11,419,757
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold -- -- 648,136 15,939,242 155 1,550 -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (878,994) (23,136,379) -- -- -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- (230,858) (7,197,137) 155 1,550 -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 49,244 1,199,891 150 1,032 -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (8,810) (208,272) -- -- -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 40,434 991,619 150 1,032 -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase (decrease)
in shares 1,798,232 $35,204,608 2,237,525 $ 54,447,249 2,781,283 $29,040,278 1,785,752 $ 34,058,557
<CAPTION>
=================================================================================================
</TABLE>
69
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the six months ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
Mid Cap Equity Fund International Equity Fund Small Cap Equity Fund Asia Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold -- -- 7,064,902 $ 150,626,998 2,575,972 $ 58,437,359 2,679,332 $ 43,080,940
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (3,917,168) (83,252,386) (900,448) (19,664,773) (3,301,864) (52,529,142)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 3,147,734 67,374,612 1,675,524 38,772,586 (622,532) (9,448,202)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold -- -- 1,152,179 24,332,741 634,966 14,583,066 145,477 2,305,142
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (24,945) (522,072) (28,342) (605,936) (32,529) (515,087)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 1,127,234 23,810,669 606,624 13,977,130 112,948 1,790,055
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold 328,465 $ 6,947,969 732,981 14,842,655 -- -- 64,282 1,000,096
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased (95,076) (1,840,296) (1,796,083) (35,721,797) -- -- (194,120) (3,015,851)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
233,389 5,107,673 (1,063,102) (20,879,142) -- -- (129,838) (2,015,755)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold 87 2,000 57,954 1,242,813 -- -- -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (3,508) (74,211) -- -- -- --
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
87 2,000 54,446 1,168,602 -- -- -- --
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase
(decrease) in shares 233,476 $ 5,109,673 3,266,312 $ 71,474,741 2,282,148 $ 52,749,716 (639,422) $ (9,673,902)
<CAPTION>
===================================================================================================
</TABLE>
70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Mid-Cap Equity Fund Capital Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,529,469 $27,172,279 3,862,697 $ 81,642,386 -- $ -- 4,677,047 $ 73,029,007
Reinvestment of
dividends and
distributions 310,437 5,598,883 370,586 8,175,333 -- -- 5,870,272 89,898,521
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) -- -- (14,635,348) (229,277,586)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,393,371 25,237,890 3,124,081 65,994,573 -- -- (4,088,029) (66,350,058)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 109,171 2,001,768 733,802 15,946,016 -- -- 188,331 2,979,890
Reinvestment of
dividends and
distributions 5,284 95,768 24,314 535,407 -- -- 12,408 190,353
Shares repurchased (1,795) (32,396) (13,894) (310,118) -- -- (7,499) (122,231)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
112,660 2,065,140 744,222 16,171,305 -- -- 193,240 3,048,012
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
SHARES
Shares sold -- -- 3,151,881 66,277,175 227,071 3,933,239 -- --
Reinvestment of
dividends and
distributions -- -- 275,197 6,102,331 483,747 8,489,760 -- --
Shares repurchased -- -- (363,536) (7,991,198) (1,480,859) (24,491,993) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 3,063,542 64,388,308 (770,041) (12,068,994) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 154,590 3,344,141 -- -- -- --
Reinvestment of
dividends and
distributions -- -- 4,126 91,166 -- -- -- --
Shares repurchased -- -- (1,252) (28,032) -- -- -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 157,464 3,407,275 -- -- -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase
(decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 (770,041) $(12,068,994) (3,894,789) $ (63,302,046)
<CAPTION>
======================================================================================================
</TABLE>
71
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- --------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 2,508,268 $ 52,353,524 12,103,239 $ 230,847,197 7,588,351 $124,281,405
Reinvestment of
dividends and
distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of
dividends and
distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of
dividends and
distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- 3,524,169 68,046,277 815,499 13,114,475
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of
dividends and
distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- 34,830 676,729 -- --
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net increase (decrease)
in shares (1,537,835) $(29,029,111) 13,081,265 $ 251,377,416 4,676,292 $ 77,219,094
<CAPTION>
==============================================================================
</TABLE>
72
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From gain on In excess Net asset
value, Net investments, net investment of net Net increase value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $18.78 $0.29 $2.58 $(0.27) $ -- $ -- $2.60 $21.38 15.42%(c)
1997--Class B
Shares
(unaudited)..... 18.73 0.27 2.52 (0.22) -- -- 2.57 21.30 15.01(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) (1.00) -- 1.47 18.78 18.59
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(g) (in 000s) assets assets net assets net assets
-------------------------------------------------------------------------------------------------
BALANCED FUND
-------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 95.62%(c)(f) $0.0595 $124,260 1.00%(e) 3.15%(e) 1.59%(e) 2.56%(e)
1997--Class B
Shares
(unaudited)..... 95.62(c)(f) 0.0595 9,261 1.75(e) 2.37(e) 2.09(e) 2.03(e)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
1997--Class A
Shares.......... 208.11(f) .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
From
Net realized net realized
and unrealized gain on
Net asset gain (loss) on From investments, In excess Net increase Net asset
value, Net investments, net options of net (decrease) value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
CORE U.S. EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $23.32 $0.08 $ 5.07 $ -- $ -- $ -- $ 5.15 $28.47 22.08%(b)
1997--Class B
Shares
(unaudited)..... 23.18 0.09 4.96 -- -- -- 5.05 28.23 21.74(b)
1997--
Institutional
Shares
(unaudited)..... 23.44 0.18 5.09 -- -- -- 5.27 28.71 22.48(b)
1997--Service
Shares
(unaudited)..... 23.27 0.12 5.04 -- -- -- 5.16 28.43 22.17(b)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--
Institutional
Shares.......... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--
Institutional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses in income
turnover commission period average net average net average to average
rate rate(g) (in 000s) assets assets net assets net assets
--------------------------------------------------------------------------------------
CORE U.S. EQUITY FUND
--------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 27.62%(b) $0.0406 $327,636 1.28%(c) 0.72%(c) 1.50%(c) 0.50%(c)
1997--Class B
Shares
(unaudited)..... 27.62(b) 0.0406 38,170 1.82(c) 0.14(c) 2.00(c) (0.04)(c)
1997--
Institutional
Shares
(unaudited)..... 27.62(b) 0.0406 175,744 0.65(c) 1.37(c) 0.83(c) 1.19(c)
1997--Service
Shares
(unaudited)..... 27.62(b) 0.0406 5,626 1.15(c) 0.84(c) 1.33(c) 0.66(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 37.28 $ .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--
Institutional
Shares.......... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--
Institutional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(e) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From gain on In excess Net asset
value, Net investments, net investment of net Net increase value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
CORE LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JULY 31,(C)
1997--Class A
Shares
(unaudited)..... $10.00 $0.01 $1.94 -- -- -- $1.95 $11.95 19.50%(f)
1997--Class B
Shares
(unaudited)..... 10.00 -- 1.94 -- -- -- 1.94 11.94 19.40(f)
1997--
Institutional
Shares
(unaudited)..... 10.00 0.03 1.92 -- -- -- 1.95 11.95 19.50(f)
1997--Service
Shares
(unaudited)..... 10.00 0.02 1.92 -- -- -- 1.94 11.94 19.40(f)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
---------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(b) (in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------------------
CORE LARGE CAP GROWTH FUND
-----------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(C)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 18.14%(f) $0.0292 $29,491 0.90%(d) 0.45%(d) 2.96%(d) (1.61)%(d)
1997--Class B
Shares
(unaudited)..... 18.14(f) 0.0292 3,734 1.65(d) (0.35)(d) 3.46(d) (1.90)(d)
1997--
Institutional
Shares
(unaudited)..... 18.14(f) 0.0292 2 0.65(d) 0.94 (d) 2.46(d) (0.87)(d)
1997--Service
Shares
(unaudited)..... 18.14(f) 0.0292 2 1.15(d) 0.30 (d) 2.96(d) (1.51)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(c) For the period from May 1, 1997 (commencement of operations) to July 31,
1997.
(d) Annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
--------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess Net increase Net asset
value, Net investments, net investments, of net (decrease) value,
beginning investment options and investment options and investment in net end of Total
of period income futures income futures income asset value period return(a)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $16.73 $0.02(h) $ 3.87(h) $ -- $ -- $ -- $ 3.89 $20.62 23.25%(d)
1997--Class B
Shares
(unaudited)..... 16.67 (0.06)(h) 3.85(h) -- -- -- 3.79 20.46 22.74(d)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (1.72) (0.02) 1.82 16.73 25.97
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
---------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income (loss) to expenses to income (loss)
turnover commission period average net average average to average
rate rate(f) (in 000s) assets net assets net assets net assets
---------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
---------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 44.92%(d) $0.0620 $1,158,360 1.38%(e) 0.19%(e) 1.63%(e) (0.06)%(e)
1997--Class B
Shares
(unaudited)..... 44.92(d) 0.0620 16,759 2.13(e) (0.66)(e) 2.13(e) (0.66)(e)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From In excess gain on Net asset
value, Net investments, net of net investment Net increase value,
beginning investment options and investment investment and futures in net end of Total
of period income futures income income transactions asset value period return(b)
- -----------------------------------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--
Institutional
Shares
(unaudited)..... $18.73 $0.08 $4.86 $ -- $ -- $ -- $4.94 $23.67 26.37%(f)
1997--Service
Shares(a)
(unaudited)..... 23.01 -- 0.66 -- -- -- 0.66 23.67 2.87(f)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--
Institutional
Shares.......... 15.91 0.24 3.77 (0.24) (0.02) (0.93) 2.82 18.73 25.63
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1996--Individual
Shares(d)....... 15.00 0.13 0.90 (0.12) -- -- 0.91 15.91 6.89(d)(f)
- -----------
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income (loss) to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(c) (in 000s) assets assets net assets net assets
-------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
-------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--
Institutional
Shares
(unaudited)..... 35.77%(f) $0.0540 $189,092 0.85%(e) 0.77%(e) 0.90%(e) 0.72%(e)
1997--Service
Shares(a)
(unaudited)..... 35.77(f) 0.0540 2 1.35(e) (0.06)(e) 1.40(e) (0.11)(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--
Institutional
Shares.......... 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1996--Individual
Shares(d)....... 58.77(f) -- 135,671 0.85(e) 1.67(e) 0.98(e) 1.54(e)
</TABLE>
- ----
(a) For the period from July 18, 1997 (commencement of operations) to July 31,
1997.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(d) For the period from August 1, 1995 (commencement of operations) to
January 31, 1996.
(e) Annualized.
(f) Not annualized.
(g) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment operations(g)
-------------------------------------------------
Net realized
and unrealized
Net realized gain (loss)
Net asset and unrealized on foreign
value, Net gain (loss) on currency
beginning investment investments, options related
of period income (loss) and futures transactions
---------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $19.32 $0.03(h) $4.20(h) $(0.24)
1997--Class B
Shares
(unaudited)..... 19.24 (0.02)(h) 4.17(h) (0.24)
1997--
Institutional
Shares
(unaudited)..... 19.40 0.08(h) 4.26(h) (0.24)
1997--Service
Shares
(unaudited)..... 19.34 0.04(h) 4.24(h) (0.24)
FOR THE YEAR ENDED JANUARY 31,
- -------------
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28)
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34)
1997--
Institutional
Shares(e)....... 17.45 0.04 3.39 (1.24)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38)
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11)
<CAPTION>
Distributions to
shareholders
-----------------------
From
net realized
gain on Net
From investment, increase Net asset
net option and (decrease) value,
investment futures in net asset end of Total
income transactions value period return(a)
-----------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- ------------
<S> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $ -- $ -- $ 4.02 $23.34 20.81%(c)
1997--Class B
Shares
(unaudited)..... -- -- 3.94 23.18 20.48(c)
1997--
Institutional
Shares
(unaudited)..... -- -- 4.11 23.51 21.19(c)
1997--Service
Shares
(unaudited)..... -- -- 4.04 23.38 20.89(c)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... -- (0.21) 2.12 19.32 13.48
1997--Class B
Shares(e)....... -- (0.21) 0.33 19.24 2.83(c)
1997--
Institutional
Shares(e)....... (0.03) (0.21) 1.95 19.40 12.53(c)
1997--Service
Shares(e)....... -- (0.21) 1.64 19.34 10.42(c)
1996--Class A
Shares.......... (0.58) (0.87) 2.68 17.20 28.68
1995--Class A
Shares.......... -- (0.59) (3.58) 14.52 (16.65)
1994--Class A
Shares.......... -- -- 3.75 18.10 26.13
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... -- -- 0.17 14.35 1.23(c)
<CAPTION>
Ratio of net
Portfolio Average Net assets expenses to
turnover commission at end of average net
rate rate (f) period (in 000's) assets
---------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
---------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 22.30%(c) $0.0230 $721,502 1.69%(d)
1997--Class B
Shares
(unaudited)..... 22.30(c) 0.0230 49,263 2.23(d)
1997--
Institutional
Shares
(unaudited)..... 22.30(c) 0.0230 57,860 1.10(d)
1997--Service
Shares
(unaudited)..... 22.30(c) 0.0230 2,087 1.60(d)
- -------------
FOR THE YEAR ENDED JANUARY 31,
- -------------
1997--Class A
Shares.......... 38.01 .0318 536,283 1.69
1997--Class B
Shares(e)....... 38.01 .0318 19,198 2.23(d)
1997--
Institutional
Shares(e)....... 38.01 .0318 68,374 1.10(d)
1997--Service
Shares(e)....... 38.01 .0318 674 1.60(d)
1996--Class A
Shares.......... 68.48 -- 330,860 1.52
1995--Class A
Shares.......... 84.54 -- 275,086 1.73
1994--Class A
Shares.......... 60.04 -- 269,091 1.76
- ------------
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... 0.00 -- 66,063 1.80(d)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of net
investment Ratio of
income Ratio of net investment
(loss) to expenses income (loss)
average net to average to average
assets net assets net assets
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 0.30%(d) 1.83%(d) 0.16%(d)
1997--Class B
Shares
(unaudited)..... 0.22)(d) 2.33(d) (0.32)(d)
1997--
Institutional
Shares
(unaudited)..... 0.78(d) 1.20(d) 0.68(d)
1997--Service
Shares
(unaudited)..... 0.35(d) 1.70(d) 0.25(d)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... (0.07) 1.88 (0.26)
1997--Class B
Shares(e)....... (0.97)(d) 2.38(d) (1.12)(d)
1997--
Institutional
Shares(e)....... 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 0.26 1.77 0.01
1995--Class A
Shares.......... 0.40 1.98 0.15
1994--Class A
Shares.......... 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
---------------------------------- ------------------------------------
From In excess
net realized of realized
Net realized gain on gain on
Net asset Net and unrealized From investment, investment,
value, investment gain (loss) on net option and option and
beginning income investments, options investment futures futures
of period (loss) and futures income transactions transactions
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... $20.91 $(.0.05)(h) $ 3.77(h) $ -- $ -- $ --
1997--Class B
Shares
(unaudited)..... 20.80 (0.12)(h) 3.74(h) -- -- --
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) --
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) --
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) --
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) --
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- --
<CAPTION>
Net increase Net asset Ratio of net
(decrease) value, Portfolio Average Net assets at expenses to
in net end of Total turnover commission end of period average net
asset value period return(a) rate rate(g) (in 000's) assets
-------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... $ 3.72 $24.63 17.65%(d) 46.02%(d) $0.0506 $290,615 1.56%(e)
1997--Class B
Shares
(unaudited)..... 3.62 24.42 17.26(d) 46.02(d) 0.0506 19,125 2.31(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 3.62 20.91 27.28 99.46 .0461 212,061 1.60
1997--Class B
Shares(b)....... 0.01 20.80 5.39(d) 99.46 .0461 3,674 2.35(e)
1996--Class A
Shares.......... 1.15 17.29 7.20 57.58 -- 204,994 1.41
1995--Class A
Shares.......... (4.53) 16.14 (17.53) 43.67 -- 319,487 1.53
1994--Class A
Shares.......... 3.99 20.67 30.13 56.81 -- 261,074 1.60
FOR THE PERIOD ENDED JANUARY 31,
- ------------
Shares(c)....... 2.50 16.68 17.86(d) 7.12(e) -- 59,339 1.65(e)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
---------------------------
Ratio of net Ratio of net
investment Ratio of investment
income (loss) to expenses to loss
average net average to average
assets net assets net assets
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... (0.49)%(e) 1.81%(e) (0.74)%(e)
1997--Class B
Shares
(unaudited)..... (1.06)(e) 2.31(e) (1.06)(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... (0.59) 1.66 (0.84)
1995--Class A
Shares.......... (0.53) 1.78 (0.78)
1994--Class A
Shares.......... (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(c)....... 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
-------------------------------------------- ---------------------
Net realized
Net asset Net Net realized and unrealized From In excess Net increase Net asset
value, investment and unrealized gain on foreign net of net (decrease) value,
beginning income gain (loss) on currency related investment investment in net end of Total
of period (loss) investments transactions income income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------------
ASIA GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $16.31 $ 0.03(h) $ 0.86(h) $(0.68) $ -- $ -- $ 0.21 $16.52 1.29%(c)
1997--Class B
Shares
(unaudited)..... 16.24 (0.02)(h) 0.71(h) (0.56) -- -- 0.16 16.40 0.99(c)
1997--
Institutional
Shares
(unaudited)..... 16.33 0.07(h) 0.90(h) (0.71) -- -- 0.26 16.59 1.59(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 16.49 0.06 (0.11) (0.12) (0.01) -- (0.18) 16.31 (1.01)
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--
Institutional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of net Ratio of net
Ratio of net investment Ratio of investment
Portfolio Average Net assets at expenses to income (loss) expenses income (loss)
turnover commission end of period average net to average net to average to average
rate rate(f) (000's) assets assets net assets net assets
------------------------------------------------------------------------------------------
ASIA GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- ------------
1997--Class A
Shares
(unaudited)..... 51.72%(c) $0.0068 $256,078 1.72%(d) 0.37%(d) 1.92%(d) 0.17%(d)
1997--Class B
Shares
(unaudited)..... 51.72(c) 0.0068 5,237 2.27(d) (0.21)(d) 2.43(d) (0.37)(d)
1997--
Institutional
Shares
(unaudited)..... 51.72(c) 0.0068 11,372 1.10(d) 0.91(d) 1.26(d) 0.75(d)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(c) (0.56)(d) 2.37(d) (0.72)(d)
1997--
Institutional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
* The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not necessarily
represent ratings which will be given to these securities on the date of the
Fund's fiscal year end.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such
- ----------------------------------------------------------------
1-A
<PAGE>
issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and C the
highest. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
D: Bonds rated D are in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D
2-A
<PAGE>
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
3-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November
29, 1996.
. With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
. The number one underwriter of all international equity issuers from
(1993-1996).
. A research budget of $200 million for 1997.
. Premier lead manager of negotiated municipal bond offerings over the
past six years (1990-1996).
. The number one lead manager of U.S. common stock offerings for the
past eight years (1989-1996).*
. The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1996).
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
====================================
Investment Trusts and Rights.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (longest-standing client
relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest
equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
1996 Dow Jones Industrial Average breaks 6000
Goldman Sachs takes Deutsche Telecom public
1997 Dow Jones Industrial Average breaks 7000
3-B
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SAHCS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(EQUITY PORTFOLIOS OF GOLDMAN SACHS TRUST) One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectus for the Institutional Shares of Goldman Sachs Balanced Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE Small Cap Equity
Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Mid Cap Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs Real Estate Securities
Fund dated October 1, 1997, as amended and/or supplemented from time to time
(the "Prospectus"), which may be obtained without charge from Goldman, Sachs &
Co. at the telephone number, or writing to one of the addresses, listed below.
TABLE OF CONTENTS
Page
====
Introduction.......................... B-3
Investment Policies................... B-4
Investment Restrictions............... B-33
Management............................ B-34
Portfolio Transactions and Brokerage.. B-49
Net Asset Value....................... B-55
Performance Information............... B-57
Shares of the Trust................... B-63
Taxation.............................. B-67
Financial Statements.................. B-73
Other Information..................... B-73
Appendix A:........................... 1-A
Appendix B:........................... 1-B
<PAGE>
GOLDMAN, SACHS & CO. GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
Distributor Investment Adviser to:
85 Broad Street Goldman Sachs CORE U.S. Equity Fund and
New York, New York 10004 Goldman Sachs Capital Growth Fund
One New York Plaza
New York, New York 10004
GOLDMAN, SACHS & CO.
Transfer Agent GOLDMAN SACHS ASSET MANAGEMENT
4900 Sears Tower Investment Adviser to:
Chicago, Illinois 60606 Goldman Sachs Balanced Fund,
Goldman Sachs CORE Large Cap Growth Fund,
Goldman Sachs CORE Small Cap Equity Fund,
GOLDMAN SACHS ASSET Goldman Sachs CORE International Equity
MANAGEMENT INTERNATIONAL Fund,
Investment Adviser to: Goldman Sachs Growth and Income Fund,
Goldman Sachs International Goldman Sachs Mid Cap Equity Fund,
Equity Fund, Goldman Sachs Asia Goldman Sachs Small Cap Value Fund, and
Growth Fund, and Goldman Sachs Goldman Sachs Real Estate Securities Fund
Emerging Markets Equity Fund One New York Plaza
133 Peterborough Court New York, New York 10004
London, England EC4A 2BB
Toll free (in U.S.).......800-621-2550
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), CORE U.S. Equity Fund ("CORE U.S.
Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"), Goldman
Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs CORE
International Equity Fund ("CORE International Equity Fund"), Goldman Sachs Mid
Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small Cap
Value Fund"), Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets
Equity Fund"), Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman
Sachs Real Estate Securities Fund ("Real Estate Securities Fund") (collectively
referred to herein as the "Funds").
The Funds were initially organized as a series of a corporation formed
under the laws of the State of Maryland on September 27, 1989 and were
reorganized as a Delaware business trust as of April 30, 1997. The Trustees
have authority under the Trust's charter to create and classify shares into
separate series and to classify and reclassify any series or portfolio of shares
into one or more classes without further action by shareholders. Pursuant
thereto, the Trustees have created the Funds and other series. Additional
series may be added in the future from time to time. The Balanced, Growth and
Income, CORE U.S. Equity, CORE Large Cap Growth, Mid Cap Equity, CORE Small Cap
Equity Fund, CORE International Equity Fund, Capital Growth Fund, International
Equity, Small Cap Value, Emerging Markets Equity, Asia Growth and Real Estate
Securities Funds currently offer five classes of shares: Class A Shares, Class B
Shares, Class C Shares, Institutional Shares and Service Shares. See "Shares of
the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Emerging Markets Equity and Asia Growth Funds. GSAM, GSFM and GSAMI
are sometimes referred to collectively herein as the "Advisers." Goldman Sachs
serves as each Fund's distributor and transfer agent. Each Fund's custodian is
State Street Bank and Trust Company ("State Street").
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectus. See the Prospectus
for a fuller description of the Funds' investment objectives and policies.
There is no assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
BALANCED FUND
=============
The investment objective of the Balanced Fund is to provide shareholders
with long-term capital growth and current income. The Balanced Fund seeks to
achieve its investment objective by investing in a balanced portfolio
diversified among both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio seeks to provide high returns relative to a market benchmark, the
Lehman Brothers Aggregate Bond Index, while also seeking to provide high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways.
These include diversifying the fixed income portion of the Balanced Fund's
portfolio among various types of fixed income securities and utilizing
sophisticated quantitative models to understand how the fixed income portion of
the portfolio will perform under a variety of market and economic scenarios.
In addition, GSAM uses extensive credit analysis to select and to monitor any
investment-grade or non-investment grade bonds that may be included in the
Balanced Fund's portfolio. In employing this and other investment strategies,
the GSAM team has access to extensive fundamental research and analysis
available through Goldman Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Adviser de-emphasizes interest rate anticipation by monitoring the duration of
the portfolio within a narrow range of the Adviser's target duration, and
instead focuses on seeking to add value through sector selection, security
selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities,
B-4
<PAGE>
mortgage-backed securities and asset-backed securities). GSAM may decide to
overweight or underweight a given market sector or subsector (e.g., within the
corporate sector, industrials, financial issuers and utilities) based on, among
other things, expectations of future yield spreads between different sectors or
subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers - those with low but
stable credit - is intended to enhance total returns by providing incremental
yield. Selecting securities from the second type of issuers - those with low
and intermediate but improving credit quality - is intended to enhance total
returns in two stages. Initially, these securities are expected to provide
incremental yield. Eventually, price appreciation should occur relative to
alternative securities as credit quality improves, the nationally recognized
statistical rating organizations upgrade credit ratings, and credit spreads
narrow. Securities from the third type of issuers - issuers with deteriorating
credit quality - will be avoided, since total returns are typically enhanced by
avoiding the widening of credit spreads and the consequent relative price
depreciation. Finally, total returns can be enhanced by focusing on securities
that are rated differently by different rating organizations. If the securities
are trading in line with the higher published quality rating while GSAM concurs
with the lower published quality rating, the securities would generally be sold
and any potential price deterioration avoided. On the other hand, if the
securities are trading in line with the lower published quality rating while the
higher published quality rating is considered more realistic, the securities may
be purchased in anticipation of the expected market reevaluation and relative
price appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
=======================================================================
INTERNATIONAL EQUITY FUNDS
===========================
Under normal circumstances, the Funds will invest at least 90% of their
total assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap Growth,
CORE Small Cap Equity and CORE International Equity Funds will be implemented to
the extent it is consistent with maintaining a Fund's qualification as a
regulated investment company under the Internal Revenue Code. A Fund's strategy
may be limited, in particular, by the requirement for such qualification that
less than 30% of the Fund's gross income for its taxable year be derived from
the sale or other disposition of stocks or securities or certain other
investments (generally including options and futures contracts) held for less
than three months.
Since normal settlement for equity securities is three trading days (for
certain international markets settlement may be longer), the Funds will need to
hold cash balances to satisfy shareholder redemption requests. Such cash
balances will normally range from 2% to 5% of a Fund's net assets. The Funds
may purchase futures contracts only with respect to the S&P 500 Index (in the
case of CORE U.S. Equity Fund) and a representative index (in the case of CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) in
order to keep a Fund's effective equity exposure close to 100%. For exam-
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ple, if cash balances are equal to 10% of the net assets, the Fund may enter
into long futures contracts covering an amount equal to 10% of the Fund's net
assets. As cash balances fluctuate based on new contributions or withdrawals, a
Fund may enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous computerized
=====================
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, growth, momentum, risk (e.g. price/earnings ratio,
book/price ratio, growth forecasts, earning estimate revisions, price momentum,
volatility and earnings stability). All of these factors have been shown to
significantly impact the performance of equity securities.
Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a
variety of relevant factors to select securities, the Adviser believes that the
Fund will be better balanced and have more consistent performance than an
investment portfolio that uses only one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the Multifactor Model or the
method of applying the Multifactor Model) may include: (i) evolutionary changes
to the structure of the Multifactor Model (e.g., the addition of new factors or
a new means of weighting the factors); (ii) changes in trading procedures (e.g.,
trading frequency or the manner in which the Fund uses futures); or (iii)
changes in the method by which securities are weighted in the Fund. Any such
changes will preserve the Fund's basic investment philosophy of combining
qualitative and quantitative methods of selecting securities using a disciplined
investment process.
INTERNATIONAL EQUITY FUND
=========================
International Equity Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAMI's equity team in London, Singapore and Tokyo seeks to
identify companies that may achieve superior long-term returns. Stocks are
carefully selected for International Equity Fund's portfolio through a three-
stage investment process. Because International Equity Fund is a long-term
holder of stocks, the portfolio managers adjust International Equity Fund's
portfolio only when expected returns fall below acceptable levels or when the
portfolio managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the Adviser seeks to
identify attractive industries around the world. Such industries are expected
to have favorable underlying economics and allow companies to generate
sustainable and predictable high returns. As a rule, they are less economically
sensitive, relatively free of regulation and favor strong franchises.
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<PAGE>
Within these industries the Adviser seeks to identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry. This stage includes analyzing the current
and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
==========================
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small
Cap Value, Emerging Markets Equity, Asia Growth and Real Estate Securities Funds
to dispose of a particular security when necessary to meet their redemption
requests or other liquidity needs. Under adverse market or economic conditions,
the secondary market for junk bonds could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisers could find it difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated
securities, under such circumstances, may be less than the prices used in
calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Mid Cap Equity, Small Cap Value, Emerging Markets
Equity, Asia Growth and Real Estate Securities Funds may invest, the yields and
prices of such securities may tend to fluctuate more than those for higher rated
securities. In the
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<PAGE>
lower quality segments of the fixed-income securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the fixed-
income securities market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
ZERO COUPON BONDS
=================
A Fund's investments in fixed income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the period until maturity. Zero
coupon bonds do not require the periodic payment of interest. Such investments
benefit the issuer by mitigating its need for cash to meet debt service but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which provide for regular payments of
interest. In addition, if an issuer of zero coupon bonds held by a Fund
defaults, the Fund may obtain no return at all on its investment. Each Fund
will accrue income on such investments for each taxable year which (net of
deductible expenses, if any) is distributable to shareholders and which, because
no cash is generally received at the time of accrual, may require the
liquidation of other portfolio securities to obtain sufficient cash to satisfy
the Fund's distribution obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
=====================================
The interest rates payable on certain fixed income securities in which a
Fund may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
CUSTODIAL RECEIPTS
==================
Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by
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<PAGE>
various names, including "Treasury Receipts," "Treasury Investors Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATs"). For certain securities law purposes, custodial receipts are not
considered U.S. Government securities.
MUNICIPAL SECURITIES
====================
Balanced Fund may invest up to 5% of its net assets in municipal
securities. Municipal securities consist of bonds, notes and other instruments
issued by or on behalf of states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
==========================
GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower
B-9
<PAGE>
than expected prepayments will reduce yield to maturity and market values. To
the extent that a Fund invests in mortgage-backed securities, the Advisers may
seek to manage these potential risks by investing in a variety of mortgage-
backed securities and by using certain hedging techniques.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is autho rized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conven tional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to distrib
ute to holders of Certificates an amount equal to the full principal balance of
any foreclosed Mortgage Loan, whether or not such principal balance is actually
recovered. The obligations of Fannie Mae under its guaranty of the Fannie Mae
Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection
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<PAGE>
of all principal of the related mortgage loans, without any offset or deduction,
but does not, generally, guarantee the timely payment of scheduled principal.
The obligations of Freddie Mac under its guaranty of Freddie Mac Certificates
are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S. Equity
, CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) may invest in both government guaranteed and privately issued mortgage
pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or adjustable
rate mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one
or more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--------
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
--------
such mortgage loan when paid by the mortgagor in subsequent monthly payments or
at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-
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<PAGE>
holders under the agreements pursuant to which such certificates are issued. A
rating organization's ratings take into consideration the credit quality of the
related mortgage pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which the
payment stream on such mortgage pool is adequate to make payments required by
such certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which generally declines over time) of all principal payments
received during the preceding prepayment period ("shifting interest credit
enhancement"). This will have the effect of accelerating the amortization of
the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due them and will
protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event the Reserve Fund is depleted before the
subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
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<PAGE>
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
--------
all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments
on the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees
to make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mort gage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual
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interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the
"Mortgage Assets"). The obligations of Fannie Mae or Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae or Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate
Securities Funds may invest in stripped mortgage-backed securities ("SMBS"),
which are derivative multiclass mortgage securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
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INVERSE FLOATING RATE SECURITIES
================================
Balanced Fund may invest up to 5% of its net assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed . An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
ASSET-BACKED SECURITIES
=======================
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
A Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
==================================================
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds may only enter into such transactions with respect
to the S&P 500 Index, for the CORE U.S. Equity Fund and a representative index
in the case of the CORE Large Cap Growth and CORE Small Cap Equity Funds. The
other Funds may purchase and sell futures contracts based on various securities
(such as U.S.
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Government securities), securities indices, foreign currencies and other
financial instruments and indices. Each Fund will engage in futures and related
options transactions, only for bona fide hedging purposes as defined below or
for purposes of seeking to increase total return to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). All futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) can sell futures contracts on
a specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price, rate of return or currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. A Fund may, for example,
take a "short" position in the futures market by selling futures contracts to
seek to hedge against an anticipated rise in interest rates or a decline in
market prices or (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) foreign currency rates that would adversely affect the
dollar value of such Fund's portfolio securities. Similarly, each Fund (other
than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds)
may sell futures contracts on a currency in which its portfolio securities are
quoted or denominated or in one currency to seek to hedge against fluctuations
in the value of securities quoted or denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the applicable Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
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<PAGE>
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract if the option is exercised, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, a Fund
becomes obligated to purchase a futures contract if the option is exercised,
which may have a value lower than the exercise price. Thus, the loss incurred
by a Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions and
will engage in related options transactions only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase. As evidence of this hedging intent, each
Fund expects that on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets quoted or denominated in the related
currency) in the cash market at the time when the futures or options position is
closed out. However, in particular cases, when it is economically advantageous
for a Fund to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account
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<PAGE>
unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase. A Fund will
engage in transactions in currency forward contracts futures contracts and, for
a Fund permitted to do so, related options transactions only to the extent such
transactions are consistent with the requirements of the Code for maintaining
its qualification as a regulated investment company for federal income tax
purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts available to hedge a Fund's portfolio are various
futures on U.S. Government securities, securities indices and foreign
currencies. In addition, it is not possible for a Fund to hedge fully or
perfectly against currency fluctuations affecting the value of securities quoted
or denominated in foreign currencies because the value of such securities is
likely to fluctuate as a result of independent factors not related to currency
fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
============================================
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options on any securities in which it may invest (other than CORE U.S. Equity
and CORE Large Cap Growth Funds). A call option written by a Fund obligates
such Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund are covered, which means that such
Fund will own the securities subject to the option as long as the option is
outstanding or such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund.
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<PAGE>
In addition, a written call option or put option may be covered by
maintaining cash or liquid assets (either of which may be quoted or denominated
in any currency) in a segregated account, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid assets with a value equal to the
exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and CORE
Large Cap Growth Funds) may purchase put and call options on any securities in
which it may invest or options on any securities index composed of securities in
which it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise
such a Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend
to be offset by countervailing changes in the value of the underlying portfolio
securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
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<PAGE>
YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its net
assets, 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.
Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, Balanced Fund may
purchase a call option on the yield spread between two securities if it owns one
of the securities and anticipates purchasing the other security and wants to
hedge against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid assets sufficient to cover
the Balanced Fund's net liability under the two options. Therefore, the
Balanced Fund's liability for such a covered option is generally limited to the
difference between the amount of the Balanced Fund's liability under the option
written by the Balanced Fund less the value of the option held by the Balanced
Fund. Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded
over-the-counter, and because they have been only recently introduced, estab
lished trading markets for these options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
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<PAGE>
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the Securities and Exchange
Commission ("SEC") changes its position, each Fund will treat purchased over-
the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
=============================
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the
expenses paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
==================================
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants
and rights only if such equity securities are deemed appropriate by the Adviser
for investment by the Fund. CORE
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U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds have no present intention of acquiring warrants or rights. Warrants
and rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
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FOREIGN SECURITIES
==================
Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of the applicable Adviser,
to offer better opportunity for long-term growth of capital and income than
investments in U.S. securities, the opportunity to invest in foreign countries
with economic policies or business cycles different from those of the United
States and the opportunity to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not necessarily move in a manner
parallel to U.S. markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may be subject to currency
exposure independent of their securities positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for CORE
B-23
<PAGE>
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may also
invest in European Depository Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited
in a domestic bank or a correspondent bank. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may invest in securities of issuers domiciled in a country
other than the country in whose currency the instrument is denominated or
quoted. The Funds may also invest in securities quoted or denominated in the
European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain of the member states of the European
Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community from time to time
to reflect changes in relative values of the underlying currencies. In
addition, the Funds may invest in securities quoted or denominated in other
currency "baskets."
INVESTING IN EMERGING MARKETS , INCLUDING ASIA. CORE International
Equity, International Equity, Asia Growth and Emerging Markets Equity Funds are
intended for long-term investors who can accept the risks associated with
investing primarily in equity and equity-related securities of foreign issuers,
including Emerging Countries issuers (in the case of Emerging Markets Equity and
International Equity Funds) and Asian Companies (as defined in the Prospectus)
(in the case of Asia Growth Fund), as well as the risks associated with
investments quoted or denominated in foreign currencies. Balanced, Growth and
Income, CORE International Equity, Small Cap Value, Mid Cap Equity and Capital
Growth Funds may invest, to a lesser extent, in equity and equity-related
securities of foreign issuers; including Emerging Countries issuers. In
addition, certain of Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Fund's potential investment and
management techniques entail special risks. Asia Growth Fund concentrates on
companies that the Advisers believe are taking full advantage of the region's
growth and that have the potential for long-term capital appreciation. The
Advisers believe that Asia offers an attractive investment environment and that
new opportunities will continue to emerge in the years ahead.
B-24
<PAGE>
The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less liquid
and subject to greater price volatility and has a smaller market capitalization
than the U.S. securities markets. Issuers and securities markets in such
countries are not subject to as extensive and frequent accounting, financial and
other reporting requirements or as comprehensive government regulations as are
issuers and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.
Certain of the Emerging Country securities markets are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country markets may also affect a Fund's ability to accurately value
its portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions
may limit a Fund's investment in certain of the Asian countries and may increase
the expenses of the Fund. Certain Emerging Countries require governmental
approval prior to investments by foreign persons or limit investment by foreign
persons to only a specified percentage of an issuer's outstanding securities or
a specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds. A Fund may
be required to establish special custodial or other arrangements before
investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring
B-25
<PAGE>
countries; and (v) ethnic, religious and racial disaffection or conflict. Such
economic, political and social instability could disrupt the principal financial
markets in which the Funds may invest and adversely affect the value of the
Funds' assets.
The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid Cap
Equity, Capital Growth and Small Cap Value Funds may enter into forward foreign
currency exchange contracts for hedging purposes. Balanced, CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds may
enter into forward foreign currency exchange contracts for hedging purposes and
to seek to increase total return. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are generally charged
at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an
B-26
<PAGE>
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may also purchase and sell forward contracts to
seek to increase total return when GSAM or GSAMI anticipates that the foreign
currency will appreciate or depreciate in value, but securities quoted or
denominated in that currency do not present attractive investment opportunities
and are not held in the Fund's portfolio.
A Fund's custodian will place cash or liquid assets into a segregated
account of such Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or, in the case of Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds forward contracts entered into to seek to increase total
return. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will equal the amount of a Fund's
commitments with respect to such contracts. The segregated account will be
marked-to-market on a daily basis. Although the contracts are not presently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
these contracts. In such event, a Fund's ability to utilize forward foreign
currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
B-27
<PAGE>
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund (except
CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may
write covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If and when a Fund seeks to
close out an option, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency with a pattern of correlation. In
addition, Balanced, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call options on currency to seek to increase total
return when the Adviser anticipates that the currency will appreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates a Fund to sell specified currency
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. A put option written by a Fund would
obligate a Fund to purchase specified currency from the option holder at a
specified price if the option is exercised at any time before the expiration
date. The writing of currency options involves a risk that a Fund will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
For a description of how to cover written put and call options, see "Written
Covered Options" above.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the U.S. dollar value of currency in which securities in its portfolio are
quoted or denominated ("protective puts"). The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell specified currency at
a specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains
B-28
<PAGE>
and losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying currency or portfolio
securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to seek to increase
total return. Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may write (sell) covered put and
call options on any currency in order to realize greater income than would be
realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may forego
the opportunity to profit from an increase in the market value of the
underlying currency. Also, when writing put options, Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds accept, in return for the option premium, the risk that they may be
required to purchase the underlying currency at a price in excess of the
currency's market value at the time of purchase.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds would normally purchase call options to seek to
increase total return in anticipation of an increase in the market value of a
currency. Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds would realize either no gain or a loss on the purchase of the call
option. Put options may be purchased by a Fund for the purpose of benefiting
from a decline in the value of currencies which it does not own. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs. Otherwise the Fund would realize
either no gain or a loss on the purchase of the put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
B-29
<PAGE>
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
==========================================================================
FLOORS AND COLLARS
==================
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may, with respect to up to 5% of their net
assets, enter into currency swaps for both hedging purposes and to seek to
increase total return. In addition, the Balanced and Real Estate Securities
Funds may, with respect to 5% of its net assets, enter into mortgage, index and
interest rate swaps and other interest rate swap arrangements such as rate caps,
floors and collars, for hedging purposes or to seek to increase total return.
Currency swaps involve the exchange by a Fund with another party of their
respective rights to make or receive payments in specified currencies. Interest
rate swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Mortgage swaps are similar to interest
rate swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. Index swaps involve the exchange by a Fund with another party of the
respective amounts payable with respect to a notional principal amount at
interest rates equal to two specified indices. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payment of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling the interest rate floor.
An interest rate collar is the combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a
net basis, which means that the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and the
Advisers believe that swaps do not constitute senior securities under the Act
and, accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party
thereto is considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The staff of the SEC currently take
the position that swaps, caps, floors and collars are illiquid and thus subject
to a Fund's 15% limitation on investments in illiquid securities.
B-30
<PAGE>
LENDING OF PORTFOLIO SECURITIES
===============================
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund
would be required to have the right to call a loan and obtain the securities
loaned at any time on five days' notice. For the duration of a loan, a Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and would also receive compensation from
investment of the collateral. A Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Advisers to be of good standing,
and when, in the judgment of the Advisers, the consideration which can be
earned currently from securities loans of this type justifies the attendant
risk. If the Advisers determine to make securities loans, it is intended that
the value of the securities loaned would not exceed one-third of the value of
the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
==============================================
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually purchasing or selling the securities. If deemed advisable as a matter
of investment strategy, however, a Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to the settlement date,
cash and liquid assets in an amount sufficient to meet the purchase price.
Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns. Securities purchased or sold on a when-issued
or forward commitment basis involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
==================================
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
B-31
<PAGE>
OTHER INVESTMENT COMPANIES
==========================
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
the Fund invests in a money market fund for which an Adviser or any of its
affiliates acts as adviser, the advisory and administration fees payable by the
Fund to an Adviser will be reduced by an amount equal to the Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds." Country
funds have portfolios consisting primarily of securities of issuers located in
one foreign country or region. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) may invest in World Equity
Benchmark Shares ("WEBS") and similar securities that invest in securities
included in foreign securities indices.
REPURCHASE AGREEMENTS
=====================
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities
B-32
<PAGE>
and the seller agrees to repurchase the securities within a particular time and
at a specified price. Custody of the securities is maintained by a Fund's
custodian. The repurchase price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase prices may be
the same, with interest at a stated rate due to a Fund together with the
repurchase price on repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the security subject to the repurchase
agreement.
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, a Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers
seek to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, if the market
value of the security subject to the repurchase agreement becomes less than the
repurchase price (including accrued interest), a Fund will direct the seller of
the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement equals or exceeds the repurchase
price. Certain repurchase agreements which provide for settlement in more than
seven days can be liquidated before the nominal fixed term on seven days or less
notice. Such repurchase agreements will be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
B-33
<PAGE>
A Fund may not:
(1) make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act of
1940, as amended (the "Act"). This restriction does not, however,
apply to any Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund may, notwithstanding any other fundamental investment restriction
or policy, invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same investment objective,
restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
B-34
<PAGE>
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-35
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
Ashok N. Bakhru, 53 Chairman Executive Vice President -- Finance and
1325 Ave. of Americas & Trustee Administration and Chief Financial Officer, Coty
New York, NY 10019 Inc. (since April 1996); President, ABN
Associates (June 1994 through March
1996); Senior Vice President of Scott Paper
Company until June 1994; Director of
Arkwright Mutual Insurance Company; Trustee
of International House of Philadelphia;
Member of Cornell University
Council; Trustee of the Walnut Street
Theater.
*David B. Ford, 51 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner, Goldman Sachs (1986-1996);
New York, NY 10004 Co-Head of Goldman Sachs Asset Management
(since December 1994).
*Douglas C. Grip, 35 Trustee Vice President, Goldman Sachs (since May 1996);
One New York Plaza & President President, MFS Retirement Services Inc., of
New York, NY 10004 Massachusetts Financial Services (prior thereto).
*John P. McNulty, 44 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner of Goldman Sachs (1990-1994
New York, NY 10004 and 1995-1996); Co-Head of Goldman Sachs Asset
Management (since November 1995); Limited Partner
of Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 60 Trustee President of Bryn Mawr College (since 1978);
Taylor Hall Director of Josiah Macy, Jr, Foundation (since
Bryn Mawr, PA 19010 1977); Director of the Philadelphia
Contributionship (since 1985); Director of Amherst College
(since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of the
Spencer Foundation (since 1993); and member
of PNC Advisory Board (since 1993).
</TABLE>
B-36
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -----------------------
<S> <C> <C>
*Alan A. Shuch, 48 Trustee Limited Partner, Goldman Sachs (since 1994);
One New York Plaza Director and Vice President of Goldman Sachs
New York, NY 10004 Funds Management Inc. (from April 1990 to
November 1994); President and Chief Operating
Officer, GSAM (from September 1988 to November 1994).
Jackson W. Smart, 66 Trustee Chairman, Executive Committee, First
One Northfield Plaza # 218 Commonwealth, Inc. (a managed dental care
Northfield, IL 60093 company, since January 1996); Chairman and
Chief Executive Officer, MSP Communications Inc.
(a company engaged in radio broadcasting) (since
November 1988), Director, Federal Express Corpo-
ration (since 1976), Evanston Hospital Corporation
(since 1980), First Commonwealth, Inc. (since
1988) and North American Private Equity Group
(a venture capital fund).
William H. Springer, 67 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer, (February 1987 to June
Lake Forest, IL 60045 1991) of Ameritech (a telecommunications holding
company; Director,Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management invest-
ment company) (April 1992 to present).
Richard P. Strubel, 57 Trustee Managing Director, Tandem Partners, Inc. (since
70 West Madison St. Ste 1400 1990); President and Chief Executive Officer,
Chicago, IL 60602 Microdot, Inc. (a diversified manufacturer of
fastening systems and connectors)(January 1984
to October 1994).
*Scott M. Gilman, 37 Treasurer Director, Mutual Funds Administration, Goldman
One New York Plaza Sachs Asset Management (since April 1994);
New York, NY 10004 Assistant Treasurer, Goldman Sachs Funds
Management, Inc. (since March 1993); Vice President,
Goldman Sachs (since March 1990).
*John M. Perlowski, 32 Assistant Vice President, Goldman Sachs (since July
One New York Plaza Treasurer 1995); Director, Investors Bank and Trust,
New York, NY 10004 November 1993 to July 1995); Audit Manager
of Arthur Andersen LLP (prior thereto).
</TABLE>
B-37
<PAGE>
<TABLE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
*John W. Mosior, 58 Vice Vice President, Goldman Sachs and Manager
4900 Sears Tower President of Shareholder Servicing of GSAM (since
Chicago, IL 60606 November 1989).
*Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs (since April
4900 Sears Tower President 1985); Manager of Shareholder Servicing of
Chicago, IL 60606 GSAM since November 1989).
*Michael J. Richman, 36 Secretary Associate General Counsel of
85 Broad Street Goldman Sachs Asset Manage-
New York, NY 10004 ment (since February 1994);
Vice President and Assistant General Counsel
of Goldman Sachs (since June 1992); Counsel
to the Funds Group, GSAM (since June 1992);
Partner, Hale and Dorr (September 1991 to
June 1992).
*Howard B. Surloff, 31 Assistant Assistant General Counsel and Vice President,
85 Broad Street Secretary Goldman Sachs (since November 1993 and May
New York, NY 10004 1994 respectively); Counsel to the Funds Group,
Goldman Sachs Asset Management (since
November 1993); Associate of Shereff Friedman,
Hoffman & Goodman (prior thereto).
*Valerie A. Zondorak, 31 Assistant Vice President, Goldman Sachs (since March
85 Broad Street Secretary 1997); Counsel to the Funds Group, Goldman
New York, New York 10004 Sachs Asset Management (since >March 1997);
Associate of Shereff Friedman, Hoffman &
Goodman (prior thereto).
*Steven E. Hartstein, 33 Assistant Legal Products Analyst, Goldman Sachs (June
85 Broad Street Secretary 1993 to present); Funds Compliance Officer,
New York, NY 10004 Citibank Global Asset Management (August 1991
to June 1993).
*Deborah Farrell, 25 Assistant Administrative Assistant, Goldman Sachs since
85 Broad Street Secretary January 1994. Formerly at Cleary Gottlieb, Steen
New York, NY 10004 and Hamilton.
*Kaysie P. Uniacke, 36 Assistant Vice President and Senior Portfolio Manager,
One New York Plaza Secretary Goldman Sachs Asset Management (since
New York, NY 10004 1988).
</TABLE>
B-38
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
*Elizabeth D. Assistant Portfolio Manager, GSAM (since April 1996);
Anderson, 27 Secretary Junior Portfolio Manager, Goldman Sachs Asset
One New York Plaza Management (since 1993); Funds Trading
New York, NY 10004 Assistant, GSAM (1993-1995); Compliance
Analyst, Prudential Insurance (1991-1993).
</TABLE>
As of July 24, 1997, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of beneficial interest of each
Fund.
The Trust pays each Trustee, other than those who are "interested persons"
of Goldman Sachs, a fee for each Trustee meeting attended and an annual fee.
Such Trustees are also reimbursed for travel expenses incurred in connection
with attending such meetings.
B-39
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1997:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Goldman Sachs
Aggregate Accrued as Mutual Funds
Compensation Part of (including the
Name of Trustee from the Funds*** Funds' Expenses Funds)*
- --------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Paul C. Nagel, Jr.** $3,775 $0 $62,450
Ashok N. Bakhru 3,969 0 69,299
Marcia L. Beck 0 0 0
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart 3,388 0 58,954
William H. Springer 3,388 0 58,954
Richard P. Strubel 3,388 0 58,954
</TABLE>
______________
* The Goldman Sachs Funds consisted of 29 mutual funds on January 31,
1997.
** Retired as of June 30, 1996.
*** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-40
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Emerging Markets Equity and Asia
Growth Funds. See "Management" in the Funds' Prospectus for a description of the
applicable Adviser's duties to the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds),
the Advisers will have access to the Global Asset Allocation Model. The
B-41
<PAGE>
model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
Advisers will estimate the total returns from each currency sector which are
consistent with the average investor holding a portfolio equal to the market
capitalization of the financial assets among those currency sectors. These
estimated equilibrium returns are then combined with the expectations of Goldman
Sachs' research professionals to produce an optimal currency and asset
allocation for the level of risk suitable for a Fund given its investment
objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
The CORE Small Cap Equity, CORE International Equity and Real Estate
Securities Funds management agreements were initially approved by the Trustees,
including a majority of the non-interested Trustees (as defined below) who are
not parties to the management agreement, on July 22, 1997. The CORE Large Cap
Growth and Emerging Markets Equity Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on April 23,
1997. The other Funds' management agreements were most recently approved by the
Trustees, including a majority of the Trustees who are not parties to the
management agreement or "interested persons" (as such term is defined in the
Act) of any party thereto (the "non-interested Trustees"), on April 23, 1997.
These arrangements were most recently approved by the shareholders of each Fund
(other than CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Real Estate Securities and Emerging Markets Equity Funds) on April 21,
1997. The sole shareholder of the CORE Large Cap Growth Fund approved these
arrangements on April 30, 1997. The sole shareholders of the CORE Small Cap
Equity and CORE International Equity Funds approved these arrangements on August
13, 1997. Each management agreement will remain in effect until June 30, 1998
from year to year thereafter provided such continuance is specifically approved
at least annually by (a) the vote of a majority of the outstanding voting
securities of such Fund or a majority of the Trustees, and (b) the vote of a
majority of the non-interested Trustees, cast in person at a meeting called for
the purpose of voting on such approval. Each management agreement will
terminate automatically if assigned (as defined in the Act) and is terminable at
any time without penalty by the Trustees or by vote of a majority of the
outstanding voting securities of the affected Fund on 60 days' written notice to
the Adviser and by the Adviser on 60 days' written notice to the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
<TABLE>
<CAPTION>
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ---- ----------- -----------
<S> <C> <C>
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
</TABLE>
B-42
<PAGE>
<TABLE>
<S> <C> <C>
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.89% 1.00%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
</TABLE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
============= ============= =============
<S> <C> <C> <C>
Balanced Fund $ 402,183 $ 193,041 $ 8,858
Growth and Income Fund 3,541,318 2,225,553 790,893
CORE U.S. Equity Fund 1,667,381/3/ 817,563/3/ 693,383/2/
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 8,697,265 9,335,745 8,724,828
Mid Cap Equity Fund/4/ 964,945 489,043 N/A
International Equity Fund 4,124,076/3/ 2,794,872/2/ 3,186,509/2/
Small Cap Value Fund 2,130,703 2,908,839 3,385,899
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 2,221,857/3/ 1,563,641/2/ 553,084/2/
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
- ---------------
1 Not Operational.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.89% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.89% and 0.86%, respectively, of
the CORE U.S. Equity, International Equity and Asia Growth Fund's average
daily net assets. For the fiscal year ended January 31, 1996, had
limitations not been in effect, CORE U.S. Equity Fund would have paid
$1,019,639 in investment management fees. For the fiscal year ended
January 31, 1997, had
B-43
<PAGE>
limitations not been in effect, CORE U.S. Equity, International Equity and
Asia Growth Funds would have paid $2,119,552, $4,638,203 and $2,583,555,
respectively, in investment management fees.
4 Commenced operations on August 1, 1995.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek
to purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the
B-44
<PAGE>
management of the Funds and it is not anticipated that the Advisers will have
access to such information for the purpose of managing the Funds. The
proprietary activities or portfolio strategies of Goldman Sachs and its
affiliates or the activities or strategies used for accounts managed by them or
other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund in which customers of Goldman Sachs serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
B-45
<PAGE>
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal years
ended January 31, 1995 and 1996. No Class C Shares were outstanding during the
fiscal years ended January 31, 1995, 1996 and 1997.
Goldman Sachs retained the following commissions on sales of Class A and
Class B Shares during the following periods:
<TABLE>
<CAPTION>
1997 1996 1995
========== ======== ========
<S> <C> <C> <C>
Balanced Fund $ 94,000 $ 28,000 $ 14,000
Growth and Income Fund 555,000 771,000 361,000
CORE U.S. Equity Fund 380,000 108,000 58,000
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 323,000 523,000 815,000
International Equity Fund 1,563,000 211,000 660,000
Small Cap Value Fund 219,000 202,000 868,000
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 1,397,000 507,000 829,000
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
- ---------------
B-46
<PAGE>
1 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
<TABLE>
<CAPTION>
Class A & B Class A Class A
1997 1996 1995
============== ==================== ========
<S> <C> <C> <C>
Balanced Fund $148,576 $ 72,067 $ 20,000
Growth and Income Fund 870,527 542,671 262,158
CORE U.S. Equity Fund 319,246 103,682 151,230
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 908,310 549,844 694,014
International Equity Fund 586,243 129,313 481,169
Small Cap Value Fund 511,883 254,292 600,618
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 385,114 192,097 120,000
Real Estate Securities Fund/1/ N/A N/A N/A
<CAPTION>
Institutional Service Institutional
Shares Shares Shares
1997 1997 1996
======== ======== ========
<S> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A
Growth and Income Fund 15 488 N/A
CORE U.S. Equity Fund/2/ N/A N/A 11,571
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund/1/ N/A N/A N/A
Mid Cap Equity Fund/3/ 51,464 N/A 26,082
International Equity Fund/2/ N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund/2/ N/A N/A N/A
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
B-47
<PAGE>
1 Not operational.
2 Contractually set to 0.
3 Commenced operations on August 1, 1995.
The Trust's distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit
certain "Other Expenses" (excluding management, distribution and authorized
dealer service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees in
the case of each Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity and Mid Cap Equity Funds) for the following
funds to the extent such expenses exceed the following percentage of average
daily net assets:
Other
Expenses
--------
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
B-48
<PAGE>
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
======== ======== ========
<S> <C> <C> <C>
Balanced Fund $319,552 $192,405 $ 95,906
Growth and Income Fund 0 0 106,725
CORE U.S. Equity Fund 104,833 110,581 N/A
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund N/A N/A N/A
Mid Cap Equity Fund/2/ 72,441 85,515 N/A
International Equity Fund 144,265 N/A N/A
Small Cap Value Fund N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 50,407 0 35,905
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
________________________________
1 Not operational.
2 Commenced operations on August 1, 1995.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
Arthur Andersen LLP, independent public accountants, 225 Franklin Street,
Boston, Massachusetts 02110, have been selected as auditors of the Trust. In
addition to audit services, Arthur Andersen LLP prepares the Trust's federal and
state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
B-49
<PAGE>
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the applicable Adviser in the manner it considers to be equitable and
consistent with its fiduciary obligations to such Fund
B-50
<PAGE>
and such other customers. In some instances, this procedure may adversely
affect the price and size of the position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-51
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================== =================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1997:
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/ 3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ====================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1996:
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3 / N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Emerging Markets Equity Fund/3 / N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ==================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995:
Balanced Fund $ 9,652 $ 1,522(16%)/1/ $ 7,216,224(10%)/2/ $0
Growth and Income Fund 637,080 77,404(12%)/1/ 468,165,610(7%)/2/ 0
CORE U.S. Equity Fund 119,192 0(0%)/1/ 99,616,396(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,427,413 273,076(19%)/1/ 786,135,073(13%)/2/ 0
Mid Cap Equity Fund N/A N/A N/A N/A
International Fund 1,799,525 0(0%)/1/ 546,364,113(0%)/2/ 0
Small Cap Value Fund 555,667 23,137(4%)/1/ 392,235,715(2%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,002,148 67,754(7%)/1/ 171,880,775(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-54
<PAGE>
During the fiscal year ended January 31, 1997, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1997, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ------------------------ ---------------- -------
<S> <C> <C>
Balanced Fund Bear Stearns $ 6,679
Lehman Brothers 2,098
Chase Securities 490
Growth and Income Fund Chase Securities $ 6,003
Lehman Brothers 11,099
Bear Stearns 19,457
Core US Equity Fund Chase Securities 1,193
Smith Barney 6,439
Merrill Lynch 4,423
Morgan Stanley 2,188
Salomon Brothers 4,249
Bear Stearns 2,614
Lehman Brothers 659
Capital Growth Fund Bear Stearns 13,286
Lehman Brothers 3,349
Mid Cap Equity Fund Lehman Brothers 2,151
Bear Stearns 2,977
Small Cap Value Fund Bear Stearns 12,052
Lehman Brothers 3,038
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good
faith the fair value of securities of each Fund. In accordance with procedures
adopted by the Trustees, the net value per share of each class of each Fund is
calculated by determining the value of the net assets attributable to each class
of that Fund and dividing by the number of outstanding shares of that class.
All securities are valued as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. New York time) on each Business Day (as
defined in the Prospectus).
In the event that the New York Stock Exchange or the national
securities exchange on which stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Trustees will reconsider the
time at which net asset value is computed. In addition, each Fund may compute
its net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations
are available are valued as follows: (a) securities listed on any U.S. or
foreign stock exchange or on the National Association of
B-55
<PAGE>
Securities Dealers Automated Quotations System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the mean
between the closing bid and asked prices; and (ii) on a foreign exchange will be
valued at the last sale price (also referred to as the close price). The last
sale price for securities traded principally on a foreign exchange will be
determined as of the close of the London Stock Exchange or, for securities
traded on exchanges located in the Asia Pacific region, noon London time; (b)
debt securities will be valued using a pricing service approved by the Trustees
if such prices are believed by the investment adviser to accurately represent
market value; (c) overnight repurchase agreements will be valued by the
investment adviser at cost; (d) term repurchase agreements (i.e., those whose
maturity exceeds seven days) and interest rate swaps, caps, collars and floors
will be valued at the average of the bid quotations obtained daily from at least
two dealers or, for term repurchase agreements, recognized counterparties; (e)
debt securities with a remaining maturity of 60 days or less are valued by the
investment adviser at amortized cost, which the Trustees have determined to
approximate fair value; (e) spot and forward foreign currency exchange contracts
will be valued using a pricing service such as Reuters then calculating the mean
between the last bid and asked quotations supplied by certain independent
dealers in such contracts; (g) exchange-traded options and futures contracts
will be valued by the custodian bank at the last sale price on the exchange
where such contracts and options are principally traded; and (h) over-the-
counter options will be valued by an independent unaffiliated broker identified
by the portfolio manager/trader and contacted by the custodian bank; and (i) all
other securities, including those for which a pricing service supplies no
exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate; will be valued at fair value as stated in the
valuation procedures which were approved by the Board of Trustees. For all
brokers used in this process, the custodian bank will send a letter to the
broker furnishing the quotation. If accurate quotations are not readily
available, such contracts will be valued by an independent unaffiliated broker
identified by the portfolio manager/trader and contacted by the custodian bank.
If broker quotes are used, the portfolio manager/trader will identify one
independent unaffiliated broker from whom the custodian bank will obtain prices
daily and another independent unaffiliated broker from whom the custodian bank
will obtain quotes at least weekly. The custodian bank will promptly notify the
portfolio manager/trader and a member of the GSAM Valuation Committee or a
designee thereof of any deviations equal to or greater than 3% between the
weekly quote and the daily quotes for the date that the weekly quotes were
obtained. The investment adviser will promptly provide instructions to the
custodian bank. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation.
Generally, trading in securities on European and Far Eastern
securities exchanges and on over-the-counter markets is substantially completed
at various times prior to the close of business on each Business Day in New York
(i.e., a day on which the New York Stock Exchange is open for trading). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all Business Days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not Business Days in New York and days on which the Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust
from the issue or sale of its shares, and all net investment income, realized
and unrealized gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Fund and constitute the
underlying assets of that Fund or series. The underlying assets of each Fund
will be segregated on the books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general
B-56
<PAGE>
liabilities of the Trust. Expenses of the Trust with respect to the Funds and
the other series of the Trust are generally allocated in proportion to the net
asset values of the respective Funds or series except where allocations of
direct expenses can otherwise be fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return,
yield and/or distribution rate information in advertisements, shareholder
reports or sales literature. Average annual total return and yield are computed
pursuant to formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a
recent thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by
annualizing distributions of net investment income for such period and dividing
this amount by the net asset value per share or maximum public offering price on
the last day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Occasionally statistics may be used to specify Fund volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also
B-57
<PAGE>
advertise information which has been provided to the NASD for publication in
regional and local newspapers. In addition, the Trust may from time to time
advertise a Fund's performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or
its component indices; (g) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (h) the
J.P. Morgan Global Government Bond Index; (i) other taxable investments
including certificates of deposit (CDs), money market deposit accounts (MMDAs),
checking accounts, savings accounts, money market mutual funds and repurchase
agreements; (j) Donoghues' Money Fund Report (which provides industry averages
for 7-day annualized and compounded yields of taxable, tax-free and U.S.
Government money funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the
NASDAQ OTC Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell
2000 Index - Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the
Value-Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-
Actuaries Europe and Pacific Index, and (s) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, the Morgan Stanley Capital
International Emerging Markets Free Index, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (t) the FT-
Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger Investment Companies
Services or Wiesenberger Investment Companies Service; (v) The Goldman Sachs
Commodities Index; and (w) information produced by Micropal, Inc.. The
composition of the investments in such indices and the characteristics of such
benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Fund to calculate its
performance figures.
Information used in advertisements and materials furnished to present
and prospective investors may include statements or illustrations relating to
the appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
B-58
<PAGE>
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to Class A Shares (the class into which the separate account
transferred) to reflect the expenses expected to be incurred by the Fund as
stated in the expense table in the Prospectus. These expenses include any sales
charges and asset-based charges (i.e., fees under Distribution and Authorized
Dealer Service Plans) imposed and other operating expenses. Total return
quotations will be calculated pursuant to SEC approved methodology. Prior to May
1, 1997, the separate account was a separate investment advisory account under
discretionary management by the Adviser and had substantially similar investment
objectives, policies and strategies as the Fund. Unlike the Fund, the separate
account was not registered as an investment company under the Act and therefore
was not subject to certain investment restrictions and operational requirements
that are imposed on investment companies by the Act. If the separate account had
been registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account
B-59
<PAGE>
(based on Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
B-60
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming no
voluntary waiver
of fees and no
expense reimburse-
ments
--------------------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ------------------------- ------------- ---------------------------------- ----- ----- ----- -------
Balanced Fund A 10/12/94-1/31/97 - Since inception 17.41% 20.32% 15.50% 18.27%
Balanced Fund A 2/1/96-1/31/97 - One year 12.07% 18.59% 11.22% 17.69%
Balanced Fund B 5/1/96-1/31/97 - Since inception* N/A 16.22% N/A 15.79%
Growth and Income A 2/5/93-1/31/97 - Since inception 17.31% 18.98% 16.50% 18.17%
Growth and Income A 2/1/96-1/31/97 - One year 21.39% 28.42% 21.13% 28.14%
Growth and Income B 5/1/96-1/31/97 - Since inception* N/A 22.23% N/A 22.23%
Growth and Income Institutional 6/3/96-1/31/97 - Since inception* N/A 20.77% N/A 20.77%
Growth and Income Service 3/6/96-1/31/97 - Since inception* N/A 23.87% N/A 23.87%
CORE U.S. Equity A 5/24/91-1/31/97 - Since inception 13.54% 14.67% 13.25% 14.38%
CORE U.S. Equity A 2/1/92-1/31/97 - Five year 13.99% 15.29% 13.70% 15.00%
CORE U.S. Equity A 2/1/96-1/31/97 - One year 16.98% 23.75% 16.69% 23.44%
CORE U.S. Equity B 5/1/96-1/31/97 - Since inception* N/A 18.59% N/A 18.47%
CORE U.S. Equity Institutional 6/15/95-1/31/97 - Since inception N/A 28.04% N/A 27.74%
CORE U.S. Equity Institutional 2/1/96-1/31/97 - One year N/A 24.63% N/A 24.39%
CORE U.S. Equity Service 6/7/96-1/31/97 - Since inception* N/A 15.92% N/A 15.71%
CORE Large Cap Growth A 11/1/91-7/31/97 - Since inception 21.00% 22.23% N/A N/A
CORE Large Cap Growth A 6/1/92-7/31/97 - Five year 23.44% 24.74% N/A N/A
CORE Large Cap Growth A 6/1/96-7/31/97 - One year 46.72% 55.50% N/A N/A
CORE Large Cap Growth B 5/1/97-7/31/97 - Since inception* N/A 19.40% N/A N/A
CORE Large Cap Growth Institutional 11/1/91-7/31/97 - Since inception N/A 22.23% N/A N/A
Institutional 6/1/92-7/31/97 - Five year N/A 24.74% N/A N/A
Institutional 6/31/96-7/31/97 - One Year N/A 55.50% N/A N/A
CORE Large Cap Growth Service 5/1/97-7/31/97 - Since inception* N/A 19.40% N/A N/A
Capital Growth A 4/20/90-1/31/97 - Since inception 15.57% 16.54% 15.24% 16.21%
Capital Growth A 2/1/92-1/31/97 - Five year 15.42% 16.73% 15.14% 16.44%
</TABLE>
B-61
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming no voluntary
waiver of fees and no
expense reimbursements
-------------------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ------------------------- ------------- ---------------------------------- ----- ----- ----- -------
Capital Growth A 2/1/96-1/31/97 - One year 19.04% 25.97% 18.75% 25.66%
Capital Growth B 5/1/96-1/31/97 - Since inception* N/A 19.39% N/A 19.39%
Mid Cap Equity Institutional 8/1/95-1/31/97 - Since inception N/A 21.65% N/A 21.55%
Mid Cap Equity Institutional 2/1/96-1/31/97 - One year N/A 25.63% N/A 25.55%
International Equity A 12/1/92-1/31/97 - Since inception 9.66% 11.15% 9.40% 10.90%
International Equity A 2/1/96-1/31/97 - One year 7.26% 13.48% 7.05% 13.26%
International Equity B 5/1/96-1/31/97 - Since inception* N/A 2.83% N/A 2.75%
International Equity Institutional 2/7/96-1/31/97 - Since inception* N/A 12.53% N/A 12.38%
International Equity Service 3/6/96-1/31/97 - Since inception* N/A 10.42% N/A 10.28%
Small Cap Value A 10/22/92-1/31/97- Since inception 12.12% 13.61% 11.79% 13.28%
Small Cap Value A 2/1/96-1/31/97 - One year 20.27% 27.28% 19.98% 26.97%
Small Cap Value B 5/1/96-1/31/97 - Since inception* N/A 5.39% N/A 5.39%
Asia Growth A 7/8/94-1/31/97 - Since inception 4.46% 6.78% 4.15% 6.47%
Asia Growth A 2/1/96-1/31/97 - One year -6.44% -1.01% -6.59% -1.17%
Asia Growth B 5/1/96-1/31/97 - Since inception * N/A -6.02% N/A -6.06%
Asia Growth Institutional 2/2/96-1/31/97 - Since inception * N/A -1.09% N/A -1.24%
- --------------------------
</TABLE>
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
B-62
<PAGE>
From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the adviser's
views as to markets, the rationale for a Fund's investments and discussions of a
Fund's current asset allocation.
In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed by GSAM and/or its
affiliates, certain attributes or benefits to be derived from asset allocation
strategies and the Goldman Sachs mutual funds that may be offered as investment
options for the strategic asset allocations. Such advertisements and
information may also include GSAM's current economic outlook and domestic and
international market views to suggest periodic tactical modifications to current
asset allocation strategies. Such advertisements and information may include
other materials which highlight or summarize the services provided in support of
an asset allocation program.
A Fund's performance data will be based on historical results and will
not be intended to indicate future performance. A Fund's total return and yield
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an
investor's shares may be worth more or less than their original cost upon
redemption. The Trust may also, at its discretion, from time to time make a
list of a Fund's holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds were reorganized from series of a Maryland corporation as
part of Goldman Sachs Trust, a Delaware business trust, by a Declaration of
Trust dated January 28, 1997, on April 30, 1997.
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect of assets specifically allocated to such class or series. The
Trustees also have authority to classify and reclassify any series of shares
into one or more classes of shares. As of the date of this Additional
Statement, the Trustees have classified the shares of the Funds into five
classes: Institutional Shares, Service Shares, Class A Shares, Class B Shares
and Class C Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
B-63
<PAGE>
Institutional Shares may be purchased at net asset value without a
sales charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of account administration fees at the annual rate of up to
0.50% of the average daily net assets of the Fund attributable to Service
Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. Class A Shares also bear the
cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of
the average daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 5.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class B Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class B Shares. Class B
Shares also bear the cost of an Authorized Dealer Service Plan at an annual rate
of up to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 1.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class C Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class C Shares. Class C
Shares also bear the cost of an Authorized Dealer Service Plan at an annual rate
of up to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer
different classes of shares (i.e., Institutional, Service, Class A Shares, Class
B Shares and Class C Shares) to its customers and thus receive different
compensation with respect to different classes of shares of each Fund.
Dividends paid by each Fund, if any with respect to each class of shares will be
calculated in the same manner, at the same time on the same day and will be the
same amount, except for differences caused by the differences in expenses
discussed above. Similarly, the net asset value per share may differ depending
upon the class of shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event
of liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of July 24, 1997, State Street Bank & Trust Company as Trustee (GS
Profit Sharing Master Trust), Attn. Louis Pereira, P.O. Box 1992, Boston, MA
02105-1992, was recordholder of 95.80% of Mid
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Cap Equity Fund's outstanding shares; Fluor Corporation, Master Retirement
Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA 92698-0010 was
recordholder of 64.71% and GS & Co. FBO William C. Strutt IRA, 455 Coconut Palm
Road, Vero Beach, FL 32963-3710 was recordholder of 5.36% of CORE Large Cap
Growth Fund's outstanding shares; State Street Bank and Trust Company as Trustee
for Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O.
Box 1992, Boston, MA 02105-1992 was recordholder of 12.27% and Marine Midland
Bank as Trustee for Mark IV Ind. & Subs Employees Retirement Income Fund, P.O.
Box 1329, Attention: Mutual Fund Processing, Buffalo, NY 14240-1329 was
recordholder of 7.30% of CORE U.S. Equity Fund's outstanding shares; Frontier
Trust Co., FBO Dade County Public Schools, Attention: Agnes R. McMurray; 1720 S.
Gadsden Street, Tallahassee, FL 32301-5547 was recordholder of 5.22% and Trukan
and Co., Attention: K. Ufford, P.O. Box 3699, Wichita, KS 67201-3699 was
recordholder of 5.15% of Balanced Fund's outstanding shares; The Goldman Sachs
Group LP, Attention: Elaine King, 85 Broad Street, New York, New York 10004, was
recordholder of 63.63% of CORE Small Cap Equity Fund and 85.42% of CORE
International Equity Fund's outstanding shares.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise, to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of directors from the separate voting
requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees, either to one vote for each share or to one vote for each dollar
of net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The shareholders of the Trust will
have voting rights only with respect to the limited number of matters specified
in the Declaration of Trust and such other matters as the Trustees may determine
or may be required by law.
The Declaration of Trust provides for indemnification of Trustees,
officers and agents of the Trust unless the recipient is adjudicated (i) to be
liable by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such person's office or (ii)
not to have acted in good faith in the reasonable belief that such person's
actions were in the best interest of the Trust. The Declaration of Trust
provides that, if any shareholder or former shareholder of any series is held
personally liable solely by reason of being or having been a shareholder and not
because of the shareholder's acts or omissions or for some other reason, the
shareholder or former shareholder (or heirs, executors, administrators, legal
representatives or general successors) shall be held harmless from and
indemnified against all loss and expense arising form such liability. The Trust,
acting on behalf of any affected series, must, upon request by such shareholder,
assume the defense of any claim made against such shareholder for any act or
obligation of the series and satisfy any judgment thereon from the assets of the
series.
The Declaration of Trust permits the termination of the Trust or of
any series or class of the Trust (i) by a majority of the affected shareholders
at a meeting of shareholders of the Trust, series or class;
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or (ii) by a majority of the Trustees without shareholder approval if the
Trustees determine that such action is in the best interest of the Trust or its
shareholders. The factors and events that the Trustees may take into account in
making such determination include (i) the inability of the Trust or any
successor series or class to maintain its assets at an appropriate size; (ii)
changes in laws or regulations governing the Trust, series or class or affecting
assets of the type in which it invests; or (iii) economic developments or trends
having a significant adverse impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or their organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally
subject to liability for the debts or obligations of the Trust. Similarly,
Delaware law provides that a series of the Trust will not be liable for the
debts or obligations of any other series of the Trust. However, no similar
statutory or other authority limiting business trust shareholder liability
exists in other states. As a result, to the extent that a Delaware business
trust or a shareholder is subject to the jurisdiction of courts of such other
states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of a Fund. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification
by the relevant Fund for all loss suffered by a shareholder as a result of an
obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders
of a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of
Trust provides that shareholders of a series may bring a derivative action on
behalf of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
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The Declaration of Trust further provides that the Trustees will not
be liable for error of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Trust. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. CORE Large Cap Growth, CORE
Small Cap Equity, CORE International Equity, Real Estate Securities and Emerging
Markets Equity Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its gross
income for its taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"); and (b) such Fund diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of such
Fund's total (gross) assets is comprised of cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of such Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses. For purposes
of the 90% gross income test, income that a Fund earns from equity interests in
certain entities that are not treated as corporations (e.g., partnerships or
trusts) for U.S. tax purposes will generally have the same character for such
Fund as in the hands of such an entity; consequently, a Fund may be required to
limit its equity investments in
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such entities that earn fee income, rental income, or other nonqualifying
income. In addition, future Treasury regulations could provide that qualifying
income under the 90% gross income test will not include gains from foreign
currency transactions that are not directly related to a Fund's principal
business of investing in stock or securities or options and futures with respect
to stock or securities. Using foreign currency positions or entering into
foreign currency options, futures and forward or swap contracts for purposes
other than hedging currency risk with respect to securities in a Fund's
portfolio or anticipated to be acquired may not qualify as "directly-related"
under these tests.
If a Fund complies with such provisions, then in any taxable year in
which such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, Emerging Markets Equity or Asia Growth Funds and may therefore make it
more difficult for such a Fund to satisfy the distribution requirements
described above, as well as the excise tax distribution requirements described
below. However, each Fund generally expects to be able to obtain sufficient
cash to satisfy such requirements from new investors, the sale of securities or
other sources. If for any taxable year a Fund does not qualify as a regulated
investment company, it will be taxed on all of its investment company taxable
income and net capital gain at corporate rates, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current
and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute
(or be deemed to have distributed) by December 31 of each calendar year at least
98% of its taxable ordinary income for such year, at least 98% of the excess of
its capital gains over its capital losses (generally computed on the basis of
the one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31,
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1997 of capital loss carry forwards expiring in 2002, 2003, and 2004,
respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options
and futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and instruments that may affect the
amount, timing and character of income, gain or loss recognized by a Fund.
Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign currency-
denominated debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed a Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foregoing currency transactions or
instruments could exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of a Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark to market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
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Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) anticipates that it will be subject to foreign taxes on
its income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds make this election, its respective
shareholders may then deduct such pro rata portions of qualified foreign taxes
in computing their taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their U.S. federal income
taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of foreign
taxes paid by a Fund, although such shareholders will be required to include
their shares of such taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed
paid by such shareholder as a result of any such election by CORE International
Equity, International Equity, Emerging Markets Equity or Asia Growth Funds, the
amount of the credit that may be claimed in any year may not exceed the same
proportion of the U.S. tax against which such credit is taken which the
shareholder's taxable income from foreign sources (but not in excess of the
shareholder's entire taxable income) bears to his entire taxable income. For
this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by a Fund will generally not be treated as income from
foreign sources. This foreign tax credit limitation may also be applied
separately to certain specific categories of foreign-source income and the
related foreign taxes. As a result of these rules, which have different effects
depending upon each shareholder's particular tax situation, certain shareholders
of CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may not be able to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by such Fund even if the election
is made by such a Fund.
Shareholders who are not liable for U.S. federal income taxes,
including tax-exempt shareholders, will ordinarily not benefit from this
election. Each year, if any, that the CORE International Equity, International
Equity, Emerging Markets Equity or Asia Growth Funds files the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes paid by a Fund and (ii)
the portion of Fund dividends which represents income from each foreign country.
The other Funds will not be entitled to elect to pass foreign taxes and
associated credits or deductions through to their shareholders because they will
not satisfy the 50% requirement described above. If a Fund cannot or does not
make this election, it may deduct such taxes in computing the amount it is
required to distribute.
If a Fund acquires stock (including, under proposed regulations, an
option to acquire stock such as is inherent in a convertible bond) in certain
foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents, royalties or capital gain)
or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not
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be able to pass through to its shareholders any credit or deduction for such a
tax. In some cases, elections may be available that would ameliorate these
adverse tax consequences, but such elections would require the Fund to include
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. Each Fund may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues
for a Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from a
Fund's dividend income, if any, that would be eligible for the dividends
received deduction if such Fund were not a regulated investment company may be
eligible, for the dividends received deduction for corporations. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by CORE
International Equity, International Equity, Asia Growth and Emerging Markets
Equity Funds will qualify for the dividends-received deduction. The entire
dividend, including the deducted amount, is considered in determining the
excess, if any, of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Fund. Capital gain dividends (i.e., dividends from net capital
gain) if designated as such in a written notice to shareholders mailed not later
than 60 days after a Fund's taxable year closes, will be taxed to shareholders
as long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends received deduction for
corporations. Distributions, if any, that are in excess of a Fund's current and
accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will generally constitute
capital gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
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TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed
of in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. Shareholders should consult their own tax advisers with
reference to their particular circumstances to determine whether a redemption
(including an exchange) or other disposition of Fund shares is properly treated
as a sale for tax purposes, as is assumed in this discussion. If a shareholder
receives a capital gain dividend with respect to shares and such shares have a
tax holding period of six months or less at the time of a sale or redemption of
such shares, then any loss the shareholder realizes on the sale or redemption
will be treated as a long-term capital loss to the extent of such capital gain
dividend. All or a portion of any sales load paid upon the purchase of shares
of a Fund will not be taken into account in determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent the redemption proceeds are reinvested, or the exchange is effected,
without payment of an additional sales load pursuant to the reinvestment or
exchange privilege. The load not taken into account will be added to the tax
basis of the newly-acquired shares. Additionally, any loss realized on a sale
or redemption of shares of a Fund may be disallowed under "wash sale" rules to
the extent the shares disposed of are replaced with other shares of the same
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a dividend reinvestment in
shares of such Fund. If disallowed, the loss will be reflected in an adjustment
to the basis of the shares acquired.
Each Fund may be required to withhold, as "backup withholding,"
federal income tax at a rate of 31% from dividends (including capital gain
dividends) and share redemption and exchange proceeds to individuals and other
non-exempt shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as
it applies to "U.S. persons" subject to tax under such law. Shareholders who, as
to the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
a Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable
B-72
<PAGE>
year and certain other conditions are met. Non-U.S. shareholders may also be
subject to U.S. federal withholding tax on deemed income resulting from any
election by CORE International Equity, International Equity, Emerging Markets
Equity or Asia Growth Funds to treat qualified foreign taxes it pays as passed
through to shareholders (as described above), but they may not be able to claim
a U.S. tax credit or deduction with respect to such taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in
which such Fund may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of such Fund and
its shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent
Public Accountants, contained in the 1997 Annual Report of each of the Funds
(except CORE Large Cap Growth Fund), are incorporated herein by reference into
this Additional Statement and attached hereto. Unaudited financial statements
for the CORE Large Cap Growth Fund for the period ended July 31, 1997 are also
attached hereto and incorporated by reference into this Statement of Additional
Information. No other part of the Annual or Semi-Annual Report is incorporated
by reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by
each Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the
B-73
<PAGE>
value of its net assets; or for such other period as the SEC may by order permit
for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
B-74
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are pleased to have the opportunity to discuss the performance and holdings
of the Goldman Sachs Mid-Cap Equity Fund for the 12 months ended January 31,
1997. The U.S. equity market rewarded investors with excellent returns once
again in 1996, with the Goldman Sachs Mid-Cap Equity Fund outperforming its
benchmark by a wide margin during the period under review. To help put the
fund's performance in perspective, we will also provide a brief overview of the
economic and investment environment.
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Mid-Cap Equity Fund seeks long-term capital growth primarily
by investing at least 65% of its total assets in equities with market
capitalizations of between $500 million and $7 billion at the time of
investment. However, the fund currently intends to emphasize investments in
companies with market capitalizations of under $5 billion at the time of
investment. The fund is managed with a value style, which means we focus on
companies whose stocks we believe are inexpensive relative to their expected
long-term earnings growth and their asset value. Investments may include well-
known companies that are temporarily out of favor due to cyclical economic
conditions or are experiencing near-term difficulties the portfolio managers
judge to be temporary in nature. In-depth fundamental research of a company's
financial structure, its competitive position in the market and its management's
commitment to increasing shareholder value are all critical parts of the fund's
investment approach. Though we are not sector investors, we closely monitor the
fund's sector and industry exposures compared with the benchmark in an effort to
avoid unintentional over- or underweightings.
MID-CAPS PERFORMED WELL, BUT LAGGED LARGE-CAPS
The U.S. stock market surged to record levels during the period under review,
rising an impressive 26.3% (as measured by the Standard & Poor's 500 stock
index). After a run-up from January through mid-February, market volatility
notably increased, as investor sentiment vacillated between two contradictory
concerns. With some economic news, investors feared that the economy was growing
too quickly, making higher inflation a possibility, while other news caused them
to worry that the economy was slowing, putting earnings at risk. In May,
investors briefly overcame their fears and sent the market higher, but their
concerns quickly reemerged and caused the market to settle into another choppy
trading range that culminated in a sharp sell-off in July. However, stock
prices rebounded throughout the second half of the period, as investors became
more confident that the environment of low inflation, moderate economic growth
and healthy corporate earnings would persist. Though small-cap stocks led the
market during the first half of the year, the post-July rally was dominated by a
handful of large-cap, growth companies.
During the period, the mid-cap sector of the stock market recorded a total
return of 20.9% (as measured by the Russell Midcap index), lagging its larger
peers but slightly outperforming small-cap stocks, which rose 19.0% (as measured
by the Russell 2000 index). The divergence between the performance of the
different stock capitalizations was primarily a reflection of investors "flight
to quality" in the uncertain market, with investors favoring large-cap growth
companies that were highly liquid.
1
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
ECONOMIC GROWTH REBOUNDED AFTER A WEAK START, THEN MODERATED
When the period began, lackluster consumer spending, harsh winter weather and
the General Motors strike restrained economic growth. Despite these adverse
conditions, the economy advanced faster than expected, with first-quarter real
GDP growth reported at 2.0% (annualized). Momentum accelerated even more
dramatically during the second quarter, as industrial activity, automobile sales
and home sales all showed significant improvement. As a result, second-quarter
GDP rose a robust 4.7% (annualized), its highest rate in two years.
The economy's torrid growth cooled markedly during the third quarter, with
annualized real GDP slowing to 2.1%, largely due to lackluster consumer spending
and a widening U.S. trade deficit. This slowdown proved to be temporary,
however, as a wide range of economic reports pointed toward renewed strength
from October through December. Fourth-quarter real GDP growth was revised to
3.9% (annualized), reflecting a narrowing trade deficit, rising consumer
spending and accelerating manufacturing activity. In January 1997, the economic
data suggested that the economy's advance was continuing. Despite firm growth,
underlying inflation remained surprisingly mild. For all of 1996, consumer
prices rose only 2.9%.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis points in
January 1996, just prior to the start of the period. Though stronger than
expected growth shifted investor expectations from further Federal Reserve
interest rate cuts to potential tightening, the Fed then left rates unchanged.
As of January 31, 1997, the Federal funds rate remained at 5.25%.
PERFORMANCE REVIEW: STRONG OUTPERFORMANCE, LED BY OUR TECHNOLOGY, FINANCIAL AND
ENERGY STOCKS
For the 12-month period ended January 31, 1997, the Goldman Sachs Mid-Cap
Equity Fund had a total return of 25.63% based on net asset value, significantly
outperforming the 20.90% total return of the fund's benchmark, the Russell
Midcap Index. We are also pleased to note that the fund fared very well
compared with its peers. For the 12-month period ended January 31, 1997, the
fund ranked within the top 20% of the Lipper mid-cap fund category (30th of
157), according to Lipper Analytical Services, Inc. (Please note that Lipper
rankings do not take sales charges into account and that past performance is not
a guarantee of future results.)
The fund's strong results came primarily during the second half of the period,
and can be attributed to successful stock selection. The best performing stocks
came from a wide range of sectors, with technology, financial and energy-related
investments performing particularly well. In addition, the fund benefited from
several of its positions in consumer nondurables, a sector that had been
underweighted early in the period and subsequently increased.
The fund's top performers included a number of manufacturers of computer-
related components. For example, we took advantage of the slump in technology
stocks in early 1996 by establishing a position in TERADYNE, INC., a
manufacturer of semiconductor testing equipment, at an extremely inexpensive
price. The stock then rebounded much faster than we anticipated in advance of
the turnaround of the semiconductor cycle. Other successful holdings in the
sector were the best performing initial public offering of 1996, CYMER, INC., a
producer of excimer lasers used to etch semiconductors, and SEAGATE TECHNOLOGY,
INC., the world's largest independent disk-drive maker. Seagate Technology
spent much of the past year
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
integrating its acquisition of Conner Peripherals, Inc., which gave it a
dominant market share and made it the most vertically integrated hard disk-drive
manufacturer. By the end of the period, we sold the fund's position in Cymer and
reduced Teradyne and Seagate Technology as they appreciated and became less
undervalued.
In the financial sector, several of our bank and insurance holdings performed
extremely well. Bank stocks included GREENPOINT FINANCIAL CORP., which reported
strong demand for its "no-documentation" and "low-documentation" mortgages;
REPUBLIC BANK OF NEW YORK CORP., which achieved an earnings improvement due to
better than expected revenues and non-interest expense control; and STANDARD FED
BANCORPORATION, a Michigan-based thrift that is in the process of being
acquired, which we sold after it reached our target price. In the insurance
industry, OLD REPUBLIC INTERNATIONAL CORP. enhanced shareholder value in a slow
premium growth environment by improving its capital management, which included a
stock buyback program; USLIFE CORP. surged amid takeover speculation, and
ALLMERICA FINANCIAL CORP. announced a restructuring that would combine its four
units.
The fund also benefited from several of its energy and consumer nondurable
investments. TOSCO CORP., an oil refiner and distributor, continued to
consolidate its market position through an ambitious acquisition strategy, and
LONG ISLAND LIGHTING CO., a New York-based utility, agreed to be acquired by
Brooklyn Union Gas Co. at a very attractive price. In the consumer nondurable
sector, SUNBEAM CORP., a leading consumer products company, surged due to the
aggressive restructuring program initiated by its new CEO; and FRUIT OF THE
LOOM, INC. performed well due to increased investor recognition of its ability
to improve future cash flow.
DIFFICULT INDUSTRY CONDITIONS IMPACTED SEVERAL HOLDINGS
Fund holdings that did not fulfill our expectations included several companies
that were affected by difficult industry conditions. These included GEON CORP.,
VISHAY INTERTECHNOLOGY, INC. and STONE CONTAINER CORP., which all suffered when
their respective businesses -- chemicals, electronic capacitors, and pulp and
paper products -- came under pressure due to increased competition and
overcapacity. Another disappointment was CENTRAL MAINE POWER CO., which was
impacted by continuing uncertainty in the regulatory environment for electric
utilities. We believe that the market has overreacted to the short-term
problems facing these companies and the fund continued to hold them as of the
end of the period.
NEW INVESTMENTS ADDED DIVERSIFICATION
After many holdings performed extremely well and were sold upon reaching our
price targets, we initiated several new investments that we determined were very
undervalued. These included two stocks that were among the fund's 10 largest
positions as of the end of the period under review: INTERNATIONAL MULTIFOODS
CORP. and UNICOM CORP. International Multifoods Corp., a distributor of
specialty foods, has a relatively low valuation, a high degree of operating
leverage and new management that is expected to improve profitability,
particularly in its vending distribution business. Unicom Corp., an electric
utility that operates 12 nuclear units at six sites, generates excess capital
and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects.
We established a major position in PERRIGO CO., the largest manufacturer of
store-brand health and
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
beauty aids, over-the-counter pharmaceuticals and nutritional products. We
expect Perrigo to benefit from stricter cost controls as well as its "over-the-
counter switch" business, where it produces drugs that are equivalent to brand-
name products after the original drug patents expire. These products are a
significant new source of revenues because they command higher margins and have
higher unit growth. Another new position was IMATION CORP., a spin-off of 3M
Co., which manufactures products for data storage, printing and publishing,
medical imaging and photography. Imation has a strong balance sheet and is using
the cash flow generated by its older businesses to develop new products such as
high-capacity disks.
We significantly increased the fund's existing position in THIOKOL CORP., a
defense/aerospace company that has a debt-free balance sheet, trades at a very
low earnings multiple and is reducing its dependence on the federal government.
As part of this strategy, Thiokol formed a joint venture to manufacture
components for commercial aircraft, which will enable it to benefit from an
expected upturn in the aircraft cycle.
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS AS OF JANUARY 31, 1997
COMPANY LINE OF BUSINESS PERCENTAGE OF TOTAL NET ASSETS
<S> <C> <C>
Thiokol Corp. Defense/Aerospace 3.0%
Shopko Stores, Inc. Discount Retailer 2.5%
Goodyear Tire & Rubber Co. Tire and Rubber Products 2.5%
Republic Bank of New York Corp. Bank 2.5%
Long Island Lighting Co. Electric Utilities 2.5%
International Multi-foods Corp. Food Distributor 2.4%
Avnet, Inc. Electronic Components Distributor 2.4%
USLife Corporation Insurance 2.4%
Unicom Corp. Utility 2.4%
Owens-Illinois, Inc. Packaging 2.4%
</TABLE>
OUTLOOK
As of this writing, we believe the stock market, in general, is somewhat
overvalued. Though we still expect the market to achieve positive results in
1997, its returns are unlikely to match the strong returns of 1995 or 1996.
Despite the expensive market, the fund's current holdings are attractively
valued and we expect them to continue to perform well. We intend to continue to
utilize extensive fundamental research to identify attractive, undervalued
stocks with solid long-term prospects.
Sincerely,
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Portfolio Manager
U.S. Active Equity Value
March 3, 1997
4
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
The following graph shows the value, as of January 31, 1997, of a $1,000,000
investment made on the inception date of the Fund. For comparative purposes,
the performance of the Fund's benchmark (the Russell Midcap Index ("Russell
Midcap")) is shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
(dollars in thousands)
[LINE GRAPH APPEARS HERE]
GS MIDCAP RUSSELL MIDCAP
8/1/95 $1,000 $1,000
1/31/96 $1,069 $1,094
1/31/97 $1,344 $1,523
<TABLE>
<CAPTION>
Average Annual Total Return
-----------------------------------
One Year Since Inception
(a)
-----------------------------------
<S> <C> <C>
Institutional 25.63% 21.65%
Shares
</TABLE>
(a) Institutional shares commenced operations on August 1, 1995.
5
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
January 31, 1997
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<S> <C> <C>
Common Stocks--96.5%
Airlines--2.0%
102,400 Continental Airlines, $ 2,867,200
Inc.*
- -------------------------------------------------------------
APPLIANCE MANUFACTURER--1.8%
95,300 Sunbeam Corp., Inc. 2,644,575
- -------------------------------------------------------------
AUTO--ORIGINAL EQUIPMENT MANUFACTURER--0.7%
48,500 Exide Corp. 1,091,250
- -------------------------------------------------------------
BANKS--4.1%
27,600 Greenpoint Financial Corp. 1,504,200
40,700 Republic Bank of New York 3,607,038
Corp.
14,800 Unionbancal Corp. 791,800
5,903,038
- -------------------------------------------------------------
CHEMICALS--COMMODITY--1.2%
94,600 Geon Co. 1,773,750
- -------------------------------------------------------------
COMPUTERS AND PERIPHERALS--3.2%
124,300 Decisionone Corp. 2,175,250
48,000 Seagate Technology, Inc.* 2,472,000
4,647,250
- -------------------------------------------------------------
CONSUMER STAPLES--1.8%
56,135 Block Drug Company, Inc. 2,638,345
- -------------------------------------------------------------
DEFENSE--3.0%
76,600 Thiokol Corp. 4,289,600
DEPARTMENT STORES--2.5%
228,000 Shopko Stores, Inc. 3,619,500
- -------------------------------------------------------------
ELECTRIC UTILITIES--8.6%
242,100 Central Maine Power Co. 2,693,362
38,500 CMS Energy Corp. 1,289,750
158,100 Long Island Lighting Co. 3,596,775
147,500 Niagara Mohawk Power 1,493,437
Corp.*
145,900 Unicom Corp. 3,446,888
12,520,212
- -------------------------------------------------------------
FOOD--4.1%
161,900 Chiquita Brands 2,367,788
International, Inc.
197,000 International Multifoods 3,546,000
Corp.
5,913,788
- -------------------------------------------------------------
FOREST PRODUCTS--2.7%
31,000 Georgia-Pacific Corp. 2,282,375
130,000 Stone Container Corp. 1,755,000
4,037,375
- -------------------------------------------------------------
HEALTHCARE MANAGEMENT--4.8%
57,800 Health Systems 1,495,575
International, Inc.*
104,900 Horizon CMS Healthcare 1,442,375
Corp.
126,400 Tenet Healthcare Corp.* 3,412,800
33,000 Trigon Healthcare Inc. 585,750
6,936,500
- -------------------------------------------------------------
HOME BUILDERS--3.1%
46,000 Centex Corp. 1,794,000
104,600 Lennar Corp. 2,784,975
4,578,975
- -------------------------------------------------------------
INSURANCE--LIFE--3.8%
36,900 Reliastar Financial Corp. 2,047,950
84,700 US Life Corp. 3,472,700
5,520,650
- -------------------------------------------------------------
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE--PROPERTY AND CASUALTY--3.8%
90,100 Allmerica Financial Group $ 3,299,912
84,300 American States Financial 2,223,413
Corp.*
5,523,325
- -------------------------------------------------------------
INSURANCE BROKERS--1.5%
80,900 Old Republic 2,174,187
International
Corp.
- -------------------------------------------------------------
INVESTMENT BROKERS AND MANAGERS--1.0%
44,300 Lehman Brothers Holdings, 1,400,987
Inc.
- -------------------------------------------------------------
LOGISTICS/TRUCKING--1.9%
106,800 Consolidated Freightways, 2,710,050
Inc.
- -------------------------------------------------------------
LEISURE--2.1%
115,300 Royal Caribbean Cruise 3,041,038
Lines
- -------------------------------------------------------------
MACHINERY--0.9%
22,400 Tecumseh Products, Inc. 1,293,600
MEDIA--1.2%
76,200 Carmike Cinemas 1,809,750
- -------------------------------------------------------------
MEDICAL--2.5%
68,800 Owens and Minor, Inc. 705,200
272,700 Perrigo Co. 2,897,438
3,602,638
- -------------------------------------------------------------
OIL REFINING AND MARKETING--5.5%
59,400 Ashland Inc. 2,561,625
34,600 Tosco Corp. 3,062,100
71,700 Valero Energy Corp. 2,419,875
8,043,600
- -------------------------------------------------------------
PACKAGING--2.4%
144,000 Owens-Illinois Inc.* 3,420,000
- -------------------------------------------------------------
RECREATIONAL PRODUCTS--1.7%
149,300 Outboard Marine Corp. 2,482,112
RESTAURANTS--1.8%
369,800 Darden Restaurants 2,681,050
- -------------------------------------------------------------
SEMICONDUCTORS AND ELECTRONICS--7.8%
56,600 Avnet, Inc. 3,502,125
98,000 Imation Corp. 2,854,250
69,200 Silicon Valley Group, 1,859,750
Inc.*
124,250 Vishay Intertechnology, 2,997,531
Inc.*
11,213,656
- -------------------------------------------------------------
SOFTWARE--1.4%
62,900 Autodesk, Inc. 1,989,213
- -------------------------------------------------------------
STEEL--1.8%
63,600 AK Steel Holding Corp. 2,559,900
- -------------------------------------------------------------
SUPERMARKETS--1.9%
168,800 Fleming Companies, Inc. 2,721,900
TECHNOLOGY CAPITAL GOODS--1.9%
91,700 Teradyne, Inc.* 2,831,238
- -------------------------------------------------------------
TEXTILES--4.1%
141,100 Angelica Corp. 2,698,537
82,300 Fruit of the Loom, Inc.* 3,302,287
6,000,824
- -------------------------------------------------------------
TIRE AND OTHER RELATED
RUBBER PRODUCTS--2.5%
66,200 Goodyear Tire & Rubber Co. 3,607,900
- -------------------------------------------------------------
TOBACCO--1.4%
67,000 Universal Corp. 2,077,000
- -------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $118,250,113) $ 140,165,976
- -------------------------------------------------------------
</TABLE>
6
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
January 31, 1997
<TABLE>
<CAPTION>
Principal Amount
Interest Rate Maturity Date Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--2.8%
Joint Repurchase Agreement Account
$4,100,000 5.63% 02/03/97 $ 4,100,000
- -----------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $4,100,000) $ 4,100,000
TOTAL INVESTMENTS (COST $122,350,113)** $144,265,976
- -----------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost
$ 27,053,378
Gross unrealized loss for investments in which cost exceeds value
(5,196,819)
- -----------------------------------------------------------------------------------
Net unrealized gain $ 21,856,559
- -----------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $122,409,417.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
7
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in securities, at value (identified cost $144,265,976
$122,350,113)
Cash 31,121
Receivables:
Fund shares sold 87,576
Investment securities sold 4,552,534
Dividends and interest 56,999
Deferred organization expenses, net 60,056
Other assets 10,218
TOTAL ASSETS 149,064,480
LIABILITIES:
Payables:
Investment securities purchased 3,687,585
Investment advisory fees 71,762
Administration fees 18,370
Transfer agent fees 4,807
Accrued expenses and other liabilities 28,626
TOTAL LIABILITIES 3,811,150
NET ASSETS:
Paid-in capital 115,859,949
Distributions in excess of net investment income (25,142)
Accumulated undistributed net realized gain on investment and 7,502,660
option transactions
Net unrealized gain on investments 21,915,863
NET ASSETS $145,253,330
Total shares of beneficial interest outstanding, $.001 par 7,755,774
value (50,000,000 shares authorized)
Net asset value, offering and redemption price per share (net $18.73
assets/shares outstanding)
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Goldman Sachs Mid-Cap Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 2,631,906
Interest 188,358
TOTAL INCOME 2,820,264
- -----------------------------------------------------
EXPENSES:
Investment adviser fees 771,956
Administration fees 192,989
Professional fees 68,906
Transfer agent fees 51,464
Custodian fees 29,506
Amortization of deferred organization 17,213
expenses
Directors' fees 2,234
Other 31,778
- -----------------------------------------------------
TOTAL EXPENSES $1,166,046
Less Expenses reimbursable by Goldman (72,441)
Sachs
NET EXPENSES 1,093,605
NET INVESTMENT INCOME 1,726,659
- -----------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENT AND OPTION TRANSACTIONS:
Net realized gain on investment 13,627,039
transactions
Net realized gain on options written 40,466
Net change in unrealized gain on 14,749,074
investments
- -----------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON 28,416,579
INVESTMENT AND OPTION TRANSACTIONS
- -----------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING $30,143,238
FROM OPERATIONS
- -----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, 1997 JANUARY 31, 1996 (A)
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,726,659 $ 1,088,855
Net realized gain on investment 13,627,039 547,655
transactions
Net realized gain (loss) on options 40,466 (83,442)
written
Net change in unrealized gain on 14,749,074 7,166,789
investments
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 30,143,238 8,719,857
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,837,675) (986,293)
In excess of net investment income (25,142) ---
From net realized gains (6,629,058) ---
Total distributions to shareholders (8,491,875) (986,293)
- ------------------------------------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS: SHARES SHARES
- ------------------------------------------------------------------------------------------------------------
Proceeds from sales of shares 227,071 3,933,239 9,029,858 135,730,361
Reinvestment of dividends and 483,747 8,489,760 64,045 986,293
distributions
Cost of shares repurchased (1,480,859) (24,491,993) (568,088) (8,779,257)
Net increase (decrease) in net assets
resulting from share transactions (770,041) (12,068,994) 8,525,815 127,937,397
- ------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 9,582,369 135,670,961
NET ASSETS:
Beginning of period 135,670,961 ---
End of period $145,253,330 $135,670,961
- ------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net $ (25,142) $ 102,562
investment income
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, 1997 JANUARY 31, 1996 (a)
------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.91 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.24 0.13
Net realized and unrealized gain on investments 3.77 0.90
and options
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 4.01 1.03
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.24) (0.12)
- ------------------------------------------------------------------------------------------------------------
In excess of net investment income (0.02) --
Net realized gain on investments and option (0.93) --
transactions
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1.19) (0.12)
- ------------------------------------------------------------------------------------------------------------
Net increase in net asset value 2.82 0.91
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.73 $ 15.91
Total return /(b)/ 25.63% 6.89% /(d)/
Portfolio turnover rate 74.03% 58.77% /(d)/
Average commission rate /(e)/ $ 0.0547 --
Net assets at end of period $145,253,330 $135,670,961
Ratio of net expenses to average net assets /(c)/ 0.85% 0.85%
Ratio of net investment income to average net assets /(c)/ 1.35% 1.67%
Ratios assuming no expense limitations:
Ratio of expenses to average net assets /(c)/ 0.91% 0.98%
Ratio of net investment income to average net assets /(c)/ 1.29% 1.54%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
/(b)/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
/(c)/ Annualized.
/(d)/ Not annualized.
/(e)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
January 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Goldman Sachs Mid-Cap Equity Fund ("the Fund") is a separate diversified
portfolio of Goldman SachsEquity Portfolios, Inc. (the "Company"). The Company
consists of eight funds and is a Marylandcorporation registered under the
Investment Company Act of 1940, as amended, as an open-end,management investment
company. The Fund offers two classes of shares - Institutional shares
andService shares. No Service shares were outstanding as of January 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significantaccounting policies consistently
followed by the Fund. The preparation of financial statements inconformity with
generally accepted accounting principles requires management to make
estimatesand assumptions that may affect the reported amounts.
A. Investment Valuation
- -- --------------------
Investments in securities traded on a U.S. or foreignsecurities exchange or the
NASDAQ system are valued daily at their last sale or closing price on
theprincipal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on aU.S. exchange or NASDAQ are valued at the mean between the
closing bid and asked price, andsecurities traded on a foreign exchange will be
valued at the official bid price. Unlisted equity anddebt securities for which
market quotations are available are valued at the mean between the mostrecent
bid and asked prices. Debt securities are valued at prices supplied by an
independent pricingservice, which reflect broker/dealer-supplied valuations and
matrix pricing systems. Short-termdebt obligations maturing in sixty days or
less are valued at amortized cost. Restricted securities, andother securities
for which quotations are not readily available, are valued at fair value using
methodsapproved by the Board of Directors of the Company.
B. Securities Transactions and Investment Income
- -- ---------------------------------------------
Securities transactions are recorded on the tradedate. Realized gains and
losses on sales of investments are calculated on the identified-costbasis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Fund hasthe choice to receive either cash or stock are recognized as investment
income in an amountequal to the cash dividend. This amount is also used as an
estimate of the fair value of the stockreceived. Interest income is determined
on a basis of interest accrued, premium amortized anddiscount earned.
C. Federal Taxes
- -- -------------
It is the Fund's policy to comply with the requirements of the Internal Revenue
Codeapplicable to regulated investment companies and to distribute substantially
all of its investmentcompany taxable income and capital gains to its
shareholders. Accordingly, no federal tax provisionis required. The
characterization of distributions to shareholders for financial reporting
purposes isdetermined in accordance with income tax rules. Therefore, the source
of a portfolio's distributionsmay be shown in the accompanying financial
statements as either from or in excess of netinvestment income or net realized
gain on investment transactions, or from capital, dependingon the type of
book/tax differences that may exist.
D. Deferred Organization Expenses
- -- ------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
12
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
E. Expenses
- -- --------
Expenses incurred by the Company which do notspecifically relate to an
individual fund of the Company are allocated to the funds based on eachfund's
relative average net assets for the period.
F. Option Accounting Principles
- -- ----------------------------
When the Fund writes call or put options, an amount equal to the premium
received is recordedas an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. When a written option expires onits stipulated
expiration date or the Fund enters into a closing purchase transaction, the Fund
realizes again or loss without regard to any unrealized gain or loss on the
underlying security, and the liabilityrelated to such option is extinguished.
When a written call option is exercised, the Fund realizes again or loss from
the sale of the underlying security, and the proceeds of the sale are
increasedby the premium originally received. When a written put option is
exercised, the amount of thepremium originally received will reduce the cost of
the security which the Fund purchases uponexercise. There is a risk of loss
from a change in value of such options which may exceed the relatedpremiums
received.
Upon the purchase of a call option or aprotective put option by the Fund, the
premium paid is recorded as an investment and subsequentlymarked-to-market to
reflect the current market value of the option. If an option which the Fundhas
purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount ofthe cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gainor loss, depending on whether the
sale proceeds from the closing sale transaction are greater or lessthan the cost
of the option. If the Fund exercises a purchased put option, the Fund will
realize a gainor loss from the sale of the underlying security, and the proceeds
from such sale will be decreased bythe premium originally paid. If the Fund
exercises a purchased call option, the cost of the securitywhich the Fund
purchases upon exercise will be increased by the premium originally paid.
G. Futures Contracts
- -- -----------------
The Fund may enter into financial futures contracts for hedging purposes or to
increase total return. Upon entering into a futures contract, the Fund is
required to deposit with a broker an amount of cashor securities equal to the
minimum "initial margin" requirement of the futures exchange on which
thecontract is traded. Subsequent payments ("variation margin") are made or
received by theFund each day, dependent on the daily fluctuations in the value
of the underlying index, and arerecorded for financial reporting purposes as
unrealized gains or losses by the Fund. Whenentering into a closing
transaction, for book purposes, the Fund will realize a gain or loss equalto the
difference between the value of the futures contract to sell and the futures
contract to buy. Futures contracts are valued at the most recent settlement
price, unless such price does not reflectthe fair market value of the contract,
in which case the position will be valued using methods approvedby the Board of
Directors of the Company.
Certain risks may arise upon entering intofutures contracts. The predominant
risk is that the changes in the value of the futures contract may notdirectly
correlate with changes in the value of the underlying securities. This risk may
decrease theeffectiveness of the Fund's hedging strategies and may also result
in a loss to the Fund.
13
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), aseparate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund'sinvestment adviser
pursuant to an Investment Advisory Agreement. Under the InvestmentAdvisory
Agreement, GSAM, subject to the general supervision of the Company's Board of
Directors,manages the Fund's portfolio. As compensation for the services
rendered under the AdvisoryAgreement and the assumption of the expenses related
thereto, GSAM is entitled to a fee,computed daily and payable monthly, at an
annual rate equal to .60% of the Fund's average daily netassets.
GSAM also acts as the Fund's administratorpursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administersthe Fund's
business affairs, including providing facilities. As compensation for the
servicesrendered pursuant to the Administration Agreement, the Fund pays GSAM a
fee, computeddaily and payable monthly, at an annual rate equal to .15% of the
Fund's average daily net assets.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" (excludingadvisory, administration, service plan and transfer agent
fees and litigation, indemnification, taxes,interest, brokerage commissions and
extraordinary expenses) until further notice to the extent suchexpenses exceed
..06% of the average daily net assets of the Fund. For the year ended January
31,1997, these expense reimbursements amounted to $72,441 and Goldman Sachs owed
the Fund $8,717at year end.
Goldman Sachs serves as the Distributor ofshares of the Fund pursuant to a
distribution agreement and receives no fee. Goldman Sachsalso serves as the
Transfer Agent of the Fund for a fee.
4. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line of
creditfacility. In addition, the Fund participates in a $50,000,000 committed,
unsecured revolving lineof credit facility. Both facilities are to be used
solely for temporary or emergency purposes. Under the most restrictive
arrangement, the Fund must own securities having a market value inexcess of 300%
of the total bank borrowings. The interest rate on the borrowings is based on
theFederal Funds rate. The committed facility also requires a fee to be paid
based on the amount of thecommitment which has not been utilized. During the
year ended January 31, 1997, the Fund did nothave any borrowings under these
facilities.
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities ofsecurities (excluding short-term
investments and options) for the year ended January 31, 1997 were$92,601,511 and
$112,186,001, respectively.
For the year ended January 31, 1997, optiontransactions in the Fund were as
follows:
<TABLE>
<CAPTION>
Put Options written Contracts Premium Received
- ----------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period -- $ --
Options written 240 40,466
Options expired (240) (40,466)
- ----------------------------------------------------
Balance outstanding,
end of period -- $ 0
- ----------------------------------------------------
</TABLE>
Certain risks arise related to written call or put options from the possible
inability of counterpartiesto meet terms of their contracts.
For the year ended January 31, 1997, GoldmanSachs earned approximately $22,000
of brokerage commissions from portfolio transactions executedon behalf of the
Fund.
14
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, thevalue of the underlying
securities, including accrued interest, is required to equal or exceed thevalue
of the repurchase agreement. The underlying securities for all repurchase
agreements are held insafekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements withGSAM, transfer uninvested cash balances into joint accounts, the
daily aggregate balance of which isinvested in one or more repurchase
agreements. The underlying securities for the repurchaseagreements are U.S.
Treasury obligations. At January 31, 1997, the Fund had an undividedinterest
in the repurchase agreements in the following joint account which equaled
$4,100,000in principal amount. At January 31, 1997, the repurchase agreements
held in this joint account,along with the corresponding underlying securities
(including the type of security, market value,interest rate and maturity date)
were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns Securities, dated 01/31/97, repurchase price
$800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26; FNMA:
$720,411,516, 5.50% - 8.00%, 02/01/09 -09/01/26; FHLMC:
77,372,676, 6.0% -$ 8.0%, 04/01/98 - 07/01/26)
$800,000,000 5.63% 02/03/97 $ 800,000,000
Nomura Securities, dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.5% - 10.25%
01/15/20 - 01/20/27)
100,000,000 5.65 02/03/97 100,000,000
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.375%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535 05/15/02 - 11/15/03)
201,800,000 5.60 02/03/97 201,800,000
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,101,800,000
- --------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, theMid-Cap Equity Fund has
reclassified $8,454 from paid-in capital to distributions in excess of
netinvestment income. These reclassifications have no impact on the net asset
value of the Fund and isdesigned to present the Fund's capital accounts on a tax
basis.
9. OTHER MATTERS
As of January 31, 1997, The Goldman, Sachs & Co. Employees Profit Sharing and
Retirement IncomePlan was the beneficial owner of approximately 98% of the
outstanding shares of the Fund.
15
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of GoldmanSachs Mid-Cap Equity Fund:
We have audited the accompanying statement ofassets and liabilities of Goldman
Sachs Mid-Cap Equity Fund, one of the portfolios constituting Goldman Sachs
Equity Portfolios, Inc., including the statement of investments, as of January
31, 1997, and the relatedstatement of operations and the statement of changes in
net assets and the financial highlights for the periodspresented. These
financial statements and the financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlightsbased on our audits.
We conducted our audits in accordance withgenerally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtainreasonable assurance about whether the financial statements and the
financial highlights are free ofmaterial misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts anddisclosures in
the financial statements. Our procedures included confirmation of securities
owned as of January 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accountingprinciples used and significant
estimates made by management, as well as evaluating the overall
financialstatement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in allmaterial respects, the financial position of
Goldman Sachs Mid-Cap Equity Fund as of January 31, 1997, theresults of its
operations and the changes in its net assets and the financial highlights for
the periods presented, inconformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
16
<PAGE>
Goldman Sachs
1 New York Plaza
New York, NY 10004
DIRECTORS
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser, Administrator,
Distributor and Transfer Agent
17
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
The U.S. equity market rewarded investors with excellent returns once
again in the 12-month period ended January 31, 1997. Most European markets
achieved significant gains as well, with several outpacing the U.S., while the
performance of Asian markets varied widely. We are pleased to report that most
of the Goldman Sachs equity funds performed very well in this generally
favorable global equity environment.
U.S. Stocks Continued to Climb Amid Heightened Volatility
The U.S. stock market surged to record levels during the period under
review, rising an impressive 26.3% (as measured by the Standard & Poor's 500
stock index). During 1996, the market advanced in a "staircase" pattern, where
notable gains are achieved within a relatively short time and are followed by a
period of choppy trading. For example, after a run-up from January through
mid-February, market volatility notably increased, as investor sentiment
vacillated between two contradictory concerns. With some economic news,
investors feared that the economy was growing too quickly, making higher
inflation a possibility, while other news caused them to worry that the economy
was slowing, putting earnings at risk. In May, investors briefly overcame their
fears and sent the market higher, but their concerns quickly re-emerged and
caused the market to settle into another choppy trading range that culminated in
a sharp sell-off in July.
By August, sentiment significantly improved when data indicated that
earnings growth was more resilient than generally expected and inflation
remained under control. Thus reassured, investors propelled stocks to record
highs during the second half of the period, with the Dow Jones Industrial
Average crossing the 6000 mark for the first time by mid-October. The ascent
continued through the end of the period, with the Dow climbing to 7000 by
mid-February 1997.
Though small-cap stocks led the market during the first half of the
year, the post-July rally was dominated by large-cap, growth companies.
Furthermore, the rally was very narrowly focused, with a handful of large-cap
stocks (primarily in the technology, finance and pharmaceutical sectors)
contributing substantially to the S&P 500 index's performance for the period.
After a Weak Start, Economic Growth Rebounded, Then Moderated
When the period began, lackluster consumer spending and the General
Motors strike restrained economic growth, but the economy still advanced faster
than expected, with first-quarter real GDP growth of 2.0% (annualized). Momentum
accelerated even more dramatically during the second quarter, as industrial
activity, automobile sales and home sales all showed significant improvement. As
a result, second-quarter real GDP rose a robust 4.7% (annualized), its highest
rate in two years.
The economy's torrid growth cooled markedly during the third quarter
with an annualized real GDP growth of 2.1%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. This slowdown proved to be
temporary, however, as the economy strengthened from October through December.
Fourth-quarter real GDP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table of Contents
<S> <C>
Introduction/Market Overview............................................. 1
Goldman Sachs Balanced Fund.............................................. 4
Goldman Sachs Select Equity Fund......................................... 14
Goldman Sachs Growth and Income Fund..................................... 22
Goldman Sachs Capital Growth Fund........................................ 28
Goldman Sachs Small Cap Equity Fund...................................... 34
Goldman Sachs International Equity Fund.................................. 40
Goldman Sachs Asia Growth Fund........................................... 48
Financial Statements..................................................... 56
Notes to Financial Statements............................................ 64
Financial Highlights..................................................... 74
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
growth was revised to 3.9% (annualized), reflecting a narrowing trade deficit,
rising consumer spending and accelerating manufacturing activity. Despite firm
growth, underlying inflation remained surprisingly mild. For all of 1996,
consumer prices rose only 2.9%. In January 1997, most indicators suggested that
the economy would continue to advance.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis
points in January 1996, just prior to the start of the period, in response to
generally poor year-end economic conditions. Though stronger than expected
growth shifted investor expectations from further Federal Reserve interest rate
cuts to potential tightening, the Fed then left rates unchanged. As of January
31, 1997, the Federal funds rate remained at 5.25%.
The Dollar Resumed Its Climb Against the Yen and the Mark Following a Brief July
Slide
During the period under review, the dollar continued to strengthen,
rising to a 47-month high against the yen and a 31-month high against the mark.
Though the dollar declined briefly in July along with the U.S. stock market, it
quickly rebounded in August and continued to rally through the end of the
period. The dollar's climb was reflective of several developments, including the
relative strength of the U.S. economy, reductions in the budget deficit and
controlled inflation. Despite the run-up, Goldman Sachs' economists do not
expect a major impact on U.S. growth in 1997, nor do they anticipate a major
decrease in exports, as the dollar's effect on U.S. trade flows is relatively
small and stretched out over time. Furthermore, domestic demand in Canada and
Mexico, which together accounted for nearly one-third of U.S. exports in 1996,
is expected to rise.
The International Market Environment: European Equities Performed Well, Japan
Declined Sharply and Asian Markets Were Mixed Amid Increased Volatility
During the period under review, most global economies experienced
modest growth, but long-awaited recoveries in Europe and Japan fell short of
expectations. In Europe, several major economies, such as Germany and France,
continued to be plagued by weaker than expected manufacturing activity and
record-high unemployment, while others, such as the U.K., clearly accelerated.
In contrast to the mixed economic conditions, most European equity markets
performed very well, buoyed by healthy corporate profits. Though the Japanese
economy strengthened, equities declined due to concerns regarding the
sustainability of earnings growth as well as fears that the newly elected
government would delay deregulation. In January 1997, the already weak Japanese
market sold off sharply when the government announced an austerity program that
was expected to curb growth. In other Asian countries, key elections heightened
political uncertainty throughout the region and a marked slowdown in economic
growth increased volatility.
Outlook in the U.S.: Economic Growth Is Expected to Continue to Strengthen
Goldman Sachs' economists expect first-quarter real GDP growth to
slow to just under 2.0% (annualized) due to a widening trade deficit. However,
this slowdown should not be interpreted as any change in economic fundamentals,
as underlying demand remains firm and consumer confidence, income and employment
trends continue to support consumer spending. The favorable economic environment
of moderate growth and low inflation appears likely to persist in the near term,
which could translate to a seventh year of profit growth for U.S. corporations
in 1997 and another good year for U.S. equities, though not likely as strong as
last year. As always, equity performance can be affected by changes in the
economic environment, such as higher than expected inflation, which could lead
to a Fed tightening by midyear, or an unforeseen faltering of economic growth.
After the outstanding performance of the past two years, it is
important to maintain realistic expectations from your equity investments. As
increased volatility during 1996 demonstrated, equities can go down as well as
up. Over the long run, however, stocks have historically outperformed other
asset classes, rewarding investors committed to a long-term investment horizon.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
A Major Addition to Our Active Equity Management Team
We are pleased to announce that we have recently acquired Liberty
Investment Management, a Tampa, Florida-based investment advisory firm with an
impressive 16-year track record. Liberty's Chief Investment Officer, Herbert
Ehlers, and his portfolio management team have assumed primary responsibility
for the Goldman Sachs Capital Growth Fund, which they will manage using a
"growth at a reasonable price" investment style. The Liberty group adds both
breadth and depth to the Goldman Sachs U.S. Active Equity team, and we look
forward to working with them.
In conclusion, thank you for making the Goldman Sachs equity funds part of
your long-term financial plan.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
March 3, 1997
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Balanced Fund seeks to provide investors with a
combination of long-term growth of capital and current income by investing in a
diversified portfolio that includes both equity and fixed income securities.
Under normal market conditions, the fund is expected to maintain an asset mix of
45% to 65% in equity securities, with the remainder (at a minimum 25%) in fixed
income securities. The fund's portfolio management team will review the fund's
asset mix on a regular basis and adjust it to reflect changes in the economic
environment.
Stocks are selected using a value style, identifying those judged to
be inexpensive relative to their expected long-term earnings and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, we actively manage the
portfolio within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
Performance Review: Equity, Fixed Income and Asset Allocation Contributed to
Strong Results
<TABLE>
<CAPTION>
Fund Total Return
(based on net Benchmark
asset value) Total Return+
------------ -------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 18.59% 15.51%
Class B (5/1/96 - 1/31/97)* 16.22% 14.99%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%).
We are pleased to report that during the period under review, the
fund's Class A and Class B shares outperformed the benchmark. In addition, the
fund's Class A shares ranked within the top 15% of the Lipper balanced fund
category (35th of 281) for the 12-month period ended January 31, 1997, according
to Lipper Analytical Services, Inc. (Please note that Lipper rankings do not
take sales charges into account and that past performance is not a guarantee of
future results. Class B shares were not ranked because they did not exist during
the full year.)
The equity and fixed income portions of the fund both performed
favorably, with equity investments contributing most to fund results. In
addition, our asset allocation decisions also benefited performance. During the
spring of 1996, we reduced the fund's equity weightings in favor of fixed income
investments, which worked in its favor when equities fell sharply in July. In
October, we increased the fund's equity weighting, just prior to a significant
rally in the stock market. As of January 31, 1997, the fund's asset mix based on
net assets was 54% in equities, 42% in fixed income and the remainder in cash
equivalents.
Best Performing Equity Investments Included Technology, Finance and Energy
Stocks
The fund's best performing stocks came from a wide range of
industries, particularly technology, finance and energy. Technology holdings
that performed well included Intel Corp., the dominant microprocessor
manufacturer, which we sold after it climbed sharply due to stronger than
expected personal computer sales and reached our target price, and Avnet, Inc.,
the second largest distributor of semiconductors and other electronic
components. In the financial sector, BankAmerica Corp. increased its focus on
aggressive capital management, and NationsBank Corp. began to realize the
benefits of cost cuts. Top-performing energy-related investments were Tosco
Corp., an oil refiner and distributor, which continued its ambitious acquisition
strategy, and Texaco Inc., which benefited from higher petroleum prices and a
successful restructuring program. Disappointing performers included three
companies that suffered from
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride.
One of the fund's new investments was Unicom Corp., an electric
utility that operates 12 nuclear units at six sites. Unicom generates excess
capital and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects. During
the period, we sold several stocks after they appreciated and reached our price
targets, including Anheuser-Busch Co., Inc., the world's largest brewer, and
Greenpoint Financial Corp., a New York-based thrift.
<TABLE>
<CAPTION>
Top 10 Equity Holdings as of January 31, 1997
Percentage of
Total
Company Line of Business Net Assets
<S> <C> <C>
Aetna Inc. Healthcare 1.9%
Management
Tenet Healthcare Corp. Hospitals 1.9%
Cigna Corp. Insurance 1.7%
Lear Corp. Autoparts/Original 1.7%
Equipment
Brunswick Corp. Pleasure 1.7%
Boats/Marine
Engines
Goodyear Tire & Rubber Co. Tire and Rubber 1.6%
Products
Dean Witter Discover & Co. Financial Services 1.6%
Avnet, Inc. Electronic 1.5%
Components
Distributor
Philip Morris Companies, Tobacco and Food 1.5%
Inc. Products
Owens-Illinois, Inc. Packaging 1.5%
</TABLE>
Corporate and Emerging Market Debt Sectors Led the Fund's Fixed Income
Performance
The fixed income sectors that contributed most to the fund's
performance were its corporate bond holdings and emerging market debt
securities. Corporate bonds benefited when many companies reported positive
earnings growth throughout the period. Emerging market debt was one of the
fund's smaller allocations during the year but performed extremely well due to
positive emerging country credit trends and supportive cash flows resulting from
global investors' persistent search for incremental yield. In addition, the
fund's investments in the mortgage and asset-backed sectors also performed well,
reflecting healthy investor demand.
The fund's largest fixed income allocation was mortgage-backed
securities (MBS), which accounted for a 12.9% position in terms of total net
assets, up from 10.0% a year ago. The MBS sector fared particularly well during
the first half of the period, when interest rates rose and prepayment fears
abated. We gradually trimmed the fund's exposure in the corporate bond sector to
9.8%, down from 13.2% a year ago, as it became more fully valued. The fund's
asset-backed securities (ABS) weighting was 4.8%, and they continued to offer
incremental yield over similar duration Treasuries. U.S. Treasuries, with an
8.5% allocation, were used together with futures to manage the fund's interest
rate risk. Finally, 3.3% of the fund was invested in emerging market debt, where
we stressed higher credit, short-duration bonds, and 0.7% was invested in
government agency securities.
Outlook
We believe that, overall, the stock market is moderately overvalued
and is therefore unlikely to match the strong return it achieved in 1996.
However, it is important to note that even after last year's rally, the fund's
equity holdings continue to be attractively valued. We expect that our emphasis
on using extensive fundamental research to identify stocks selling below their
- --------------------------------------------------------------------------------
5
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
- --------------------------------------------------------------------------------
intrinsic value will continue to serve us well in 1997's potentially more
challenging stock market environment.
We have a relatively cautious view of the fixed income markets in the
coming months due to a possible tightening by the Federal Reserve later in the
year, which would impact the prices of fixed income securities. In the MBS
market, the pace of mortgage prepayments remains stable, and we continue to
identify specific securities that present attractive investment opportunities.
We have a moderately optimistic view for the corporate sector, where we will
continue to emphasize short-duration bonds that offer attractive incremental
yield over Treasuries. Finally, we believe ABS still offer attractive value
relative to other similarly rated securities, and we expect new supply to
continue to be met with enthusiastic demand.
Going forward, we will continue to actively allocate the portfolio's
asset mix between the equity and fixed income sectors to take advantage of
changing market conditions throughout the coming year.
/s/ Ronald E. Gutfleish /s/ Jonathan A. Beinner
Ronald E. Gutfleish Jonathan A. Beinner
Senior Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ G. Lee Anderson /s/ c. Richard Lucy
G. Lee Anderson C. Richard Lucy
Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ Eileen A. Aptman /s/ Richard H. Buckholz
Eileen A. Aptman Richard H. Buckholz
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Fixed Income
March 3, 1997
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 index ("S&P 500") and the Lehman
Brothers Aggregate Bond Index (LBABI)) are shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class A Class A
(w/sales charge) (no sales charge) LBABI S&P 500
---------------- ----------------- ----- -------
<S> <C> <C> <C> <C>
10/12/94 9,450 10,000 10,000 10,000
1/31/95 9,532 10,087 10,233 10,184
1/31/96 12,211 12,922 11,966 14,123
1/31/97 14,488 15,331 12,357 17,842
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class B Class B
(no redemp. charge) (w/redemp. charge) LBABI S&P 500
------------------- ------------------ ----- -------
<S> <C> <C> <C> <C>
5/1/96 10,000 10,000 10,000 10,000
1/31/97 11,622 11,122 10,642 12,218
</TABLE>
---------------------------------------
Average Annual Total Return
---------------------------------------
One Year Since Inception/(a)/
------------------------------- ------------------ -------------------
Class A, no sales charge 18.59% 20.32%
------------------------------- ------------------ -------------------
Class A, w/sales charge 12.07% 17.41%
------------------------------- ------------------ -------------------
Class B, no redemption charge N/A 16.22%/(b)/
------------------------------- ------------------ -------------------
Class B, w/redemption charge N/A 11.22%/(b)/
------------------------------- ------------------ -------------------
/(a)/ Class A and B shares commenced operations October 12, 1994 and May 1,
1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve
months of operations.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--53.0%
Airlines--1.8%
7,700 AMR Corp.* $ 619,850
32,600 Continental Airlines, Inc.* 908,725
- --------------------------------------------------------------------
1,528,575
- --------------------------------------------------------------------
Appliance Manufacturer--0.9%
28,600 Sunbeam Corp. 793,650
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.7%
38,200 Lear Corp.* 1,427,725
- --------------------------------------------------------------------
Auto/Vehicle--1.0%
25,600 Ford Motor Co. 824,400
- --------------------------------------------------------------------
Banks--4.5%
10,300 BankAmerica Corp. 1,149,738
5,300 Chase Manhattan Corp. 490,250
9,400 Fleet Financial Group, Inc. 507,600
9,300 NationsBank Corp. 1,004,400
7,400 Republic Bank of New York Corp. 655,825
- --------------------------------------------------------------------
3,807,813
- --------------------------------------------------------------------
Chemicals-Commodity--1.1%
31,400 Geon Co. 588,750
7,600 Union Carbide Corp. 344,850
- --------------------------------------------------------------------
933,600
- --------------------------------------------------------------------
Defense--2.1%
17,900 McDonnell Douglas Corp. 1,203,775
6,200 Northrop Grumman Corp. 484,375
1,900 Thiokol Corp. 106,400
- --------------------------------------------------------------------
1,794,550
- --------------------------------------------------------------------
Department Stores--0.8%
13,900 Sears Roebuck & Co. 667,200
- --------------------------------------------------------------------
Electric Utilities--2.8%
5,500 CMS Energy Corp. 184,250
43,000 Long Island Lighting Co. 978,250
49,600 Unicom Corp. 1,171,800
- --------------------------------------------------------------------
2,334,300
- --------------------------------------------------------------------
Food--1.5%
40,200 Chiquita Brands International, Inc. 587,925
4,000 Unilever Inc. 658,000
- --------------------------------------------------------------------
1,245,925
- --------------------------------------------------------------------
Forest Products--1.1%
12,400 Georgia Pacific Corp. 912,950
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
23,300 Baxter International, Inc. 1,074,713
- --------------------------------------------------------------------
Healthcare Management--3.8%
20,400 Aetna Inc. 1,611,600
57,800 Tenet Healthcare Corp.* 1,560,600
- --------------------------------------------------------------------
3,172,200
- --------------------------------------------------------------------
Home Builders--1.8%
18,200 Centex Corp. 709,800
28,200 Lennar Corp. 750,825
- --------------------------------------------------------------------
1,460,625
- --------------------------------------------------------------------
Insurance-Life--2.5%
9,500 Cigna Corp. 1,440,438
11,700 Lincoln National Corp. 627,413
- --------------------------------------------------------------------
2,067,851
- --------------------------------------------------------------------
Insurance-Property and Casualty--1.6%
9,200 Allmerica Financial Corp. 336,950
16,100 Partner Re Holding Ltd. 571,550
12,700 Tig Holdings, Inc. 439,738
- --------------------------------------------------------------------
1,348,238
- --------------------------------------------------------------------
Integrated Oil--2.6%
8,100 Atlantic Richfield Co. 1,071,225
10,300 Texaco, Inc. 1,090,513
- --------------------------------------------------------------------
2,161,738
- --------------------------------------------------------------------
Logistics/Rail--1.0%
30,400 Canadian Pacific Ltd. 824,600
- --------------------------------------------------------------------
Logistics/Trucking--1.2%
39,600 Consolidated Freightways, Inc. 1,004,850
- --------------------------------------------------------------------
Oil Refining & Marketing--1.9%
12,800 Ashland Inc. 552,000
11,300 Tosco Corp. 1,000,050
- --------------------------------------------------------------------
1,552,050
- --------------------------------------------------------------------
Packaging--1.5%
52,500 Owens-Illinois Inc.* 1,246,875
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
8
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Recreational Products--1.7%
55,500 Brunswick Corp. $ 1,394,438
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.5%
13,100 Lehman Brothers Holdings, Inc. 414,288
- --------------------------------------------------------------------
Semiconductors & Electronics--1.5%
20,700 Avnet Inc. 1,280,813
- --------------------------------------------------------------------
Software--0.5%
13,800 Autodesk Inc. 436,425
- --------------------------------------------------------------------
Specialty Finance--1.6%
34,200 Dean Witter Discover & Co. 1,303,875
- --------------------------------------------------------------------
Steel--1.0%
20,200 AK Steel Holding Corp. 813,050
- --------------------------------------------------------------------
Supermarkets--2.0%
56,300 Fleming Companies, Inc. 907,838
24,600 Supervalu, Inc. 759,525
- --------------------------------------------------------------------
1,667,363
- --------------------------------------------------------------------
Textiles--1.3%
27,500 Fruit of The Loom, Inc.* 1,103,438
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--1.6%
24,000 Goodyear Tire & Rubber Co. 1,308,000
- --------------------------------------------------------------------
Tobacco--2.8%
4,200 Loews Corp. 415,275
10,700 Philip Morris Companies, Inc. 1,271,963
12,100 RJR Nabisco, Inc. 396,275
8,500 Universal Corp. 263,500
- --------------------------------------------------------------------
2,347,013
- --------------------------------------------------------------------
Total Common Stocks
(Cost $35,773,086) $44,253,131
====================================================================
Preferred Stocks--0.1%
Media Content--0.1%
63 Time Warner, Inc. 10.25% $ 69,064
- --------------------------------------------------------------------
Tobacco--0.0%
3,400 RJR Nabisco, Inc., class C 9.25% 22,525
- --------------------------------------------------------------------
Total Preferred Stocks
(Cost $84,320) $ 91,589
====================================================================
Rights--1.1%
Forest Products--0.7%
42,000 Stone Container Corp. * exp. 08/08/98 $ 567,000
Technology Capital Goods--0.4%
10,800 Teradyne, Inc.* exp. 03/26/00 333,450
- --------------------------------------------------------------------
Total Rights
(Cost $923,718) $ 900,450
====================================================================
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Fixed Income--41.5%
Asset-Backed Securities--4.8%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 102,655
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 249,609
Case Equipment Loan Trust, Series 1995-A, Class A
74,286 7.30 03/15/02 75,124
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/03 139,343
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
74,323 5.80 06/15/02 74,137
Discover Card Master Trust 1994-2, Class A
70,000 5.83 10/16/04 70,613
Discover Card Master Trust 1996-2, Class A
110,000 5.70 07/18/05 110,550
Discover Card Master Trust 1996-4, Class A
740,000 5.86 10/16/13 751,329
Discover Card Master Trust 1996-4, Class B
420,000 6.03 10/16/13 424,460
Fasco Auto Trust, Series 1996-1
266,114 6.65 11/15/01 267,223
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 200,936
Navistar Financial Trust, Series 1995-A, Class A2
134,590 6.55 11/20/01 135,347
Navistar Financial Trust, Series 1995-b, Class A3
120,000 6.05 04/15/02 120,000
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 733,026
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Asset-Backed Securities (continued)
Sears Credit Card Master Trust, Series 1995-3, Class A
$ 70,000 7.00% 10/15/04 $ 71,268
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 117,322
Standard Credit Card Master Trust, Series 1995-1, Class A
360,000 8.25 01/07/07 389,135
- --------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $4,019,726) $ 4,032,077
====================================================================
Corporate Bonds--9.8%
Finance Bonds--3.6%
BankAmerica Corp.
$ 500,000 7.75% 07/15/02 $ 520,600
Capital One Bank
200,000 8.33 02/10/97 200,056
250,000 8.13 02/27/98 254,825
Conseco Finance
120,000 8.70 11/15/26 122,912
Continental Bank
100,000 12.50 04/01/01 120,501
Countrywide Funding Corp.
100,000 6.08 07/14/99 99,368
150,000 8.00 12/15/26 147,029
Edison Mission Energy Funding Corp.
100,000 6.77 09/15/03 99,852
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 248,888
Golden West Financial Corp.
200,000 10.25 12/01/00 223,894
Meditrust, Inc.
120,000 7.82 09/10/26 128,021
Mic Finance Trust
80,000 8.38 02/01/27 80,442
Olympic Financial Ltd.
95,000 13.00 05/01/00 107,350
PXRE Cap Trust
65,000 8.85 02/01/27 65,847
Signet Banking Corp.
$ 500,000 9.63% 06/01/99 $ 531,870
Washington Real Estate
55,000 7.13 08/13/03 54,745
- --------------------------------------------------------------------
Total Finance Bonds
(Cost $3,035,271) $ 3,006,200
====================================================================
Industrial Bonds--5.6%
360 Communications Co.
$ 195,000 7.13% 03/01/03 $ 193,518
Auburn Hills Trust
90,000 12.00 05/01/20 134,352
Blockbuster Entertainment
50,000 6.63 02/15/98 49,995
Chelsea GCA Realty
226,000 7.75 01/26/01 228,362
DVI Equipment Lease Trust
434,745 6.55 07/10/04 434,605
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,038
General Motors Acceptance Corp.
170,000 7.13 05/10/00 173,087
210,000 5.63 02/05/01 202,810
H + T Master Trust, Class A2
220,000 8.18 08/15/02 220,000
K Mart Corp.
40,000 9.55 06/30/98 40,290
40,000 9.60 09/15/98 40,845
Loewen Group International
50,000 7.75 10/15/01 50,000
News America Holdings, Inc.
160,000 7.50 03/01/00 163,784
Northwest Airlines
217,076 8.97 01/02/15 226,558
NWA
68,025 8.26 03/10/06 71,149
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
10
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Corporate Bonds (continued)
Industrial Bonds (continued)
Oryx Energy Co.
$ 245,000 9.50% 11/01/99 $ 259,252
RJR Nabisco Inc.
135,000 8.00 07/15/01 136,184
160,000 8.63 12/01/02 164,654
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 119,600
Tele-Communications, Inc.
295,000 6.19 09/15/03 292,956
125,000 9.65 10/01/03 133,951
20,000 6.82 09/15/10 19,899
Tenet Healthcare Corp.
60,000 9.63 09/01/02 65,100
Time Warner, Inc.
375,000 7.45 02/01/98 378,776
125,000 9.63 05/01/02 139,444
250,000 7.98 08/15/04 256,243
Tosco Corp.
110,000 7.00 07/15/00 110,793
U.S. Home Corp.
70,000 7.95 03/01/01 68,250
USI American Holdings Corp.
60,000 7.25 12/01/06 58,540
Viacom International
80,000 9.13 08/15/99 81,800
95,000 10.25 09/15/01 103,550
- --------------------------------------------------------------------
Total Industrial Bonds
(Cost $4,650,412) $ 4,660,385
====================================================================
Utility Bonds--0.6%
Arkla Inc.
$ 250,000 9.20% 12/18/97 $ 255,665
Central Maine Power Co.
100,000 7.38 01/01/99 100,138
160,000 7.45 08/30/99 159,134
- --------------------------------------------------------------------
Total Utility Bonds
(Cost $521,661) $ 514,937
====================================================================
- --------------------------------------------------------------------
====================================================================
Total Corporate Bonds
(Cost $8,207,344) $ 8,181,522
====================================================================
Government Bonds--1.2%
Australia Commonwealth
AUD1,000,000 7.50% 07/15/05 $ 769,138
Province of Quebec
$ 200,000 13.25 09/15/14 238,976
- --------------------------------------------------------------------
Total Government Bonds
(Cost $1,033,387) $ 1,008,114
====================================================================
Emerging Market Debt--3.3%
Argentina Bocan
$ 144,111 5.69% 04/01/01 $ 138,490
Asia Pulp and Paper International Finance Co.
100,000 7.26(a) 04/03/97 98,614
200,000 8.30 06/28/99 198,118
90,000 10.25 10/01/00 90,754
Banco De Commercio Exterior
30,000 8.63 06/02/00 30,979
BCO De Colombia
110,000 8.63 06/02/00 113,590
Bridas Corp.
170,000 12.50 11/15/99 181,433
Bridas Corp. Gtd Euro Medium
60,000 9.50 06/17/99 60,147
Corp. Andina de Fomento
160,000 7.25 04/30/98 161,774
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,440
Empresa Col Petroleos
80,000 7.25 07/08/98 80,566
Financiera Energy Nacional
230,000 5.88 02/17/98 226,062
60,000 8.13 04/09/98 60,347
200,000 8.46 06/19/98 201,876
80,000 9.38 06/15/06 82,847
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Emerging Market Debt (continued)
Grupo Industrial Durango
$ 120,000 12.00% 07/15/01 $ 127,978
Grupo Televisa
20,000 11.38 05/15/03 21,425
Imexsa Export Trust
100,000 10.13 05/31/03 104,190
Inst Fomento Industrial
290,000 8.38 07/29/01 295,707
PT Indah Kiat
50,000 8.88 11/01/00 49,518
Republic of Argentina
89,600 8.63 04/06/98 90,730
150,000 5.63 04/01/00 75,600
Sampoerna International
50,000 8.38 06/15/06 51,208
YPF Sociedad Anonima
111,483 7.50 10/26/02 113,132
- --------------------------------------------------------------------
Total Emerging Market Debt
(Cost $2,710,872) $ 2,766,525
====================================================================
Government Agency Obligations--0.7%
Federal National Mortgage Association
$ 520,000 8.50% 02/01/05 $ 545,917
- --------------------------------------------------------------------
Total Government Agency Obligations
(Cost $566,963) $ 545,917
====================================================================
Mortgage Backed Obligations--12.9%
Federal Home Loan Mortgage Corp.
$ 2,000,000 7.50% TBA-30yr/(b)/ $ 2,003,740
Federal National Mortgage Association
2,000,000 8.00 TBA-30yr/(b)/ 2,042,500
1,000,000 6.50 TBA-15yr/(b)(d)/ 990,930
95,702 8.50 09/01/06/(d)/ 100,068
119,291 8.50 03/01/07/(d)/ 124,733
677,419 8.50 03/01/10/(d)/ 707,985
1,000,000 3.50 05/25/19 869,370
====================================================================
Government National Mortgage Association
$ 1,000,000 7.50% TBA-30yr/(b)/ $ 1,002,180
963,086 7.50 05/15/23 969,404
1,005,709 7.00 07/15/23 990,311
1,000,000 7.00 08/15/23 984,690
- --------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $10,687,107) $10,785,911
====================================================================
Sovereign Credit--0.2%
State of Israel
$ 150,000 6.38% 12/15/05 $ 141,983
- --------------------------------------------------------------------
Total Sovereign Credit
(Cost $139,082) $ 141,983
====================================================================
U.S. Treasury Obligations--8.5%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13/(d)/ $ 666,592
120,000 8.75 05/15/17/(d)/ 144,619
30,000 8.88 08/15/17 36,595
580,000 8.75 05/15/20 704,068
160,000 8.75 08/15/20/(d)/ 194,400
680,000 7.63 02/15/25 743,430
United States Treasury Notes
1,200,000 6.88 08/31/99 1,223,628
1,000,000 6.13 07/31/00 999,220
900,000 7.88 11/15/04 977,202
United States Treasury Principal Only Stripped Securities/(a)/
80,000 6.03/(a)/ 08/15/99 68,774
740,000 6.55/(a)/ 11/15/04/(d)/ 447,552
320,000 6.59/(a)/ 05/15/05 186,781
2,200,000 7.09/(a)/ 02/15/19 473,968
890,000 7.10/(a)/ 05/15/20 175,205
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $7,102,563) $ 7,042,034
====================================================================
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
12
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Yankee Bonds--0.1%
Korea Electric Power
$ 93,927 7.40% 04/01/16 $ 93,712
- --------------------------------------------------------------------
Total Yankee Bonds
(Cost $90,825) $ 93,712
====================================================================
Total Fixed Income
(Cost $34,557,869) $34,597,795
- --------------------------------------------------------------------
Short-Term Obligations--0.2%
Argentina Treasury Bill
$ 40,000 6.00%/(a)/ 02/14/97 $ 39,896
Banco Nacional de Com
50,000 10.63 06/23/97 51,291
Republic of Argentina
90,000 6.29(a) 05/16/97 88,166
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $179,353) $ 179,353
====================================================================
Repurchase Agreement--11.0%
Joint Repurchase Agreement Account
$ 9,200,000 5.63% 02/03/97/(d)/ $ 9,200,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $9,200,000) $ 9,200,000
====================================================================
Total Investments
(Cost $80,718,346)/(c)/ $89,222,318
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 9,461,225
Gross unrealized loss for investments in which
cost exceeds value (981,857)
- --------------------------------------------------------------------
Net unrealized gain $ 8,479,368
====================================================================
<CAPTION>
- --------------------------------------------------------------------
====================================================================
Futures contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain(Loss)
- ------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
2-Year U.S. Treasury Note 5 March 1997 $(3,438)
10-Year U.S. Treasury Bond 15 March 1997 (25,500)
30-Year U.S. Treasury Bond 2 March 1997 (3,969)
S&P 500 Stock Index 4 March 1997 123,100
- -------------------------------------------------------------------
$90,193
- -------------------------------------------------------------------
</TABLE>
* Non-income producing security.
/(a)/ The interest rate disclosed for these securitites represents effective
yields to maturity.
/(b)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally +/-2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(c)/ The aggregate cost for federal income tax purposes is $80,742,950.
/(d)/ Portions of these securities are being segregated as collateral for
futures contracts, TBA (To Be Assigned) securities, covered short sales
and/or mortgage dollar rolls.
/(e)/ Each 2-Year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 10-Year and 30-Year U.S. Treasury Bond contract represents
$100,000 in notional par value. Each S&P 500 Stock Index represents
$50,000 in notional par value. The total net notional amount and market
value at risk are $2,900,000 and $4,463,969, respectively. The
determination of notional amounts does not consider market risk factors
and therefore notional amounts as presented here are indicative only of
volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Select Equity Fund is designed to provide investors with
a broadly diversified portfolio that can be used as a core holding on which to
build an investment program. The fund's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of predominantly large-cap and
blue-chip equity securities representing all major sectors of the U.S. economy.
The fund's mandate is to remain fully invested with industry diversification,
capitalization and risk characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's relative
performance compared with the market comes almost exclusively from stock
selection within sectors. We believe the fund offers investors an attractive
combination of value and growth, without assuming more risk than the broad
market.
The fund employs a disciplined approach that combines fundamental
investment research provided by the Goldman Sachs Global Investment Research
Department with quantitative analysis generated by the Asset Management
Division's proprietary model. Our quantitative system evaluates each stock using
many different criteria including valuation measures, growth expectations,
earnings momentum and risk. It also objectively analyzes the impact of current
economic conditions on different types of stocks. Those stocks ranked highly by
both our quantitative model and by Goldman Sachs research are selected for the
fund's portfolio.
Performance Review: Quantitative Model Contributed to the Fund's Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 -1/31/97)* 23.75% 26.25%
Class B (5/1/96 -1/31/97)* 18.59% 22.18%
Institutional (1/31/96 -1/31/97)* 24.63% 26.25%
Service (6/7/96 - 1/31/97)* 15.92% 18.36%
</TABLE>
- --------------------------------------------------------------------------------
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B and Service shares is a cumulative total
return (not annualized) from their inception through the end of the period.
During the period, the fund achieved strong absolute returns, with most of
its gains occurring in the second half of the year. When the period began, the
fund performed well primarily due to successful stock selection. The Research
Department's qualitative ratings were particularly helpful early in the period,
when its analysis helped the fund steer clear of underperforming stocks. During
the latter half of the year, most of the fund's positive performance came from
the Asset Management Division's quantitative model.
Of the three themes considered by our quantitative model -- value, growth
and low-risk -- stocks with value-oriented features, such as low price/earnings
ratios, received the highest weighting during most of the period. This emphasis
did not work in the fund's favor during the second and third quarters of 1996,
when stocks with growth characteristics (strong near-term growth expectations
and high price/earnings multiples) outperformed value-oriented stocks. In the
fourth quarter, however, our emphasis on value proved to be extremely
successful, as stocks with value characteristics soared to record highs and
outperformed the other themes by a substantial margin. As a result of this
dramatic rebound, value emerged as the dominant investment style for the year.
Despite the positive results from our quantitative model, the fund
underperformed the index because it was
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
unable to keep pace with the dramatic outperformance of the largest 50 stocks,
which accounted for a significant portion of the market's gains. In addition,
the fund held a slightly higher cash position than usual as the volume of new
assets invested in the fund rapidly increased, particularly during the fourth
quarter, when the top 50 stocks surged. To address this issue, at the end of
1996 the fund instituted new procedures to ensure that cash balances will be
invested more rapidly. Furthermore, we expect that any future market advance
will broaden to include stocks beyond the top 50.
The fund's best performers were large-capitalization stocks from a wide
range of sectors, including banks (BankAmerica Corp. and NationsBank Corp.),
technology companies (Intel Corp., Microsoft Corp. and IBM Corp.), consumer
staples (Procter & Gamble Co.), electrical equipment (General Electric Co.) and
tobacco (Philip Morris Companies, Inc.).
Stocks that fell short of our expectations included some of the fund's
utility, telecommunication and oil investments such as Unicom Corp., Airtouch
Communications, Inc. and Tenneco, Inc.
Portfolio Composition: Model Increasingly Favored Stocks With Defensive
Characteristics
As of January 31, 1997, the fund held 141 stocks. While its sector
exposures were generally in line with the S&P 500 index, the fund was
overweighted in electric/gas (5.8% for the fund versus 3.3% for the S&P 500) and
energy (10.1% versus 8.0%) and underweighted in consumer nondurables (10.2%
versus 12.9%) and telecommunications (3.9% versus 6.3%). These over- and
underweightings, as shown in Table II, were the result of the fund's stock
selection process and were not a reflection of our economic forecast for
specific sectors.
During the first quarter of 1996, the Fund's quantitative model favored
growth characteristics (such as earnings momentum and price momentum) and put a
smaller, but still positive, weight on stocks with value or low-risk
characteristics (e.g., low beta and low "disappointment" risk). As the year
progressed, the fund's strategy became somewhat more defensive as our
quantitative model increased its weighting in value and low-risk themes. This
shift was triggered by a number of indicators that pointed toward emerging
excesses in the equity market: Low cash cushions held by equity mutual funds,
the increasing volatility of equity prices, the record-low dividend yields and
the divergence in returns between stocks and bonds.
As a result of our more defensive posture, over the past year we gradually
increased the fund's weighting in energy-related companies such as Texaco Inc.
and Atlantic Richfield Co., both newcomers to the fund's 10 largest holdings. We
also decreased the fund's exposure to consumer noncyclicals, which includes
food/agriculture companies (e.g., IBP, Inc. and Kellogg Co.).
As of the end of the period, the fund's major valuation characteristics
were more attractive than the benchmark. These included a lower price/earnings
ratio based on 1997 estimated earnings (15.9x versus 17.3x for the S&P 500) as
well as a lower price/book ratio (3.0x versus 3.4x). The fund achieved these
favorable valuation levels while maintaining growth and risk characteristics in
line with those of the S&P 500.
Table I: Top 10 Portfolio Holdings as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
General Electric Co. Electronics 2.9%
Intel Corp. Semiconductors 2.8%
and Electronics
Exxon Corp. Petroleum and 2.2%
Natural Gas
Microsoft Corp. Computer Software 2.1%
Texaco Inc. Petroleum and 2.0%
Natural Gas
Merck & Co., Inc. Pharmaceuticals 1.9%
Atlantic Richfield Co. Petroleum and 1.7%
Natural Gas
Bristol-Myers Squibb Co. Pharmaceuticals 1.7%
Philip Morris Companies, Tobacco and Food 1.7%
Inc. Products
Travelers Group, Inc. Financial Services 1.6%
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
- --------------------------------------------------------------------------------
Table II: Sector Breakout as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Percentage S&P 500
Industry Sectors of Portfolio Index Difference
<S> <C> <C> <C>
Finance 17.8% 16.2% 1.6%
Consumer Nondurables 10.2% 12.9% -2.7%
Energy 10.1% 8.0% 2.1%
Health 9.6% 10.4% -0.8%
Technology 9.3% 10.9% -1.6%
Basic Industry 7.9% 7.1% 0.8%
Capital Spending 6.5% 5.6% 0.9%
Electric/Gas 5.8% 3.3% 2.5%
Miscellaneous 4.4% 5.0% -0.6%
Retail 4.3% 3.6% 0.7%
Telecommunications 3.9% 6.3% -2.4%
Consumer Services 3.8% 4.8% -1.0%
Consumer Durables 2.6% 2.5% 0.1%
Aerospace 1.8% 2.0% -0.2%
Transportation 1.1% 1.4% -0.3%
Cash 1.0% 0.0% 1.0%
</TABLE>
- --------------------------------------------------------------------------------
Outlook
Goldman Sachs expects the U.S. equity market to continue to advance in
1997, although returns will likely be more modest than the unusually strong
results of 1995 and 1996. In addition, we expect equity gains to broaden beyond
the top 50 stocks. In 1997, we will continue to maintain a balanced approach by
considering risk, value and growth simultaneously.
However, the relative importance of avoiding riskier stocks has increased in the
current market environment, which is likely to result in greater emphasis on
defensive stocks with below-average price volatility, attractive valuations and
lower possibility of near-term earnings disappointments.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
March 3, 1997
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class A Class A
(w/sales charge) (no/sales charge) S&P 500
---------------- ---------------- -------
<S> <C> <C> <C>
5/24/91 9,450 10,000 10,000
1/31/92 10,112 10,701 11,092
1/31/93 10,548 11,162 12,266
1/31/94 12,144 12,851 13,846
1/31/95 12,009 12,708 13,919
1/31/96 16,654 17,617 19,306
1/31/97 20,613 21,813 24,390
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class B Class B
(no redemption charge) (w/redemption charge) S&P 500
---------------------- --------------------- -------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 11,859 11,359 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Select Eq
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/15/95 10,000 10,000
1/31/96 12,014 12,029
1/31/97 14,983 15,197
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Select Eq
Serv. Class S&P 500
------------ -------
<S> <C> <C>
6/7/96 10,000 10,000
1/31/97 11,592 11,836
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
Average Annual Total Return
------------------------------------------------
One Year Since Inception/(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 23.75% 14.67%
- --------------------------------------------------------------------------------
Class A, w/sales charge 16.98% 13.54%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 18.59% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 13.59% /(b)/
- --------------------------------------------------------------------------------
Institutional Class 24.63% 28.04%
- --------------------------------------------------------------------------------
Service Class N/A 15.92% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
May 24, 1991, May 1, 1996, June 15, 1995 and June 7, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
17
<PAGE>
Statement of Investments
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks--97.3%
Aerospace--0.8%
43,600 United Technologies Corp. $ 3,041,100
- --------------------------------------------------------------------
Agency/Government--0.9%
93,800 Federal National Mortgage Assn. 3,705,100
- --------------------------------------------------------------------
Agriculture/Heavy Equipment--2.5%
25,100 Case Corp. 1,330,300
55,500 Caterpillar, Inc. 4,308,188
44,100 Conagra, Inc. 2,227,050
48,900 Tenneco, Inc. 1,956,000
- --------------------------------------------------------------------
9,821,538
- --------------------------------------------------------------------
Airlines--1.2%
19,700 AMR Corp.* 1,585,850
38,500 Delta Air Lines, Inc. 3,041,500
- --------------------------------------------------------------------
4,627,350
- --------------------------------------------------------------------
Alcohol--0.2%
21,600 Anheuser Busch Companies, Inc. 918,000
- --------------------------------------------------------------------
Appliance Manufacturer--1.0%
38,300 Emerson Electric Co. 3,782,125
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--0.3%
23,100 Cummins Engine, Inc. 1,215,638
- --------------------------------------------------------------------
Auto/Vehicle--1.5%
25,200 Chrysler Corp. 878,850
32,200 Ford Motor Co. 1,034,425
70,700 General Motors Corp. 4,171,300
- --------------------------------------------------------------------
6,084,575
- --------------------------------------------------------------------
Bank Holding Companies--0.4%
26,000 Comerica, Inc. 1,485,250
- --------------------------------------------------------------------
Banks--6.0%
33,550 Banc One Corp. 1,522,331
48,000 Bank of New York, Inc. 1,758,000
46,400 BankAmerica Corp. 5,179,400
12,900 Chase Manhattan Corp. 1,193,250
25,800 Citicorp 3,002,475
28,500 First Bank System, Inc. 2,166,000
34,400 First Chicago Corp. 1,965,100
6,400 First Union Corp. 535,200
48,400 NationsBank Corp. 5,227,200
4,500 Wells Fargo & Company $ 1,371,375
- --------------------------------------------------------------------
23,920,331
- --------------------------------------------------------------------
Beverages--1.6%
41,900 Coca Cola Co. 2,424,963
115,300 Pepsico, Inc. 4,021,088
- --------------------------------------------------------------------
6,446,051
- --------------------------------------------------------------------
Business Services--0.2%
19,100 Automatic Data Processing, Inc. 790,263
- --------------------------------------------------------------------
Chemicals-Commodity--2.1%
46,000 Dow Chemicals Co. 3,547,750
20,600 Du Pont EI de Nemours 2,258,275
68,900 Monsanto Co. 2,609,588
- --------------------------------------------------------------------
8,415,613
- --------------------------------------------------------------------
Chemicals-Specialty--1.0%
37,800 Allied Signal, Inc. 2,655,450
27,700 Morton International, Inc. 1,125,313
- --------------------------------------------------------------------
3,780,763
- --------------------------------------------------------------------
Commercial Services--0.3%
32,500 Interim Services, Inc.* 1,178,125
- --------------------------------------------------------------------
Communications Services Companies--1.5%
75,500 Airtouch Communications, Inc.* 1,953,563
96,100 Sprint Corp. 3,916,075
- --------------------------------------------------------------------
5,869,638
- --------------------------------------------------------------------
Communications Technology--0.8%
37,403 Lucent Technologies, Inc. 2,029,113
15,200 Motorola Inc. 1,037,400
- --------------------------------------------------------------------
3,066,513
- --------------------------------------------------------------------
Computers--0.9%
65,200 Hewlett Packard Co. 3,431,150
- --------------------------------------------------------------------
Computers & Peripherals--3.7%
45,400 Cisco Systems, Inc.* 3,166,650
35,000 Compaq Computer Corp.* 3,040,625
20,300 Eastman Kodak Co. 1,761,025
33,400 International Business Machines 5,252,150
51,100 Sun Microsystems, Inc.* 1,622,425
- --------------------------------------------------------------------
14,842,875
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Construction/Environmental Services--0.2%
13,300 Armstrong World Industries, Inc. $ 944,300
- --------------------------------------------------------------------
Consumer Staples--3.4%
51,700 American Home Products Corp. 3,276,488
13,300 Clorox Co. 1,577,713
60,200 Gillette Co. 4,906,300
33,400 Procter & Gamble Co. 3,857,700
- --------------------------------------------------------------------
13,618,201
- --------------------------------------------------------------------
Defense--1.4%
5,400 Boeing Co. 578,475
17,700 McDonnell Douglas Corp. 1,190,325
18,500 Textron, Inc. 1,801,438
36,800 TRW, Inc. 1,867,600
- --------------------------------------------------------------------
5,437,838
- --------------------------------------------------------------------
Department Stores--3.2%
147,400 Dayton Hudson Corp. 5,545,925
38,000 Federated Dept. Stores, Inc.* 1,249,250
18,900 Mercantile Stores Co. 926,100
65,700 Sears Roebuck & Co. 3,153,600
72,100 Walmart Stores, Inc. 1,712,375
- --------------------------------------------------------------------
12,587,250
- --------------------------------------------------------------------
Electric Utilities--4.7%
76,300 Duke Power Co. 3,576,563
128,700 Edison International, Inc. 2,750,963
31,500 Empresa Nacional de Electric ADR 2,071,125
139,600 Niagara Mohawk Power* 1,413,450
57,700 Public Service Company of New Mexico 1,154,000
92,800 Texas Utilities Co. 3,758,400
156,300 Unicom Corp. 3,692,588
- --------------------------------------------------------------------
18,417,089
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--2.9%
112,200 General Electric Co. 11,556,600
- --------------------------------------------------------------------
Financial Services--0.7%
53,300 Providian Corp. 2,871,538
- --------------------------------------------------------------------
Food Producers--0.5%
10,600 CPC International, Inc. 814,875
16,400 Ralston Purina Co. 1,289,450
- --------------------------------------------------------------------
2,104,325
- --------------------------------------------------------------------
Forest Products--2.6%
78,600 Avery Dennison Corp. 2,878,725
32,000 Champion International Corp. 1,340,000
32,600 Georgia Pacific Corp. 2,400,175
26,000 International Paper Co. 1,062,750
19,700 Mead Corp. 1,108,125
30,700 Weyerhaeuser Co. 1,396,850
- --------------------------------------------------------------------
10,186,625
- --------------------------------------------------------------------
Funeral Services--0.2%
29,600 Service Corp. International 858,400
- --------------------------------------------------------------------
Gas Distribution & Pipeline--1.2%
55,600 Columbia Gas Systems, Inc. 3,620,950
22,900 Panenergy Corp. 1,056,263
- --------------------------------------------------------------------
4,677,213
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
73,200 Johnson & Johnson 4,218,150
15,800 Medtronic Inc. 1,082,300
- --------------------------------------------------------------------
5,300,450
- --------------------------------------------------------------------
Healthcare Management--0.8%
55,800 Columbia HCA Healthcare 2,204,100
38,300 Manor Care, Inc. 976,650
- --------------------------------------------------------------------
3,180,750
- --------------------------------------------------------------------
Information Management--0.7%
114,100 Dun & Bradstreet Corp. 2,738,400
- --------------------------------------------------------------------
Insurance Brokers & Other Insurance--0.3%
24,600 Exel Insurance Ltd. 1,042,425
- --------------------------------------------------------------------
Insurance-Life--2.6%
29,100 American General Corp. 1,160,363
18,700 Cigna Corp. 2,835,388
122,933 Travelers Group, Inc. 6,438,616
- --------------------------------------------------------------------
10,434,367
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Insurance-Property and Casualty--2.2%
25,956 Allstate Corp. $ 1,706,607
36,850 American International Group, Inc. 4,463,456
68,500 Safeco Corp. 2,603,000
- --------------------------------------------------------------------
8,773,063
- --------------------------------------------------------------------
Integrated Oil--11.1%
22,100 Amoco Corp. 1,922,700
51,800 Atlantic Richfield Co. 6,850,550
84,300 Exxon Corp. 8,735,574
46,800 Kerr McGee Corp. 3,217,500
17,200 Mobil Corp. 2,257,500
52,000 Norsk Hydro ADR 2,925,000
32,000 Phillips Petroleum Co. 1,412,000
26,600 Royal Dutch Petroleum ADR 4,615,100
75,700 Texaco, Inc. 8,014,738
97,300 Unocal Corp. 4,098,763
- --------------------------------------------------------------------
44,049,425
- --------------------------------------------------------------------
Investment Brokers & Managers--2.7%
52,500 Merrill Lynch Co. 4,423,125
38,300 Morgan Stanley Group, Inc. 2,187,888
76,900 Salomon, Inc. 4,248,725
- --------------------------------------------------------------------
10,859,738
- --------------------------------------------------------------------
Local Phone Companies--2.3%
53,600 Ameritech Corp. 3,202,600
67,100 GTE Corp. 3,153,700
104,900 Worldcom, Inc.* 2,635,613
- --------------------------------------------------------------------
8,991,913
- --------------------------------------------------------------------
Machinery and Equipment--0.6%
20,100 Dover Corp. 994,950
29,300 Ingersoll-Rand Co. 1,336,813
- --------------------------------------------------------------------
2,331,763
- --------------------------------------------------------------------
Media/Entertainment--1.4%
41,400 King World Productions, Inc.* 1,619,775
54,942 Walt Disney Co. 4,024,502
- --------------------------------------------------------------------
5,644,277
- --------------------------------------------------------------------
Nonferrous Metals--1.3%
15,900 Phelps Dodge Corp. 1,111,013
72,800 Tyco International Ltd. 4,158,700
- --------------------------------------------------------------------
5,269,713
- --------------------------------------------------------------------
Office & Business Equipment--0.5%
36,400 Xerox Corp. 2,133,950
- --------------------------------------------------------------------
Oil & Gas Exploration--0.4%
31,100 Burlington Resources, Inc. 1,547,225
- --------------------------------------------------------------------
Pharmaceuticals--6.7%
51,100 Abbott Labs 2,778,563
53,100 Bristol Myers Squibb 6,743,700
18,600 Eli Lilly & Co. 1,620,525
82,100 Merck & Co. 7,450,575
23,600 Pfizer, Inc. 2,191,850
31,700 Pharmacia & Upjohn, Inc. 1,180,825
47,600 Schering Plough Corp. 3,599,750
13,800 Warner Lambert Co. 1,110,900
- --------------------------------------------------------------------
26,676,688
- --------------------------------------------------------------------
Recreational Products--0.2%
29,407 Mattel, Inc. 827,072
- --------------------------------------------------------------------
Restaurants & Hotels--1.0%
14,000 HFS, Inc.* 980,000
23,000 ITT Corp.* 1,313,875
40,200 McDonalds Corp. 1,829,100
- --------------------------------------------------------------------
4,122,975
- --------------------------------------------------------------------
Retail--0.7%
34,100 Home Depot, Inc. 1,687,950
29,900 TJX Companies, Inc. 1,188,525
- --------------------------------------------------------------------
2,876,475
- --------------------------------------------------------------------
Retail-Specialty--1.2%
48,200 Gap, Inc. 1,385,750
49,600 Nike, Inc. 3,366,600
- --------------------------------------------------------------------
4,752,350
- --------------------------------------------------------------------
Semiconductors & Electronics--2.8%
67,800 Intel Corp. 11,000,550
- --------------------------------------------------------------------
Software--2.7%
33,350 Computer Associates International,
Inc. 1,513,256
79,900 Microsoft Corp.* 8,149,800
24,600 Oracle Corp.* 956,325
- --------------------------------------------------------------------
10,619,381
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Supermarkets--0.9%
63,300 Great A&P Tea Co., Inc. $ 1,978,125
31,200 Safeway, Inc.* 1,489,800
- --------------------------------------------------------------------
3,467,925
- --------------------------------------------------------------------
Technical Services--0.4%
22,800 3Com Corp.* 1,530,450
- --------------------------------------------------------------------
Technology Capital Goods--0.7%
18,800 Applied Materials, Inc.* 928,250
22,000 Harris Corp. 1,674,750
- --------------------------------------------------------------------
2,603,000
- --------------------------------------------------------------------
Telecommunications--0.2%
17,000 Tellabs, Inc.* 700,188
- --------------------------------------------------------------------
Textiles--1.1%
22,500 Liz Claiborne, Inc. 947,813
33,200 Sara Lee Corp. 1,311,400
30,800 VF Corp. 2,048,200
- --------------------------------------------------------------------
4,307,413
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--0.8%
36,800 BF Goodrich Co. 1,508,800
29,800 Goodyear Tire & Rubber Co. 1,624,100
- --------------------------------------------------------------------
3,132,900
- --------------------------------------------------------------------
Tobacco--1.7%
55,600 Philip Morris Companies, Inc. 6,609,450
- --------------------------------------------------------------------
Total Common Stocks
(Cost $294,916,122) $ 385,205,653
====================================================================
Rights--0.9%
Insurance--0.2%
9,400 MBIA, Inc.,* exp. 12/12/01 $ 903,575
- --------------------------------------------------------------------
Insurance-Life--0.4%
36,400 Protective Life Corp.*, exp. 07/13/97 1,442,350
- --------------------------------------------------------------------
Specialty Finance--0.3%
19,100 Beneficial Corp.,* exp. 11/23/97 1,284,475
- --------------------------------------------------------------------
Total Rights
(Cost $2,826,759) $ 3,630,400
- --------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
U.S. Treasury Obligations--0.2%
$ 841,000 U.S. Treasury Bill
5.08%, 05/29/97/(b)/ $ 827,118
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $827,118) $ 827,118
- --------------------------------------------------------------------
Repurchase Agreement--0.9%
$ 3,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 3,600,000
- --------------------------------------------------------------------
Total Repurchase Agreements
(Cost $3,600,000) $ 3,600,000
- --------------------------------------------------------------------
Total Investments
(Cost $302,169,999)/(a)/ $ 393,263,171
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 94,373,749
Gross unrealized loss for investments in
which cost exceeds value (3,489,045)
- --------------------------------------------------------------------
Net unrealized gain $ 90,884,704
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long/(c)/ Month Gain
- ------------------------- ------------- ------------ ----------------
<S> <C> <C> <C>
S&P 500 Stock Index 7 March 1997 $91,800
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $302,378,467.
/(b)/Portion of this security is being segregated as collateral for futures
contracts.
/(c)/Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and net market value at risk are $350,000 and
$2,756,250, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Growth and Income Fund seeks long-term growth of
capital and growth of income primarily through investments in a diversified
portfolio of common stocks and other equity securities. The fund is managed with
a value style, which means we focus on companies whose stocks we believe are
inexpensive relative to their expected long-term earnings growth and their
ability to pay dividends. Investments may include well-known companies that are
temporarily out of favor due to cyclical economic conditions or are experiencing
near-term difficulties the portfolio managers judge to be temporary in nature.
In-depth fundamental research of a company's financial structure, its
competitive position in the market and its management's commitment to increasing
shareholder value are all critical parts of the fund's investment approach.
Though we are not sector investors, we closely monitor the fund's sector and
industry exposures compared with the benchmark in an effort to avoid
unintentional over- or underweightings.
Performance Review: The Fund Outperformed the Index...
<TABLE>
<CAPTION>
- ------------------------------------- ----------------- -----------
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 28.42% 26.25%
Class B (5/1/96 - 1/31/97)* 22.23% 22.18%
Institutional (6/3/96 - 1/31/97)* 20.77% 19.11%
Service (3/6/96 - 1/31/97)* 23.87% 22.20%
- ------------------------------------- ----------------- -----------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inceptions through the end
of the period.
The U.S. stock market continued to soar during the period under
review, adding to the impressive performance recorded during the prior year.
Most of the market's gains occurred during the latter half of the period, when
equities rebounded strongly following a sharp correction in July.
We are pleased to report that all of the fund's share classes
outperformed the S&P 500 stock index during the past fiscal year. Most notably,
its Class A shares returned 28.42% (at net asset value) versus 26.25% for the
index. During the period, the fund increased its regular quarterly dividend.
....And Fared Very Well Relative to Its Peers
We are proud to announce that for the three-year period ended January
31, 1997, the fund's Class A shares were rated "five stars" (out of 1,858
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency. The "five star" designation is Morningstar's highest rating for
historical risk-adjusted performance, and is given to mutual funds that
Morningstar determines to be in the top 10% of their category.1
In addition, the fund's Class A shares ranked within the top 10% of
the Lipper growth and income category (53rd of 533) for the 12-month period
ended January 31, 1997, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. Class B, Institutional and
Service shares
- -------------------------
1 Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. For the one-year period, the Class A shares
received four stars and was rated among 2,990 domestic equity funds. The
Morningstar rating applies only to the fund's Class A shares; the fund's Class
B, Institutional and Service shares have not been rated. Class B, Institutional
and Service shares are subject to additional fees and expenses that may have the
effect of lowering performance and may affect any future Morningstar rating.
Morningstar rates funds against peers in the same category. In all, there are
five Morningstar categories (domestic equity, international equity, fixed
income, municipal and hybrid). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
were not ranked because they did not exist during the full year.)
Financial, Technology and Energy Stocks Were Among the Fund's Best Performers
The fund's outperformance came from successful stock selection in a
wide range of industries, led by finance, its largest sector weighting at 18.0%.
Technology and energy investments also did well. In addition, the fund benefited
significantly from our decision to limit its exposure in the media and
communication sector. Our concerns regarding increased competition between the
local exchange and long-distance companies and high valuations in the sector
proved to be on target.
In the financial sector, top performers were BankAmerica Corp. and
NationsBank Corp., the country's third and fourth largest banks, respectively.
BankAmerica Corp. increased its focus on aggressive capital management, which
resulted in its exiting unprofitable businesses and buying back some of its
stock. NationsBank Corp. acquired Bank South Corp. and Boatmen's Bancshares,
Inc., and investors began to realize the benefits of its cost structure due to
its acquisitions over the past few years.
Technology holdings that performed well included Intel Corp., the
dominant microprocessor manufacturer, which was purchased when the sector was
depressed due to concerns that the personal computer upgrade cycle had slowed.
Intel quickly rebounded when investors recognized the advantages of its dominant
market position, and we subsequently sold the stock when it reached our target
price. We saw solid gains from Avnet, Inc., the second largest distributor of
semiconductors and other electronic components, which we viewed as an
inexpensive opportunity to participate in the growth of the technology sector.
The fund was also well served by a number of its energy-related
investments. Tosco Corp., an oil refiner and distributor, more than doubled in
price as it continued to consolidate its market position through an ambitious
acquisition strategy, and Texaco Inc. benefited from higher petroleum prices and
a restructuring program that meaningfully improved profits.
In addition, several holdings appreciated due to special situations.
Our confidence in Long Island Lighting Co., a New York-based utility, which had
been shunned by many other investors, was handsomely rewarded when the stock
soared after Brooklyn Union Gas Co. made an attractive bid for the company in
January. The fund also benefited when McDonnell Douglas Corp., one of our
long-term positions, was acquired by Boeing Co. at a very favorable price.
Sunbeam Corp., a leading consumer products company, met with an enthusiastic
investor response to the aggressive restructuring program initiated by its new
CEO.
Paper and Chemical Stocks Were Weak
Disappointing performers included three companies impacted by
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride. We continue to have confidence in these
companies and expect their prospects to improve over time.
Additional Investments in a Variety of Sectors
During the period, we added a number of new holdings. These included
Dean Witter, Discover & Co., which we viewed as undervalued based on the
potential of its broker-dealer/asset management business and its large Discover
credit card business. In February 1997, Dean Witter, Discover & Co. announced
its intention to merge with investment bank Morgan Stanley. We also invested in
Unicom Corp., an electric utility that operates 12 nuclear units at six sites.
Unicom generates excess capital and, unlike many other electric utilities, has
no utility power purchase problems. We established a position after its stock
price declined due to a mandated increase in spending on operations and
maintenance, an issue that management believes will not impair the company's
long-
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund (continued)
- --------------------------------------------------------------------------------
term prospects. Also notable was our decision to increase the fund's
position in Tenet Healthcare Corp., a long-term holding, based on its prospects
for improved efficiencies resulting from the integration of its acquisition of
OrNda Healthcorp., a for-profit hospital chain.
Sales Included Several Financial and Technology Positions
We sold several stocks after they appreciated and reached our price
targets. These included Anheuser-Busch Co., Inc., the world's largest brewer,
which reported strong earnings; Greenpoint Financial Corp., which benefited from
increased investor appreciation of the value of its
"no-documentation--low-documentation" mortgage franchise; and technology
holdings Compaq Computer Corp. and Intel Corp.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total Net
<S> <C> <C>
Company Line of Business Assets
Aetna Inc. Healthcare Service 3.3%
Provider
Tenet Healthcare Corp. Hospitals 3.3%
Lear Corp. Autoparts/Original 3.0%
Equipment
Cigna Corp. Insurance 2.9%
Brunswick Corp. Pleasure 2.9%
Boats/Marine
Engines
Dean Witter, Discover & Co. Financial Services 2.8%
Goodyear Tire & Rubber Co. Tire and Rubber 2.8%
Products
Philip Morris Companies, Tobacco and Food 2.7%
Inc. Products
Avnet, Inc. Electronic 2.7%
Components
Distributor
BankAmerica Corp. Commercial Bank 2.6%
- --------------------------------------------------------------------
</TABLE>
Outlook
As we enter the seventh year of a bull market for U.S. equities, we
view the market as moderately overvalued and therefore unlikely to match the
strong return it achieved in 1996. In this environment, it is particularly
noteworthy that the fund's holdings continue to be attractively valued even
after last year's rally. Our focus on undervalued stocks and extensive
fundamental research will continue to be extremely important in the more
challenging market we anticipate ahead.
/s/ Ronald E. Gutfleish /s/ G. Lee Anderson
- ------------------------ -------------------------
Ronald E. Gutfleish G. Lee Anderson
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ Eileen A. Aptman
--------------------
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
March 3, 1997
24
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class A Class A
(w/sales charge) (no sales charge) S&P 500
---------------- ----------------- -------
<S> <C> <C> <C>
2/5/93 $ 9,450 $10,000 $10,000
1/31/94 10,686 11,308 11,073
1/31/95 11,110 11,757 11,132
1/31/96 14,716 15,573 15,436
1/31/97 18,911 20,012 19,501
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class B Class B
(no redemp charge) (w/redemp charge) S&P 500
------------------ ----------------- -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 12,223 11,723 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/3/96 $10,000 $10,000
1/31/97 12,077 11,911
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Service Class S&P 500
--------------- -------
<S> <C> <C>
3/6/96 $10,000 $10,000
1/31/97 12,387 12,220
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
Average Annual Total Return
--------------------------------------------
One Year Since Inception /(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 28.42% 18.98%
- --------------------------------------------------------------------------------
Class A, w/sales charge 21.39% 17.31%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 22.23% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 17.23% /(b)/
- --------------------------------------------------------------------------------
Institutional Class N/A 20.77% /(b)/
- --------------------------------------------------------------------------------
Service Class N/A 23.87% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
February 5, 1993, May 1, 1996, June 3, 1996 and March 6, 1996,
respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
25
<PAGE>
Statement of Investments
- -------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
===================================================================
<S> <C> <C>
Common Stocks--93.2%
Airlines--3.2%
96,100 AMR Corp.* $ 7,736,050
463,600 Continental Airlines, Inc.* 12,980,800
- -------------------------------------------------------------------
20,716,850
- -------------------------------------------------------------------
Appliance Manufacturer--1.9%
440,900 Sunbeam Corp. 12,234,975
- -------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.0%
512,800 Lear Corp.* 19,165,900
- -------------------------------------------------------------------
Auto/Vehicle--2.0%
394,800 Ford Motor Co. 12,682,950
- -------------------------------------------------------------------
Banks--8.3%
146,600 BankAmerica Corp. 16,364,225
64,900 Chase Manhattan Corp. 6,003,250
117,800 Fleet Financial Group Inc. 6,361,200
146,900 NationsBank Corp. 15,865,200
96,500 Republic of New York Corp. 8,552,313
- -------------------------------------------------------------------
53,146,188
- -------------------------------------------------------------------
Chemicals-Commodity--2.0%
439,800 Geon Co. 8,246,250
97,400 Union Carbide Corp. 4,419,525
- -------------------------------------------------------------------
12,665,775
- -------------------------------------------------------------------
Defense--3.4%
225,100 McDonnell Douglas Corp. 15,137,975
79,800 Northrop Grumman Corp. 6,234,375
6,300 Thiokol Corp. 352,800
- -------------------------------------------------------------------
21,725,150
- -------------------------------------------------------------------
Department Stores--1.6%
207,700 Sears Roebuck & Co. 9,969,600
- -------------------------------------------------------------------
Electric Utilities--5.1%
95,100 CMS Energy Corp. 3,185,850
641,400 Long Island Lighting Co. 14,591,850
632,300 Unicom Corp. 14,938,088
- -------------------------------------------------------------------
32,715,788
- -------------------------------------------------------------------
Food--2.8%
582,200 Chiquita Brands International, Inc. 8,514,675
58,400 Unilever Inc. 9,606,800
- -------------------------------------------------------------------
18,121,475
- -------------------------------------------------------------------
Forest Products--1.9%
161,500 Georgia Pacific Corp. 11,890,438
- -------------------------------------------------------------------
Health Suppliers/Services--2.0%
280,800 Baxter International, Inc. 12,951,900
- -------------------------------------------------------------------
Healthcare Management--6.6%
266,400 Aetna Inc. 21,045,600
768,500 Tenet Healthcare Corp.* 20,749,500
- -------------------------------------------------------------------
41,795,100
- -------------------------------------------------------------------
Home Builders--3.1%
232,800 Centex Corp. 9,079,200
388,500 Lennar Corp. 10,343,813
- -------------------------------------------------------------------
19,423,013
- -------------------------------------------------------------------
Insurance-Life--4.3%
123,600 Cigna Corp. 18,740,850
166,200 Lincoln National Corp. 8,912,475
- -------------------------------------------------------------------
27,653,325
- -------------------------------------------------------------------
Insurance-Property & Casualty--1.4%
16,100 Integon Corp. 223,388
237,600 Partner Re Holding Ltd. 8,434,800
- -------------------------------------------------------------------
8,658,188
- -------------------------------------------------------------------
Integrated Oil--4.8%
121,400 Atlantic Richfield Co. 16,055,150
138,900 Texaco, Inc. 14,706,038
- -------------------------------------------------------------------
30,761,188
- -------------------------------------------------------------------
Logistics/Rails--1.8%
415,700 Canadian Pacific Ltd. 11,275,863
- -------------------------------------------------------------------
Logistics/Trucking--2.0%
512,100 Consolidated Freightways, Inc. 12,994,538
- -------------------------------------------------------------------
Oil Refining & Marketing--3.6%
187,700 Ashland Inc. 8,094,563
166,800 Tosco Corp. 14,761,800
- -------------------------------------------------------------------
22,856,363
- -------------------------------------------------------------------
Packaging--2.5%
661,600 Owens Illinois Corp.* 15,713,000
- -------------------------------------------------------------------
Recreational Products--2.9%
724,800 Brunswick Corp. 18,210,600
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Security and Commodity Brokers, Dealers and Services--1.0%
195,900 Lehman Brothers Holdings, Inc. $ 6,195,338
- -------------------------------------------------------------------
Semiconductors & Electronics--2.7%
275,100 Avnet, Inc. 17,021,813
- -------------------------------------------------------------------
Software--1.1%
214,300 Autodesk, Inc. 6,777,238
- -------------------------------------------------------------------
Specialty Finance--2.8%
470,200 Dean Witter Discover & Co. 17,926,375
- -------------------------------------------------------------------
Steel--1.6%
251,600 AK Steel Holding Corp. 10,126,900
- -------------------------------------------------------------------
Supermarkets--3.4%
726,500 Fleming Companies, Inc. 11,714,813
316,700 Supervalu, Inc. 9,778,113
- -------------------------------------------------------------------
21,492,926
- -------------------------------------------------------------------
Textiles--2.4%
374,400 Fruit of The Loom, Inc.* 15,022,800
- -------------------------------------------------------------------
Tire & Other Related Rubber Products--2.8%
320,900 Goodyear Tire & Rubber Co. 17,489,050
- -------------------------------------------------------------------
Tobacco--5.2%
63,700 Loews Corp. 6,298,338
144,700 Philip Morris Companies, Inc. 17,201,204
187,480 RJR Nabisco, Inc. 6,139,970
115,600 Universal Corp. 3,583,600
- -------------------------------------------------------------------
33,223,112
- -------------------------------------------------------------------
Total Common Stocks
(Cost $465,569,279) $ 592,603,719
===================================================================
Preferred Stocks--0.6%
Food--0.3%
44,600 Chiquita Brands International, Inc.
Convertible, 5.75% $ 2,073,900
- -------------------------------------------------------------------
Tobacco--0.3%
287,100 RJR Nabisco, Inc., Class C 9.25% 1,902,038
- -------------------------------------------------------------------
Total Preferred Stocks
(Cost $3,843,410) $ 3,975,938
===================================================================
Rights--2.0%
Forest Products--1.2%
579,100 Stone Container Corp.,* exp.
08/08/98 $ 7,817,850
- -------------------------------------------------------------------
Technology Capital Goods--0.8%
166,300 Teradyne, Inc.,* exp. 03/26/00 5,134,513
- -------------------------------------------------------------------
Total Rights
(Cost $13,294,493) $ 12,952,363
===================================================================
Repurchase Agreements--4.2%
- -------------------------------------------------------------------
$ 26,800,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 26,800,000
- -------------------------------------------------------------------
Total Repurchase Agreements
(Cost $26,800,000) $ 26,800,000
===================================================================
<CAPTION>
Contracts Description Value
===================================================================
<C> <S> <C>
Options*--0.4%
1,340 S & P 500 Index Put, Strike 750
exp. 06/97 $ 2,244,500
1,439 S & P 500 Index Put, Strike 700
exp. 03/97 377,738
- -------------------------------------------------------------------
Total Options
(Cost $4,105,525) $ 2,622,238
===================================================================
Total Investments
(Cost $513,612,707)/(a)/ $ 638,954,258
===================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $136,933,045
Gross unrealized loss for investments in which
cost exceeds value (11,607,531)
- -------------------------------------------------------------------
Net unrealized gain $125,325,514
===================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $513,628,744. The
percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- -------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
primarily through investments in a portfolio of large-capitalization stocks. We
use extensive fundamental research to identify companies in a diversified range
of industries that we believe offer attractive growth potential at a reasonable
price.
The fund's investment management team believes that wealth is created
through the long-term ownership of growing businesses. As such, we view each
stock purchase as if we were buying the entire business. To implement this
investment strategy, we focus on growing companies with characteristics such as
strong brand franchises, dominant market share, recurring revenue, product
pricing flexibility, long product life cycles, high returns on invested capital,
high profit margins, strong free cash flow, excellent management and favorable
long-term prospects. Finally, we will buy a stock meeting our rigorous criteria
only if it trades at a reasonable discount to the company's intrinsic value.
Performance Review: Fund Achieved Strong Results
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Fund Total Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 25.97% 26.25%
Class B (5/1/96 - 1/31/97)* 19.39% 22.18%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the 12-month period ended January 31, 1997, the fund's Class A shares
achieved a total return of approximately 26%, in line with the S&P 500 stock
index, reflecting the robust equity market, particularly during the second half
of the period. The fund's Class B shares also achieved strong absolute results;
however, a partial year of only nine months is obviously too short a time frame
to meaningfully measure long-term performance.
We are pleased to report that for the five-year period ended January
31, 1997, the fund's Class A shares were rated "four stars" (out of 1,072
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency./1/ In addition, the fund's Class A shares fared well versus its peers in
the Lipper growth fund category, placing in the top third (187th out of 685) for
the 12-month period and in the top quartile (56th out of 263) for the five-year
period, as of January 31, 1997, according to Lipper Analytical Services, Inc.
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results. Lipper did not rank
the fund's Class B shares.)
Top Performers Included Financial, Technology and Defense Stocks
The fund's best performers during the period came from a variety of sectors,
particularly financial services (20.4% of the portfolio), technology (9.1%) and
defense/aerospace (3.2%).
.. Top performers in the financial sector included MBNA Corp. and First USA
Inc., the nation's third and fourth largest credit card issuers, respectively,
which both reported better than expected earnings and loan growth. In
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund's Class A shares received three stars
for both the three- and one-year periods. The Class A shares were rated among
1,858 and 2,990 domestic equity funds for the three- and one-year periods,
respectively. The Morningstar rating applies only to the fund's Class A shares;
the fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are five Morningstar categories
(domestic equity, international equity, fixed income, municipal and hybrid).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
addition, these companies benefited from continuing industry consolidation,
with First USA performing particularly well after Banc One announced that it was
acquiring the company. Two of the fund's commercial bank holdings, BankAmerica
Corp. and NationsBank Corp., appreciated due to successful cost cutting, strong
earnings growth and aggressive capital management, and PartnerRe Holding Ltd., a
worldwide provider of catastrophe reinsurance, rose on strong earnings.
.. Several of our technology holdings also performed well. During the first
half of the period, we increased the fund's positions in Intel Corp., the
dominant microprocessor manufacturer, and Compaq Computer Corp., the world's
largest manufacturer of personal computers, when their prices slumped because of
concerns regarding slowing computer sales. This strategy significantly
contributed to the fund's performance when computer sales were stronger than
expected. We subsequently sold Compaq Computer when it reached our target price
but continue to hold Intel, which more than tripled in price during the period.
.. Consolidation in the defense industry helped two of the fund's long-
standing investments in that sector. McDonnell Douglas Corp. climbed over 50%
after the announcement of its proposed merger with Boeing Co., and Northrop
Grumman Corp. was buoyed by its purchase of Westinghouse Electric Corp.'s
defense electronics businesses.
Specific Paper, Airline and Insurance Stocks Lagged
Not all of the fund's holdings fulfilled our expectations. For example,
Georgia-Pacific Corp., a manufacturer of paper products, suffered from an
industry oversupply and a consequent decline in paper and pulp prices; AMR
Corp., the holding company of American Airlines, was impacted by concerns
regarding competition from discount carriers; and Integon Corp., a provider of
automobile insurance, experienced a higher than expected increase in claims and
lower earnings.
New Additions in Consumer Product Companies and Pharmaceuticals
During the period, we initiated several positions that reflect our new
emphasis on large-capitalization stocks with world-class franchises and/or
strong brand names. For example, we added Procter & Gamble Co., one of the
strongest marketers in the U.S. with a stable of brand name products, many of
which hold number one or number two positions in their respective markets. Over
the past decade, the company has achieved steady growth in revenues and
earnings, exactly the type of consistent operating history that we favor.
Another recent investment was Coca-Cola Co., a world-class company with four of
the five leading carbonated soft drinks -- Coca-Cola, Diet Coke, Sprite and
Fanta. With 80% of its business coming from abroad, we expect Coca-Cola's long-
term earnings growth to continue as it further penetrates the emerging markets
of China, India, Latin America, Southeast Asia, Eastern Europe and Russia.
Other new positions included pharmaceutical companies Bristol-Myers
Squibb Co., Johnson & Johnson Co. and Pfizer, Inc., which are attractive because
of their strong new product flow, huge free cash flow, earnings growth and
essentially net debt-free balance sheets. We believe these companies are
positioned to be major beneficiaries as the baby boomers age and require more
health-related products and services over the coming decades.
Sales Included Several Investments in Cyclical Industries
During the period, we sold Kirby Corp. and Trinity Industries after we lost
confidence in their managements' attempts to improve their competitive
positions, and cyclical stocks such as Quanex Corp. and Harnischfeger
Industries, Inc. after they were unable to improve their profitability in
difficult industry conditions. In contrast, we sold the fund's long-held
position in Millipore Corp., an industrial filter producer, after it reached our
target price.
- --------------------------------------------------------------------------------
29
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
<TABLE>
<CAPTION>
Percentage
of Total
Company Line of Business Net Assets
<S> <C> <C>
First USA, Inc. Financial Services 4.5%
Intel Corp. Semiconductors and 4.3%
Electronics
NationsBank Corp. Commercial Bank 3.4%
Aetna Inc. Healthcare 3.4%
Management
Texaco Inc. International 3.3%
Integrated Oil
Company
BankAmerica Corp. Commercial Bank 3.2%
Tenet Healthcare Corp. Hospitals 3.0%
Philip Morris Companies, Tobacco and Food 3.0%
Inc. Products
Baxter International, Inc. Medical Supplies 2.9%
PartnerRe Ltd. Insurance 2.7%
- --------------------------------------------------------------------
</TABLE>
Outlook
We believe that the global political and economic environments will
continue to remain favorable for the financial markets. In our opinion, the
outlook for the U.S. stock market is attractive, as we expect it to continue to
benefit from low inflation, moderate growth and high levels of consumer
confidence. In addition, we anticipate that the equity market will continue to
be buoyed as baby boomers increase their savings and 401(k) investment plans
grow. To enhance the fund's ability to benefit from the positive investing
climate, we expect to continue to diversify the portfolio among industry sectors
and increase its holdings of large-cap stocks, with the intention of both
providing favorable long-term returns and reducing portfolio risk.
We want to emphasize that investing is a marathon, not a sprint.
Notwithstanding the excellent performance the fund has recently experienced, we
have a long-term investment horizon. In a nutshell, we hope to be able to
purchase great companies with attractive business characteristics and favorable
long-term outlooks, and then patiently hold them for an extended period of time
so that their growth compounds.
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
- --------------------------------------------------------------------------------
30
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class A Class A
(w/sales charge) (no sales charge) S&P 500
----------------- ----------------- -------
<S> <C> <C> <C>
4/20/90 9,450 10,000 10,000
1/31/91 9,529 10,084 10,552
1/31/92 12,322 13,040 12,946
1/31/93 14,542 15,388 14,316
1/31/94 16,998 17,987 16,160
1/31/95 16,254 17,200 16,246
1/31/96 21,203 22,437 22,528
1/31/97 26,726 28,282 28,460
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class B Class B
(no redemp. charge) (w/redemp. charge) S&P 500
------------------- ------------------ -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 11,939 11,439 12,218
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
Average Annual Total Return
----------------------------------------------
One Year Five Year Since Inception/(a)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A, no sales charge 25.97% 16.73% 16.54%
- ------------------------------------------------------------------------------
Class A, w/sales charge 19.04% 15.42% 15.57%
- ------------------------------------------------------------------------------
Class B, no redemption charge N/A N/A 19.39%/(b)/
- ------------------------------------------------------------------------------
Class B, w/redemption charge N/A N/A 14.39%/(b)/
- ------------------------------------------------------------------------------
</TABLE>
/(a)/Class A and Class B shares commenced operations on April 20, 1990 and
May 1, 1996, respectively.
/(b)/An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve months
of operations.
- --------------------------------------------------------------------------------
31
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--98.9%
Advertising & Marketing--1.8%
888,900 Valassis Communications, Inc.* $ 16,333,538
- --------------------------------------------------------------------
Airlines--1.5%
176,500 AMR Corp.* 14,208,250
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.6%
391,900 Lear Corp.* 14,647,262
- --------------------------------------------------------------------
Banks--6.6%
263,700 BankAmerica Corp. 29,435,512
291,500 NationsBank Corp. 31,482,000
- --------------------------------------------------------------------
60,917,512
- --------------------------------------------------------------------
Beverages--2.1%
155,100 Coca Cola Co. 8,976,413
293,800 Pepsico, Inc. 10,246,275
- --------------------------------------------------------------------
19,222,688
- --------------------------------------------------------------------
Commercial Services--0.9%
226,500 Ecolab Inc. 8,380,500
- --------------------------------------------------------------------
Communications Technology--1.7%
290,860 Lucent Technologies, Inc. 15,779,155
- --------------------------------------------------------------------
Construction/Environmental Services--2.0%
497,500 WMX Technologies, Inc. 18,220,938
- --------------------------------------------------------------------
Consumer Staples--4.0%
150,800 Avon Products Inc. 9,462,700
109,000 Gillette Co. 8,883,500
160,940 Procter & Gamble Co. 18,588,570
- --------------------------------------------------------------------
36,934,770
- --------------------------------------------------------------------
Defense--3.2%
226,800 McDonnell Douglas Corp. 15,252,300
187,500 Northrop Grumman Corp. 14,648,438
- --------------------------------------------------------------------
29,900,738
- --------------------------------------------------------------------
Electric Utilities--1.6%
669,400 Long Island Lighting Co. 15,228,850
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--1.0%
89,400 General Electric Co. 9,208,200
- --------------------------------------------------------------------
Electronics & Semiconductors--1.5%
219,700 Avnet Inc. 13,593,937
- --------------------------------------------------------------------
Food--1.8%
186,500 Nabisco Holdings Corp. 7,133,625
160,480 William Wrigley Jr. Co. 9,327,900
- --------------------------------------------------------------------
16,461,525
- --------------------------------------------------------------------
Forest Products--2.2%
273,500 Georgia Pacific Corp. 20,136,437
- --------------------------------------------------------------------
Health Suppliers/Services--8.4%
589,600 Baxter International, Inc. 27,195,300
477,500 Fisher Scientific International, Inc. 20,950,312
176,400 Johnson & Johnson 10,165,050
277,600 Perkin-Elmer Corp. 19,397,300
- --------------------------------------------------------------------
77,707,962
- --------------------------------------------------------------------
Healthcare Management--8.5%
395,760 Aetna Inc. 31,265,040
487,650 Columbia HCA Healthcare 19,262,175
1,021,400 Tenet Healthcare Corp.* 27,577,800
- --------------------------------------------------------------------
78,105,015
- --------------------------------------------------------------------
Hotels & Restaurants--1.0%
169,720 Marriott International, Inc. 9,016,375
- --------------------------------------------------------------------
Information Management--1.9%
241,000 First Data Corp. 8,676,000
135,670 Reuters Holdings Corp. ADR 8,665,921
- --------------------------------------------------------------------
17,341,921
- --------------------------------------------------------------------
Insurance-Property and Casualty--3.2%
356,650 Integon Corp. 4,948,519
703,800 PartnerRe Holding Ltd. 24,984,900
- --------------------------------------------------------------------
29,933,419
- --------------------------------------------------------------------
Integrated Oil--6.7%
68,700 Amoco Corp. 5,976,900
52,700 Atlantic Richfield Co. 6,969,575
90,900 Mobil Corp. 11,930,625
41,200 Royal Dutch Petroleum ADR 7,148,200
284,800 Texaco, Inc. 30,153,200
- --------------------------------------------------------------------
62,178,500
- --------------------------------------------------------------------
Logistics/Rails--1.6%
556,900 Canadian Pacific Ltd. 15,105,912
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Media Content--4.6%
166,200 Gaylord Entertainment Co. $ 4,258,875
261,800 Knight Ridder, Inc. 10,046,575
530,700 Telecommunication Liberty
Media Group* 10,083,300
237,610 Time Warner Inc. 9,147,985
130,400 Walt Disney Co. 9,551,800
- --------------------------------------------------------------------
43,088,535
- --------------------------------------------------------------------
Packaging--1.6%
614,000 Owens Illinois Corp.* 14,582,500
- --------------------------------------------------------------------
Pharmaceuticals--2.3%
90,500 Bristol Myers Squibb 11,493,500
104,300 Pfizer, Inc. 9,686,863
- --------------------------------------------------------------------
21,180,363
- --------------------------------------------------------------------
Retail Trade--1.0%
222,600 Walgreen Co. 9,154,425
- --------------------------------------------------------------------
Retail-Department Stores--2.1%
658,400 Dillard Department Stores, Inc. 19,669,700
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--2.0%
571,000 Lehman Brothers Holdings, Inc. 18,057,875
- --------------------------------------------------------------------
Semiconductors & Electronics--4.3%
247,000 Intel Corp. 40,075,750
- --------------------------------------------------------------------
Specialty Finance & Agency--8.6%
345,300 Federal National Mortgage Assn. 13,639,350
828,200 First USA, Inc. 41,927,625
683,925 MBNA Corp. 23,595,413
- --------------------------------------------------------------------
79,162,388
- --------------------------------------------------------------------
Specialty Retail--1.0%
311,900 Service Corp. International 9,045,100
- --------------------------------------------------------------------
Technology Capital Goods--1.5%
286,400 Applied Materials Inc.* 14,141,000
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--2.1%
362,400 Goodyear Tire & Rubber Co. 19,750,800
- --------------------------------------------------------------------
Tobacco--3.0%
229,400 Philip Morris Companies, Inc. 27,269,925
- --------------------------------------------------------------------
Total Common Stocks
(Cost $661,066,240) $ 913,741,765
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Repurchase Agreement--2.0%
$18,300,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 18,300,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $18,300,000) $ 18,300,000
- --------------------------------------------------------------------
Total Investments
(Cost $679,366,240)(a) $ 932,041,765
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 255,377,138
Gross unrealized loss for investments in
which cost exceeds value (3,163,091)
- --------------------------------------------------------------------
Net unrealized gain $ 252,214,047
====================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $679,827,718.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Letter to Shareholders
- ----------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
- ----------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Small Cap Equity Fund's objective is long-term
capital appreciation, primarily through investments in equity securities of U.S.
companies with market capitalizations of $1 billion or less. The fund is managed
using a "business value" approach to investing, which means we look for
attractive companies with high or improving returns on capital that we believe
can achieve solid, sustainable growth, as well as generate free cash after
investing for future growth. This approach differs markedly from many emerging
growth small-cap funds that invest in companies with high price-to-earnings
multiples solely on the basis of rapid, but frequently unsustainable, growth
rates. Using our own rigorous fundamental research, which includes meeting with
a company's management and examining a company's competitors, customers and
suppliers, we build the fund's portfolio one stock at a time.
Performance Review: Class A Shares Outperformed the Benchmark and the S&P 500
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
<S> <C> <C>
Fund Total Return Russell
(based on net 2000 Total
asset value) Return
----------- ------
Class A (1/31/96 - 1/31/97)* 27.28% 18.95%
Class B (5/1/96 - 1/31/97)* 5.39% 7.32%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the period under review, small-cap stocks achieved strong
returns but still underperformed large-cap stocks. Small-caps began the period
on a strong note, outpacing large-caps from February through May, then gave up
their early lead during June and July when the market experienced a sharp
correction. While both large-cap and small-cap stocks sold off, small-caps were
particularly hard hit. During the latter half of the period, the market surged
to record highs, but small-caps trailed their larger peers as investors rushed
to participate in the rising market, but hedged their bets by sticking with the
largest, most liquid stocks.
Despite the small-cap sector's waning momentum, we are pleased to
report that the fund's Class A shares returned 27.28% (at net asset value),
outperforming both its benchmark, the Russell 2000 index (18.95%), and the
large-cap S&P 500 stock index (26.25%). In addition, the fund's Class A shares
placed in the top third of the Lipper small-company growth fund category
(ranking 129th out of 394) for the 12-month period ended January 31, 1997,
according to Lipper Analytical Services, Inc. (Please note that Lipper rankings
do not take sales charges into account and that past performance is not a
guarantee of future results. Lipper did not rank the fund's Class B shares.) The
fund's Class B shares also achieved positive returns, but did not fare as well
because their inception coincided with the start of a more difficult market
environment for small-cap stocks.
The fund's performance was especially strong during the first half of
the period, when a number of its long-held investments performed well. These
positions included some companies that had experienced temporary difficulties
and rebounded on improving fundamentals, as well as companies that had been
relatively undiscovered and garnered increased investor awareness due to
continued strong earnings gains. The fund also performed better than the broader
market during the summer correction, when expensive, momentum-type stocks were
hit harder than those with inexpensive valuations, which the fund typically
emphasizes. In contrast, during the second half of the period, stocks with
momentum characteristics rebounded, while the types of stocks that the fund
stresses did not perform as strongly. In addition, the fund experienced price
corrections in several holdings due to earnings volatility.
The fund's top performers during the period came from a wide variety
of industries, with Black Box Corp. and Morningstar Group, Inc. contributing
significantly to overall results. Black Box Corp., a catalog marketer of
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
communications and networking products, was the fund's largest holding in the
beginning of the period and climbed substantially as it continued to achieve
record revenues and profits due to successful direct marketing efforts and new
product introductions. The position in Black Box was then sold after it reached
our target price. Morningstar Group, Inc., a manufacturer of specialty foods,
was the fund's eighth largest holding at the start of the period and nearly
tripled in price when it consolidated its market position through internal
growth, new product introductions and several attractive acquisitions. The fund
has held Morningstar Group for over four years; it is a good example of our
willingness to hold strong businesses until the market recognizes their true
value.
Other strong performers included American Safety Razor Co., the
leading U.S. manufacturer of private-brand and value-priced shaving blades,
which benefited from internal profit enhancement efforts and particularly strong
sales of its branded and private-label shaving and personal care products;
Movado Group, Inc., the owner of the Movado, Concord and Esquire watch brands,
which rebounded due to significant sales growth, new licensing agreements and
increased analyst coverage; J. Baker, Inc., a diversified retailer of footwear
and apparel, which announced its intention to sell its shoe division in order to
focus its resources on its successful "Casual Male Big & Tall" stores; and
Nimbus CD International, Inc., a CD and CD-ROM manufacturer that we sold after
it rose sharply due to high investor expectations of future DVD (digital video
disk) demand. Finally, several financial holdings performed well, such as Horace
Mann Educators Co., a provider of property, casualty and life insurance for the
educator market, and Terra Nova Bermuda Holdings, a worldwide provider of
property casualty insurance and reinsurance.
Not all of the fund's holdings fulfilled our expectations. Several
stocks were hurt by disappointing earnings, although we continue to believe in
their long-term prospects. For example, Landstar System, Inc. experienced
weakness when the restructuring of its trucking operations from a fixed cost to
a variable cost business took longer than expected. In addition, Central Maine
Power Co. was impacted by uncertainty in the regulatory environment, and Alpine
Lace Brands, Inc., a developer and marketer of cheese products, declined due to
an increase in commodity cheese prices. We took advantage of lower prices and
increased the fund's positions in all three stocks. In contrast, we liquidated
two other underperformers, Musicland Stores Corp. and Levitz Furniture Inc.,
because their fundamental businesses continued to deteriorate.
Recent Additions
During the period, we initiated a number of positions that have
already contributed to performance. These included Linens 'N Things, Inc., a
retailer of home accessories, which was attractively valued versus its key
competitor, Bed, Bath and Beyond, and has significant store expansion and margin
improvement potential, and Sun Healthcare Group, Inc., a well-managed
owner/operator of nursing homes with attractive long-term growth potential.
Though Sun Healthcare Group has been temporarily impacted by a government
investigation of one of its subsidiaries, we believe this issue is fully
reflected in the current stock price. In the technology sector, we added
DecisionOne Holdings Corp., the leading independent provider of computer
hardware and maintenance support services to U.S. companies. We intend to
continue to focus on technology-related service providers and distributors that
we believe are positioned to benefit from the expected long-term growth of the
sector but are not dependent on the success of any single product or service.
Other new investments were APS Holding Corp., a distributor of
automotive parts, which was depressed by industry- and company-specific issues
that we believe to be temporary, and Friedman's, Inc., a retailer of inexpensive
jewelry with significant expansion potential and a very low-cost operating
strategy. We also added two specialty insurance companies, SCPIE Holdings, Inc.
and Symon's International Group, Inc.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund (continued)
- --------------------------------------------------------------------------------
Sales Included Several Financial Holdings
The fund sold several stocks after they appreciated and reached our
target prices. These included a number of financial holdings, such as Greenpoint
Financial Corp., the leading national lender of "no-documentation--low-
documentation" mortgages; Dime Bancorp, Inc., the fifth largest thrift in the
U.S.; and Western National Corporation, a marketer of annuity products.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
Movado Group, Inc. Luxury and 5.6%
Affordable Watch
Distributor
DecisionOne Holdings Corp. Computer Support 4.9%
Provider
Sun Healthcare Group, Inc. Healthcare Services 3.9%
APS Holding Corp. Automotive Parts 3.6%
Distributor
Mariner Health Group, Inc. Healthcare Services 3.6%
Groupe AB Television 3.5%
Programming
Distributor
Friedman's, Inc. Jewelry Retailer 3.5%
J. Baker, Inc. Specialty Apparel 3.5%
Heritage Media Corp. Marketing Services 3.4%
Provider
Linens 'N Things, Inc. Home Products 3.1%
Retailer
- --------------------------------------------------------------------
</TABLE>
Outlook
One of the key factors that will affect equity performance during
1997 will be the continuation of the favorable economic environment of moderate
growth and low inflation, which would ensure that both the corporate earnings
outlook and the interest rate climate remain hospitable. Small-capitalization
stocks as a group currently appear undervalued relative to large-cap stocks and
to their own expected earnings potential. We believe that corporate earnings
growth will slow somewhat in 1997, and to the extent that smaller companies can
achieve better earnings growth than larger companies, they should perform
relatively well. The performance of small-caps will particularly depend on
investors broadening their focus from the largest, most liquid stocks to
smaller, less widely followed issues. We are optimistic regarding the fund's
future performance based on the strong earnings growth and the free cash flow we
expect from many of our top holdings, as well as from new investments.
/s/ Paul D. Farrell
Paul D. Farrell
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ Matthew B. McLennan
Matthew B. McLennan
Assistant Portfolio Manager,
U.S. Active Equity Value
/s/ Timothy G. Ebright
Timothy G. Ebright
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
36
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 Index ("S&P 500") and the Russell 2000)
are shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class A GS Small Cap Class A Russell
(w/sales charge) (no sales charge) S&P 500 2000
-------------------- --------------------- ------- -------
<S> <C> <C> <C> <C>
10/22/92 $ 9,450 10,000 $10,000 $10,000
1/31/93 11,138 11,786 10,655 11,733
1/31/94 14,494 15,337 12,027 13,914
1/31/95 11,953 12,649 12,091 13,078
1/31/96 12,813 13,559 16,768 17,010
1/31/97 16,320 17,270 21,183 20,242
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class B GS Small Cap Class B Russell
(no redemp. charge) (w/redemp. charge) S&P 500 2000
-------------------- -------------------- ------- -------
<S> <C> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000 $10,000
1/31/97 10,539 10,039 12,218 10,732
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
Average Annual Total Return
-----------------------------------------
One Year Since Inception/(a)/
-------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 27.28% 13.61%
-------------------------------------------------------------------------
Class A, w/sales charge 20.27% 12.12%
-------------------------------------------------------------------------
Class B, no redemption charge N/A 5.39%/(b)/
-------------------------------------------------------------------------
Class B, w/redemption charge N/A 0.39%/(b)/
-------------------------------------------------------------------------
</TABLE>
/(a)/ Class A and Class B shares commenced operations on October 22, 1992
and May 1, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an
average annual total return since this class has not completed a full
twelve months of operations.
- --------------------------------------------------------------------------------
37
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--92.5%
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.6%
777,200 APS Holding Corp.* $ 7,869,150
- --------------------------------------------------------------------
Commercial Products--2.4%
211,000 Figgie International, Inc. Class A* 2,611,125
231,400 Figgie International, Inc. Class B* 2,487,550
- --------------------------------------------------------------------
5,098,675
- --------------------------------------------------------------------
Commercial Services--1.0%
539,200 Opinion Research Corp.* 2,022,000
- --------------------------------------------------------------------
Computers & Peripherals--7.5%
598,700 DecisionOne Holdings Corp.* 10,477,250
467,100 Multiple Zones International, Inc.* 5,605,200
- --------------------------------------------------------------------
16,082,450
- --------------------------------------------------------------------
Consumer Staples--3.8%
270,700 American Safety Razor Co.* 3,958,987
389,400 Spartech Corp. 4,234,725
- --------------------------------------------------------------------
8,193,712
- --------------------------------------------------------------------
Electric Utilities--2.2%
433,900 Central Maine Power Co. 4,827,137
- --------------------------------------------------------------------
Electrical Equipment--2.3%
240,100 Carbide/Graphite Group* 5,012,087
- --------------------------------------------------------------------
Food--2.3%
374,600 Alpine Lace Brands, Inc.* 2,341,250
109,000 Morningstar Group, Inc.* 2,588,750
- --------------------------------------------------------------------
4,930,000
- --------------------------------------------------------------------
Healthcare Management--9.0%
20,100 Health Systems International, Inc.* 520,088
798,000 Mariner Health Group, Inc.* 7,780,500
517,100 Sun Healthcare Group, Inc.* 8,402,875
146,200 Trigon Healthcare, Inc.* 2,595,050
- --------------------------------------------------------------------
19,298,513
- --------------------------------------------------------------------
Home Furnishing & Services--2.9%
221,500 Congoleum Corp.* 3,156,375
160,900 Synthetic Industries, Inc.* 3,036,988
- --------------------------------------------------------------------
6,193,363
- --------------------------------------------------------------------
Insurance Specialty--1.6%
63,100 Old Republic International Corp. 1,695,812
83,900 Scpie Holdings, Inc.* 1,761,900
- --------------------------------------------------------------------
3,457,712
- --------------------------------------------------------------------
Insurance-Life--0.3%
36,000 AmerUs Life Holdings, Inc.* 711,000
- --------------------------------------------------------------------
Insurance-Property and Casualty--6.0%
50,500 Horace Mann Educators Co. 2,158,875
206,500 IPC Holdings Ltd. 4,943,094
92,200 Symons International Group* 1,475,200
215,800 Terra Nova Bermuda Holdings 4,262,050
- --------------------------------------------------------------------
12,839,219
- --------------------------------------------------------------------
Leisure--1.0%
210,700 Trump Hotels & Casino Resorts,
Inc.* 2,212,350
- --------------------------------------------------------------------
Media Content--9.0%
596,300 Groupe AB SA ADR* 7,602,825
609,800 Heritage Media Corp.* 7,393,825
432,300 International Post Ltd.* 1,729,200
324,200 Platinum Entertainment, Inc.* 2,674,650
- --------------------------------------------------------------------
19,400,500
- --------------------------------------------------------------------
Metal Products--0.5%
57,200 Doncasters Plc ADR* 1,122,550
- --------------------------------------------------------------------
Packaging--0.7%
88,100 Shorewood Packaging Corp.* 1,596,813
- --------------------------------------------------------------------
Real Estate--0.7%
73,700 Insignia Financial Group, Inc.* 1,538,487
- --------------------------------------------------------------------
Recreation Products--5.6%
539,200 Movado Group, Inc. 12,064,600
- --------------------------------------------------------------------
Restaurants & Hotels--6.4%
262,400 IHOP Corp.* 6,461,600
399,300 Mortons Restaurant Group, Inc.* 6,438,713
40,000 Sonic Corp.* 815,000
- --------------------------------------------------------------------
13,715,313
- --------------------------------------------------------------------
Retail Hardgoods--4.7%
731,000 Brookstone Inc.* 5,939,375
290,700 Finlay Enterprises, Inc.* 4,287,825
- --------------------------------------------------------------------
10,227,200
- --------------------------------------------------------------------
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Specialty Retail--12.7%
506,200 Friedmans, Inc.* $ 7,593,000
242,000 General Nutrition Companies, Inc.* 4,386,250
1,500 Hibbett Sporting Goods, Inc.* 24,375
1,100,400 J. Baker, Inc. 7,565,250
87,000 Leslies Poolmart, Inc.* 1,141,875
307,200 Linens N'Things, Inc.* 6,758,400
- --------------------------------------------------------------------
27,469,150
- --------------------------------------------------------------------
Telephone Communications--0.3%
15,400 Telephone & Data Systems, Inc. 587,125
- --------------------------------------------------------------------
Textiles--1.6%
87,800 Samsonite Corp.* 3,468,100
- --------------------------------------------------------------------
Trucking--2.3%
207,100 Landstar Systems, Inc.* 4,918,625
- --------------------------------------------------------------------
Voice, Video and Data--2.1%
263,200 Pegasus Communications, Inc.* 3,224,200
142,700 Rural Cellular Corp.* 1,391,325
- --------------------------------------------------------------------
4,615,525
- --------------------------------------------------------------------
Total Common Stocks
(Cost $194,261,908) $199,471,356
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bond--0.2%
- --------------------------------------------------------------------
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 412,500
- --------------------------------------------------------------------
Total Corporate Bond
(Cost $498,387) $ 412,500
====================================================================
Repurchase Agreement--7.7%
- --------------------------------------------------------------------
$16,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 16,600,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $16,600,000) $ 16,600,000
====================================================================
<CAPTION>
Contracts Description Value
====================================================================
<S> <C> <C>
Options*--0.5%
200 S&P 500 Index Put Strike 725
exp. 03/97 $ 95,000
351 S&P 500 Index Put Strike 700
exp. 03/97 92,138
560 S&P 500 Index Put Strike 750
exp. 06/97 938,000
- --------------------------------------------------------------------
Total Options
(Cost $1,643,182) $ 1,125,138
====================================================================
Total Investments
(Cost $213,003,477)/(a)/ $217,608,994
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 31,335,604
Gross unrealized loss for investments in
which cost exceeds value (26,835,810)
- --------------------------------------------------------------------
Net unrealized gain $ 4,499,794
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $213,109,200.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment opportunities.
While the fund does not allocate assets across specific countries based on
top-down economic or market forecasts, the portfolio managers strive to manage
risk by remaining diversified by country and industry sector and by closely
monitoring economic and political events in countries in which the fund does
invest.
Economic and Market Overview: European Markets Were Strong Despite Weak
Economies; Asia Faltered
Economic growth was slower than expected in many countries during the
period, prompting further monetary easing in much of Europe and continued very
low short-term interest rates in Japan. European equity markets performed very
well despite the growth shortfall, benefiting from an increased focus on
improving shareholder value. The Japanese market declined significantly, while
results in other Asian markets were mixed.
.. Europe. The economies of several European markets, such as the U.K., Norway
and Ireland, strengthened during the period, but overall growth remained weak
throughout most of Europe. A number of European countries attempted to stimulate
their economies through monetary easing, but maintained tight fiscal policies in
an effort to reduce their budget deficits enough to qualify for European
Monetary Union. This strategy proved to be only modestly successful, as
unemployment remained at record highs, particularly in Germany. Though the
recovery was somewhat disappointing, European equity markets rose 26.6% during
the period (as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies), fueled by low inflation, low interest rates and relatively strong
bond markets. In addition, corporate profits improved, reflecting increased
emphasis on cost cutting and restructuring. The equity markets of Finland, Spain
and Sweden were among the strongest performers, while British stocks lagged much
of Europe due to a strengthening currency (which made U.K. exports more
expensive) and expectations of increases in short-term interest rates.
.. Japan. The Japanese economy strengthened during the period, but earnings
growth fell short of expectations. For the 12-month period ended January 31,
Japanese stocks (as measured by the TOPIX index in yen) declined 14.9%, with
approximately half of the loss occurring in January 1997 alone. During the first
half of the period, the Japanese market was bolstered by heavy demand from
Europe and the U.S., but foreign investors subsequently became net sellers when
the economic recovery softened and raised uncertainty surrounding the
sustainability of corporate profits. The weaker corporate earnings outlook
resulted in a conspicuous divergence between the performance of the largest
international blue-chip stocks and the rest of the market, particularly in the
third quarter. Lackluster investor sentiment was further exacerbated at the end
of the year due to increased pessimism that the Liberal Democratic Party (LDP)
government's higher taxes and scant spending on public works would dampen the
economy.
.. Asia (ex-Japan). Asian stock markets rose 2.4% during the period, as measured
by the MSCI All Country Asia Free (Ex Japan) Index (in terms of local
currencies). Asian markets began the period on a strong note, but several
markets faltered during the spring and summer due to a host of issues. These
included political uncertainty arising from national elections in several Asian
countries as well as slowing economic growth throughout the region, principally
due to weak electronics exports. From
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
September 1996 through January 1997, the region generally improved due to
stronger corporate earnings and stabilizing exports. The performance of the
individual markets varied widely. Malaysia was one of the region's best
performing markets during the period under review, rising 18.4%; Hong Kong, the
largest market in the region, performed well with a 12.0% return; and Thailand
was by far the weakest market, declining 45.3% (all in local currency terms).
Performance Review: Security Selection, Country Allocations and Industry
Weightings All Contributed to Strong Performance
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Fund Total FT/S&P
Return Actuaries
(based on Europe &
net asset Pacific Index
value) Total Return
------ ------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 13.48% 1.27%
Class B (5/1/96 - 1/31/97)* 2.83% -4.22%
Institutional (2/7/96 - 1/31/97)* 12.53% 0.53%
Service (3/6/96 - 1/31/97)* 10.42% 0.86%
- ------------------------------------------------------------------------------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inception through the end of
the period.
The fund performed extremely well during the period under review,
with all of its share classes outperforming the benchmark, the Financial
Times/S&P Actuaries Europe & Pacific Index ("Europac") unhedged. Europac is a
capitalization-weighted composite of approximately 1,500 stocks from 23
countries in Europe and the Asia-Pacific region and is calculated on a monthly
basis. We are also pleased to note that the fund's Class A shares placed in the
top third of the Lipper international fund category (ranking 93rd out of 342)
for the 12-month period ended January 31, 1997, according to Lipper Analytical
Services, Inc. (Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results. Lipper
did not rank the fund's Class B, Institutional or Service shares.)
The primary driver of the fund's superior performance was successful
stock selection, as we continued to focus on growing companies that actively
increased shareholder value through actions such as cost cutting, share buybacks
or restructuring. In addition, country allocations that worked in the fund's
favor were its overweighting in Sweden, one of the strongest performing markets
during the period, and its underweighting in Japan, one of the weakest, each the
result of our bottom-up approach to stock selection. The fund's industry
allocations also added value. The fund was overweighted in business services and
diversified consumer goods/services, which were among the best performing
sectors, and underweighted in financial services and basic industries, which
performed relatively poorly.
In terms of currency exposure, though the fund's neutral exposure is
unhedged, it was substantially hedged against the yen, which benefited
performance significantly when the yen continued to fall against the dollar. In
addition, the fund was partially hedged against some European currencies, such
as the Deutsche mark and the Swiss franc, which worked in its favor when the
dollar rose against those currencies.
The fund's Class B shares outperformed the benchmark by a wide
margin, but their performance was not as strong as the other share classes
because they began operations in May, after equity prices had already risen
significantly.
Portfolio Composition: A Widely Diversified Portfolio
As of January 31, 1997, the fund held positions in 56 companies based
in 16 countries. In terms of total portfolio assets, the five largest country
exposures were Japan (27.3%), the U.K. (12.6%), Germany (7.1%), Sweden (7.0%)
and Switzerland (6.8%).
Europe. At the end of the period, the portfolio's 53.0% allocation in European
stocks was in line with that of the benchmark (54.1%). In general, growth stocks
led the
- --------------------------------------------------------------------------------
41
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
- --------------------------------------------------------------------------------
market during the period. Many of the fund's European holdings were
growth-oriented stocks that benefited from positive earnings surprises and
successful efforts by senior management to enhance equity returns and
shareholder value. Several of the portfolio's longer term European holdings
were, once again, among its strongest performers. Securitas (Sweden), the
largest security services company in Europe, more than doubled during the
period, boosted by earnings from companies it acquired in Germany, France and
Portugal. Fresenius (Germany), a major producer of medical supplies, rose over
140% as it merged its global kidney dialysis division with W. R. Grace's
National Medical Center healthcare subsidiary and spun off the resulting
business, Fresenius Medical Care. Ericsson (Sweden), one of the world's leading
suppliers of mobile telephones and infrastructure, rebounded from weakness early
in the period when it achieved very good earnings, which reassured investors
that it was not suffering from margin pressure or weak mobile telephone orders.
Other strong performers were Randstad Holdings (Netherlands), the leading
temporary help organization in its market, which reported healthy sales and
earnings as its business continued to expand, and Comptoirs Modernes (France), a
supermarket chain operator, which gained market share in France and made
important acquisitions in Spain.
Several of the fund's newer additions also contributed to its
positive results. These included two pharmaceutical companies: Hoechst
(Germany), whose acquisition and restructuring plans indicate a commitment to
improving shareholder value, and Novartis (Switzerland), which was formed
through the merger of Ciba-Geigy and Sandoz and is expected to benefit from
significant cost reductions as well as new product development. Other
significant new positions that performed well were SGS Thomson (France), one of
the 10 largest semiconductor manufacturers in the world, which operates in the
high-value-added, application-specific sector of the market, and Telecom Italia
Mobile (Italy), the leading mobile telephone operator in Italy, which generates
strong cash flow and is extremely profitable.
Japan. Approximately 27% of the fund was invested in Japan, which was
underweighted relative to the benchmark (32.1%). The fund's Japanese stocks
fared better than the market, as we avoided banks and brokerages, two of the
weakest industries. We invested in companies with relatively robust earnings
visibility and good valuations, particularly favoring management that improved
cost competitiveness and strengthened their core business. The fund's best
performing Japanese stocks were TDK Corp., an electronic components manufacturer
that reported better than expected earnings due to strong sales of personal
computer-related components; Hoya Corp., an optical glass manufacturer that
aggressively restructured its operations and successfully diversified its
business so that it now dominates the glass magnetic disc market; and Mirai
Industry, a market leader in electric cables, pipes and other electric wiring
that introduced new products and cut costs. In contrast, Kyocera Corp., an
electronics components manufacturer, reported disappointing results due to
increased competition in the semiconductor and communication equipment
businesses. A new addition was Takeda Chemical Industry, the largest
pharmaceutical company in Japan, where aggressive new management initiatives
rapidly expanded overseas sales and improved the profitability of its
prescription drug business.
Asia-Pacific. Asia, a 13.5% allocation (excluding Japan), was slightly
overweighted compared with the benchmark's 10.7%, with Hong Kong representing
the largest country position at 6.7% of the portfolio. For most of the period,
the fund was overweighted in Malaysia, Hong Kong and Australia, which were three
of the better performing Asian markets. Though the performance of some of the
other markets fell short of expectations, our stock selection within the region
worked in the fund's favor. Several of the fund's top performers were financial
stocks, including Commerce Asset-Holdings, the fifth largest financial group in
Malaysia, which benefited from its merchant banking operations and strong loan
growth, and HSBC Holdings, a Hong Kong-based banking and financial services
organization, which reported strong results due to its dominant market position.
New holdings include Australia & New Zealand Bank Group, a bank that is
positioned to benefit from the potential deregulation in Australia's financial
services sector, and Asia Satellite Telecommunications Holdings Ltd., a
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
leading satellite owner and operator in the Asia-Pacific region that owns prime
orbital slots that are expected to result in high utilization rates and fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total
Company Country Line of Business Net Assets
<S> <C> <C> <C>
HSBC Holdings Hong Kong Banking and 3.0%
Finance
Novartis Switzerland Pharmaceuticals 3.0%
Fresenius Germany Kidney Dialysis 2.4%
Equipment
TDK Corp. Japan Tape and Disc 2.4%
Manufacturer
Telecom Italia Italy Mobile Tele- 2.4%
Mobile communications
Operator
Canon, Inc. Japan Office Equipment 2.4%
Manufacturer
Adecco Switzerland Temporary Help 2.4%
Services
Adidas Germany Sporting Goods 2.4%
Manufacturer
Hoechst Germany Chemical and 2.3%
Drug
Manufacturer
Hoya Corp. Japan Optical Glass 2.3%
Manufacturer
- --------------------------------------------------------------------
</TABLE>
Outlook
In the near term, we expect most international economies to continue
to experience moderate growth and subdued inflation. We are particularly
positive on the prospects for the European markets in 1997, where we expect a
modest acceleration in economic growth and a continuation of healthy corporate
earnings growth helped by cost cutting as well as restructuring initiatives.
We are currently most concerned about Japan. Despite the sharp
correction, we expect to remain underweighted in the Japanese market because of
our negative view of the banking sector and only modest earnings recoveries in
nonmanufacturing sectors. Lack of investor confidence in the government's
commitment to deregulation, as well as simultaneous weakness in the bond and
currency markets, have all impacted market sentiment. In this state of
uncertainty, superior stock selection will be essential, and we intend to
emphasize companies with clear earnings visibility, strong management and
attractive valuations. Despite the generally poor conditions, the earnings for
the fund's Japanese holdings are above expectations and are being upgraded. In
non-Japan Asia, corporate earnings reports have been mixed, but we believe
improved political stability and export growth should help stocks in 1997.
Finally, we are pleased to report that we have expanded our
international equity team in all geographic regions to support our effort to
seek out the most promising companies around the world.
/s/ Roderick D. Jack
Roderick D. Jack
Senior Portfolio Manager, London
/s/ Marcel Jongen
Marcel Jongen
Senior Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Senior Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager, Singapore
March 3, 1997
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and Class B, respectively) on the
inception date of each class. For comparative purposes, the performance of the
Fund's benchmark (the Financial Times-Actuaries World Euro-Pacific Index
Unhedged ("FT Euro-Pac (Unhedged)/(b)/) is shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class A Class A FT Euro-Pac Ft Euro-Pac
(w/sales charge) (no sales charge) (Comb )(b) (Unhedged)
---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
12/1/92 9,450 10,000 10,000 10,000
1/31/93 9,566 10,123 10,063 10,055
1/31/94 12,066 12,768 13,498 14,399
1/31/95 10,058 10,643 12,119 13,902
1/31/96 12,942 13,695 13,983 16,039
1/31/97 14,961 15,546 14,160 16,243
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class B Class B FT Euro-Pac
(w/sales charge) (no sales charge) (Unhedged)
---------------- ----------------- -----------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 10,283 9,783 9,578
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Institutional Class (Unhedged)
------------------- -----------
<S> <C> <C>
2/7/96 10,000 10,000
1/31/97 11,253 10,053
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Service Class (Unhedged)
-------------- -----------
<S> <C> <C>
3/6/97 10,000 10,000
1/31/97 11,042 10,086
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------- ------------------- --------------------
<S> <C> <C>
Class A, no sales charge 13.48% 11.15%
- -------------------------------------- ------------------- --------------------
Class A, w/sales charge 7.26% 9.66%
- -------------------------------------- ------------------- --------------------
Class B, no redemption charge N/A 2.83% /(c)/
- -------------------------------------- ------------------- --------------------
Class B, w/redemption charge N/A (2.17)%/(c)/
- -------------------------------------- ------------------- --------------------
Institutional Class N/A 12.53% /(c)/
- -------------------------------------- ------------------- --------------------
Service Class N/A 10.42% /(c)/
- -------------------------------------- ------------------- --------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations
on December 1, 1992, May 1, 1996, February 7, 1996 and March 6, 1996,
respectively.
/(b)/ Beginning on September 1, 1994, the Class A shares began using the
unhedged FT Euro-Pac as its benchmark (prior thereto, Class A used the
hedged FT Euro-Pac). The combined FT Euro-Pac represents the hedged FT
Euro-Pac performance up to August 31, 1994 and the unhedged FT Euro-Pac
performance from September 1, 1994 through January 31, 1997.
/(c)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
44
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--91.5%
Australian Dollar--3.6%
1,851,658 Australia & New Zealand Bank Group
(Commercial Banks) $ 11,355,706
1,564,955 Woodside Petroleum, Ltd. (Oil &
Gas) 11,053,763
- --------------------------------------------------------------------
22,409,469
- --------------------------------------------------------------------
Austrian Schilling--1.2%
105,400 Oesterreichische Elektrizitats
(Utilities) 7,698,241
- --------------------------------------------------------------------
Belgian Franc--0.2%
14,400 Dexia (Financial Services) 1,372,240
- --------------------------------------------------------------------
British Pound Sterling--12.6%
1,391,569 British Airport Authority
(Transportation) 11,661,442
1,788,649 Electrocomponents (Wholesale
Trade) 12,753,546
1,261,210 Premier Farnell PLC (Electronics) 10,670,067
706,368 Misys PLC (Business Services and
Computer Software) 12,393,414
1,708,700 Rentokil Group (Business Services) 12,553,100
473,916 Siebe (Machinery and Engineering
Services) 7,973,270
873,509 Standard Chartered (Banking) 10,497,224
- --------------------------------------------------------------------
78,502,063
- --------------------------------------------------------------------
Deutsche Mark--4.7%
155,760 Adidas AG (Textiles) 14,749,495
343,320 Hoechst AG (Healthcare) 14,439,672
- --------------------------------------------------------------------
29,189,167
- --------------------------------------------------------------------
French Franc--6.4%
22,531 Comptoirs Modernes (Retail) 11,749,983
40,720 CLF Dexia (Financial Services) 3,649,869
95,602 CLF Dexia - Registered Shares 8,569,124
(Financial Services)
63,189 Seita (Tobacco) 2,400,553
193,600 SGS Thomson Microelectronics
(Electronics) 13,882,408
- --------------------------------------------------------------------
40,251,937
- --------------------------------------------------------------------
Hong Kong Dollar--6.7%
4,148,000 Asia Satellite Tel.
(Telecommunications) 9,233,837
816,800 HSBC Holdings (Commercial Banks) 18,920,583
1,185,000 Sun Hung Kai Properties Co. (Real
Estate) 13,380,759
- --------------------------------------------------------------------
41,535,179
- --------------------------------------------------------------------
Irish Pound--2.3%
1,491,014 Bank of Ireland (Commercial Banks) 14,247,624
- --------------------------------------------------------------------
Italian Lira--2.4%
3,000,500 Telecom Italia Mobile (Utilities) 8,930,448
3,574,000 Telecom Italia Mobile (Di Risp
Shares) (Utilities) 6,095,944
- --------------------------------------------------------------------
15,026,392
- --------------------------------------------------------------------
Japanese Yen--27.3%
206,000 Aderans Company Ltd. (Retail) 4,808,281
702,000 Canon, Inc. (Office Equipment
Manufacturer) 14,880,119
363,000 Hoya Corp. (Electronics and
Instrumentation) 14,520,599
297,400 Inaba Denkisangyo (Industrial) 5,396,346
458,000 Kokuyo Co., Ltd. (Office Equipment
Manufacturer) 9,594,787
149,000 Kyocera Corp. (Electronics) 8,749,887
358,000 Max Co. (Electronics and
Instrumentation) 5,432,966
238,900 Mirai Industry Co. (Electrical
Equipment Manufacturer) 5,852,060
1,927,000 Mitsubishi Heavy Industries Ltd.
(Engineering) 13,874,972
1,530,000 Mitsui Marine & Fire (Insurance) 8,215,019
450,100 Santen Pharmaceutical Co.
(Healthcare) 8,352,716
92,800 Sanyo Shinpan Financial
(Financial) 5,204,668
</TABLE>
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Japanese Yen (continued)
322,000 Shimachu (Retail-Furniture) $ 6,905,027
213,900 SMC Corp. (Machinery) 13,125,622
410,000 Taikisha Ltd. (Machinery) 5,038,558
570,000 Takeda Chemical Industry
(Healthcare) 11,235,927
235,000 TDK Corp. (Consumer Goods) 15,040,620
464,000 Tostem Corp. (Construction) 10,906,842
146,800 York Benimaru (Retail) 3,922,900
- --------------------------------------------------------------------
171,057,916
- --------------------------------------------------------------------
Malaysian Ringgit--1.9%
1,328,000 Commerce Asset Holdings
(Commercial Banks) 10,683,829
581,000 Leader Universal Holdings
(Metals-Diversified) 1,168,544
- --------------------------------------------------------------------
11,852,373
- --------------------------------------------------------------------
Netherlands Guilder--5.0%
146,070 Aegon (Insurance) 8,951,011
136,180 Randstad Holdings (Business
Services) 9,471,458
102,016 Wolters Kluwer (Media) 12,602,793
- --------------------------------------------------------------------
31,025,262
- --------------------------------------------------------------------
Singapore Dollar--1.5%
1,511,000 Singapore Land (Real Estate) 9,123,100
- --------------------------------------------------------------------
Spanish Peseta--1.9%
63,595 Banco Popular (Commercial Banks) 11,571,494
- --------------------------------------------------------------------
Swedish Krona--7.0%
335,300 Ericsson Telecommunications
(Computer - Office) 11,255,719
268,440 Hoganas AB (Metal Products) 8,455,037
405,970 Securitas AB (Business Services) 12,057,737
3,469,100 Swedish Match AB (Tobacco) 11,741,304
- --------------------------------------------------------------------
43,509,797
- --------------------------------------------------------------------
Swiss Franc--6.8%
52,468 Adecco SA (Business Services) 14,753,971
6,726 Cie Financier Richemont AG
(Consumer Goods) 9,231,858
16,335 Novartis AG (Healthcare) 18,730,002
- --------------------------------------------------------------------
42,715,831
- --------------------------------------------------------------------
Total Common Stocks
(Cost $503,926,410) $ 571,088,085
====================================================================
Preferred Stock--2.4%
- --------------------------------------------------------------------
Deutsche Mark--2.4%
74,790 Fresenius AG (Health Care),
Non-voting $ 15,042,126
- --------------------------------------------------------------------
Total Preferred Stock
(Cost $4,437,079) $ 15,042,126
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Short-Term Obligations--6.6%
- --------------------------------------------------------------------
$ 41,394,109 State Street Bank & Trust
Euro-Time Deposit 5.5%, 02/03/97** $ 41,394,109
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $41,394,109) $ 41,394,109
====================================================================
Total Investments
(Cost $549,757,598)/(a)/ $ 627,524,320
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $108,968,495
Gross unrealized loss for investments in
which cost exceeds value (31,533,818)
- --------------------------------------------------------------------
Net unrealized gain $ 77,434,677
====================================================================
</TABLE>
/(a)/ The aggregate cost for federal income tax purposes is $550,089,643.
* Non-income producing security.
** A portion of this security has been segregated for extended
settlement securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an intergral part of these financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------
Common and Preferred Stock Industry Concentrations
====================================================================
<S> <C>
Business Services 7.8%
Commercial Banks 12.4%
Computer Software and Services 2.0%
Computer - Office 1.8%
Construction 1.7%
Consumer Goods 3.9%
Electrical Equipment Manufacturer 0.9%
Electronics 5.3%
Electronics and Instrumentation 3.2%
Engineering 2.2%
Financial 0.8%
Financial Services 2.2%
Health Care 10.9%
Industrial 0.9%
Insurance 2.7%
Machinery 2.9%
Machinery and Engineering Services 1.3%
Media 2.0%
Metal Products 1.4%
Metals-Diversified 0.2%
Office Equipment Manufacturer 3.9%
Oil & Gas 1.8%
Real Estate 3.6%
Retail 3.3%
Retail-Furniture 1.1%
Telecommunications 1.5%
Textiles 2.4%
Tobacco 2.3%
Transportation 1.9%
Utilities 3.6%
Wholesale Trade 2.0%
- --------------------------------------------------------------------
Total Common and Preferred Stock 93.9%
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
- --------------------------------------------------------------------
47
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets, including China, Hong Kong, India, Indonesia, Malaysia, Pakistan,
the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its
price-to-book value and the predictability of its earnings stream as among the
best measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers and
competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell a
position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in one country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
Market Overview: Results Were Mixed in Asian Markets
As a group, the Asian stock markets rose 2.37% during the period, as
measured by the MSCI All Country Asia Free (Ex Japan) Index (without dividends
reinvested). The weak performance indicated by the Index masks the wide
divergence of performance among the individual Asian markets, as several
countries rose more than 10% while others fell more than 20%. The period under
review began on a strong note, but the region quickly sold off in mid-February
when investors became unnerved by rising political tension between China and
Taiwan. Though the Asian markets briefly rebounded, investor interest was
dampened again during the spring and summer due to uncertainty surrounding
national elections in several countries, a decline in exports and slowing
economic growth. From October 1996 through January 1997, most Asian markets
recovered due to improving corporate earnings and signs of stabilizing export
growth.
In terms of individual markets, Taiwan, Malaysia and Indonesia were the
strongest performers, rising 56.0%, 21.9% and 17.5%, respectively (in U.S.
dollar terms), with each overcoming brief setbacks such as negative short-term
economic data and political upheaval. Other positive markets were India, which
was the region's strongest performer during the first half of the year and
subsequently gave back some of its gains, and the Philippines, where healthy
economic growth and declining inflation renewed investor interest. Hong Kong,
the most heavily weighted country in the Index, posted lackluster results early
in the period, then rebounded to close the period with a 12.0% gain due to a
favorable interest rate environment and a soaring property market. The weakest
performer was Thailand, which dropped 46.5%. Thailand was impacted by a very
large budget deficit, exacerbated by the slowdown of computer-related exports as
well as a tear in the speculative bubble in the real estate market, as
nonperforming property loans caused problems in the banking sector. South Korea
and Singapore were weak as well, declining approximately 34% and 7%,
respectively. South Korean equities were affected by an ongoing investigation of
government corruption and a weakening economy, and Singapore's market fell due
to soft electronics exports.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Review: Country Allocations Affected the Fund's Performance
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Fund Total MSCI AC
Return Asia Free
(based on net (Ex Japan)
asset value) Index +
------------ -----
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* -1.01% 2.37%
Class B (5/1/96 - 1/31/97)* -6.02% -2.50%
Institutional (2/2/96 - 1/31/97)* -1.09% 2.06%
- -------------------------------------------------------------------
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Class B and Institutional shares is a cumulative total
return (not annualized) from their inception through the end of the period.
+ Represents a price-only index that does not reflect reinvested dividends.
During the period under review, stock selection benefited the fund as a
number of holdings achieved strong returns. The fund's performance was
nonetheless affected by its country over- and underweightings relative to the
Index when individual markets performed better or worse than expected. For
example, Taiwan and Malaysia were two of the region's best performing markets,
but the fund was underweighted in those countries and therefore did not fully
participate in their rallies.
Financial, Property and Infrastructure Stocks Were the Strongest Performers
The fund's best performers during the period were its positions in the
financial, real estate and infrastructure sectors. Top financial stocks included
two of our Hong Kong investments, HSBC Holdings PLC, one of the world's largest
banking and financial services companies, and Wing Hang Bank Ltd., a provider of
banking, foreign exchange and treasury services, which both benefited from
strong growth in mortgage loans resulting from Hong Kong's robust property
market. Metropolitan Bank and Trust, the Philippines' largest bank in terms of
assets, rose substantially due to the growing Philippine economy and aggressive
branch expansion, and Commerce Asset-Holdings, the fifth largest financial group
in Malaysia, benefited from its merchant banking operations and strong loan
growth.
In the real estate sector, Hong Kong's booming property market buoyed
several of the fund's holdings. These included Sun Hung Kai Properties, one of
the largest and best managed property companies in Hong Kong; Henderson Land
Development, a large property development and investment holding company that
concentrates on mass residential developments; and HKR International Ltd., a
real estate developer that primarily focuses on residential development in
Discovery Bay on Lantau Island (a self-contained community that offers a
"quality lifestyle").
Other strong performers were two Malaysian companies that benefited from
the government's commitment to improve the country's infrastructure. Road
Builder Malaysia Holdings, a contractor specializing in civil engineering and
road construction, continued its strategic expansion and diversification, and
United Engineers Malaysia, Malaysia's largest builder and operator of toll
roads, rose due to the opening of several new roads.
Stocks that did not fulfill our expectations included Leader Universal
Holdings, Malaysia's leading manufacturer of power and telecommunication cable,
which reported lower than expected earnings due to very low export margins;
Industrial Finance Corp. of Thailand (IFCT), which declined in sympathy with
Thailand's financial sector; and Tata Engineering and Locomotive Company
(TELCO), India's largest vehicle manufacturer, which slumped on speculation
concerning rising inventories and general market uncertainty. We significantly
reduced the fund's position in Leader Universal Holdings and IFCT, but we
continue to have confidence in TELCO, which has strong fundamentals and fared
well relative to the broader Indian market.
Portfolio Composition
As of January 31, 1997, 97.1% of the fund's total market value was
invested in equities while 2.2% was in cash equivalents, with the remainder in
other securities. The fund's five largest country exposures were Hong Kong
(39.9%), Malaysia (13.5%), Singapore (10.1%), India (9.9%) and Indonesia (5.2%).
At the end of the period, the portfolio was overweighted relative to the Index
in Hong Kong, India and South Korea, slightly underweighted in
- --------------------------------------------------------------------------------
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
- --------------------------------------------------------------------------------
the Philippines, and significantly underweighted in Thailand, Singapore,
Malaysia and Taiwan.
Additions in Real Estate and Security Services, Reductions in Several Existing
Positions
During the period, we added Hysan Development Company, a property
investment company that owns a number of commercial and residential properties
in Hong Kong and should be a beneficiary of rising rental prices, and
Taiwan-Sogo Shinkong, a security services company that controls approximately
38% of the market in Taiwan and is expected to experience growing demand from
residential clients. Other portfolio changes included the trimming of several
positions in Hong Kong after they appreciated significantly and became more
fully valued. These included Sun Hung Kai Properties, Henderson Land Development
and HKR International Ltd.
<TABLE>
<CAPTION>
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
Line of of Total
Company Country Business Net Assets
<S> <C> <C> <C>
HKR International Hong Kong Property 4.4%
Ltd.
Road Builder Malaysia Infrastructure 4.1%
Malaysia Holdings
Swire Pacific Ltd. Hong Kong Conglomerate 4.1%
Metropolitan Bank Philippines Banking and 3.8%
and Trust Finance
Wing Hang Bank Hong Kong Banking and 3.9%
Ltd. Finance
Henderson Land Hong Kong Property 3.7%
Development
HSBC Holdings PLC Hong Kong Banking and 3.5%
Finance
Hutchison Hong Kong Conglomerate 3.5%
Whampoa
Sun Hung Kai Hong Kong Property 3.5%
Properties
Commerce Asset- Malaysia Conglomerate 3.5%
Holdings
</TABLE>
Outlook
In 1997, we expect export growth to strengthen, which should stimulate
economies throughout the region. With most of the region's elections now over,
the region should also benefit from greater political stability in 1997. Though
the recent death of Deng Xiaoping may increase near-term volatility, we remain
optimistic that the handover of Hong Kong to China will proceed smoothly, as it
is in China's best interests to maintain Hong Kong's current economic success.
We intend to increase the fund's weightings in Malaysia, the Philippines and
Indonesia, markets that we expect to benefit from stable currencies and good
economic fundamentals. In September 1996, the benchmark established a new
weighting in Taiwan and doubled its weighting in Korea, and we are actively
seeking investment opportunities in these countries. We continue to have a
favorable view of India but are still cautious regarding Thailand and Singapore,
where real estate overdevelopment may continue to hinder their respective
markets for the near term.
In general, we believe that Asian equities are attractively valued on a
historical basis. We expect that economic growth in the region may slow somewhat
to 5% to 7% annually, still approximately double versus the U.S., one of the
world's most mature economies. Over time, we intend to broaden our emphasis from
companies that tend to do well in the earliest stages of emerging economies to
companies that we believe are poised to benefit most from the region's internal
growth. These include new start-ups, consumer-related products and services, and
infrastructure companies.
On another front, we are pleased to announce that we have recently
expanded our portfolio management team. Our new team members will focus
primarily on real estate companies, conglomerates and cyclical industries, and
they will enhance our ability to seek out companies with above-average growth
potential.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We appreciate your continued support in what has been a challenging period
for the region and the fund. Going forward, we remain confident that the region
continues to offer many attractive investment opportunities for investors with a
long-term view.
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
March 3, 1997
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Morgan Stanley Capital International Combined Asia (ex Japan) Index ("MSCI
Combined Asia-ex Japan")) is shown for the appropriate time periods. All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares, when
redeemed, to be worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class A Class A MSCI
(w/sales charge) (no sales charge) Combined
---------------- ----------------- --------
<S> <C> <C> <C>
7/8/94 $ 9,450 $10,000 $10,000
1/31/95 8,934 9,454 9,074
1/31/96 11,300 11,958 11,129
1/31/97 11,186 11,837 11,393
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class B Class B MSCI
(w/redemp. charge) (no redemp. charge) Combined
------------------- ------------------ --------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 9,398 8,928 9,750
</TABLE>
Institutional
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth MSCI
Institutional Combined
-------------- --------
<S> <C> <C>
2/2/96 $10,000 $10,000
1/31/97 9,891 10,206
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge (1.01)% 6.78%
- -------------------------------------------------------------------------
Class A, w/sales charge (6.44)% (4.46)%
- -------------------------------------------------------------------------
Class B, no redemption charge N/A (6.02)%/(b)/
- -------------------------------------------------------------------------
Class B, w/redemption charge N/A (10.72)%/(b)/
- -------------------------------------------------------------------------
Institutional Class N/A (1.09)%/(b)/
- -------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B and Institutional shares commenced operations July 8,
1994, May 1, 1996 and February 2, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
52
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
Common Stocks--96.0%
<S> <C> <C>
Hong Kong Dollar--39.9%
3,734,000 Asia Satellite Tel.*
(Telecommunications) $ 8,312,234
1,107,000 Henderson Land Development Co.
(Recreational Services) 10,250,000
7,947,440 HKR International Ltd.
(Real Estate) 12,358,582
2,731,000 Hong Kong Electric Holdings
(Utility) 9,709,517
426,000 HSBC Holdings
(Commercial Banks) 9,867,983
1,305,000 Hutchison Whampoa
(Conglomerates) 9,851,916
2,513,000 Hysan Development
(Utility) 9,145,257
9,735,666 JCG Holdings Ltd.
(Financial Services) 8,669,002
2,308,200 San Miguel Brewery Ltd.
(Breweries) 1,049,994
869,000 Sun Hung Kai Properties Co.
(Real Estate) 9,812,556
1,262,000 Swire Pacific Ltd. "A"
(Transportation) 11,603,755
2,316,500 Wing Hang Bank Ltd.
(Financial Services) 11,030,952
- --------------------------------------------------------------------
111,661,748
- --------------------------------------------------------------------
Indian Rupee--9.9%
235,000 Brook Bond Lipton India Ltd.
(Food) 2,438,494
372,900 Colgate Palmolive
(Conglomerates) 2,613,421
259,600 Hindustan Lever Ltd.
(Household Products) 6,423,018
10,000 Larsen & Toubro Ltd.
(Engineering) 65,272
143,500 Larsen & Toubro Ltd. GDR
(Engineering) 1,919,313
214,000 Larsen & Toubro LTD. GDS
(Engineering) 2,862,250
434,250 Mahindra & Mahindra Ltd.
(Autos and Trucks) 4,339,472
165,750 Mahindra & Mahindra GDR
(Autos and Trucks) 1,895,351
4,000 Niit Limited
(Computers) 32,022
80,000 Tata Engineering & Locomotive Ltd.
GDR (Engineering) 786,000
446,600 Tata Engineering & Locomotive Ltd.
GDS (Engineering) 4,387,845
- --------------------------------------------------------------------
27,762,458
- --------------------------------------------------------------------
Indonesian Rupiah--5.2%
2,374,750 Indofoods Sukses Makmur - Foreign
(Food) 5,245,031
2,346,000 PT Bank of Bali - Foreign
(Banking) 5,675,011
2,613,000 PT Jaya Real Property - Foreign
(Real Estate) 3,627,640
- --------------------------------------------------------------------
14,547,682
- --------------------------------------------------------------------
Malaysian Ringgit--13.2%
1,217,000 Commerce Asset Holdings
(Conglomerates) 9,790,829
623,000 Leader Universal Holdings
(Electronics) 1,253,017
1,936,000 Road Builder Malaysia Holdings
(Construction) 11,603,540
941,000 Tenaga National Berhad
(Utility) 4,504,385
1,081,000 United Engineers Malaysia Holdings
(Construction) 9,696,822
- --------------------------------------------------------------------
36,848,593
- --------------------------------------------------------------------
New Taiwan Dollar--2.5%
2,118,000 Taiwan Sogo Shinkong Securities
(Financial Services) 7,103,755
- --------------------------------------------------------------------
Philippine Peso--4.6%
18,189,000 Centennial City Inc.
(Real Estate) 2,208,911
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Philippine Peso (continued)
393,454 Metropolitan Bank and Trust
(Banking) $ 10,750,925
- --------------------------------------------------------------------
12,959,836
- --------------------------------------------------------------------
Singapore Dollar--9.9%
639,000 Overseas Union Bank - Foreign
(Banking) 5,174,457
1,149,000 Singapore Land
(Real Estate) 6,937,420
383,000 Singapore Press Holdings - Foreign
(Printing & Publishing) 7,671,970
2,195,000 Straits Steamship Land
(Conglomerates) 7,795,852
- --------------------------------------------------------------------
27,579,699
- --------------------------------------------------------------------
South Korean Won--3.8%
168,920 Korea Mobile Telecommunications
Corp. ADR* (Telecommunications) 2,512,685
4,759 Korea Mobile Telecommunications
Corp. (Telecommunications) 5,228,904
7,132 Samsung Fire & Marine Insurance
(Insurance) 2,982,743
- --------------------------------------------------------------------
10,724,332
- --------------------------------------------------------------------
Thai Baht--3.9%
723,800 Electricity Generating Public Co.
(Utility) 1,815,785
758,100 Electricity Generating Public Co.
Foreign(Utility) 1,843,315
1,989,000 Industrial Finance Corp - Foreign
(Financial Services) 5,220,069
425,000 Jasmine International Co. - Foreign
(Diversified) 602,808
1,617,500 Thai Telephone & Telecom Corp. -
Foreign (Telecommunications) 1,326,587
- --------------------------------------------------------------------
10,808,564
- --------------------------------------------------------------------
United States Dollar--3.1%
387,000 Korea Electric Power Corp. ADR*
(Utilities) 8,562,375
- --------------------------------------------------------------------
Total Common Stocks
(Cost $237,846,163) $268,559,042
====================================================================
Rights & Warrants*--0.3%
Singapore Dollar--0.2%
356,750 Straits Steamship Land, exp. 12/12/00
(Conglomerate)- warrants 494,149
Thai Baht--0.1%
808,750 Thai Telephone & Telecom Corp., exp.
03/07/97 (Telecommunications)-rights 351,155
- --------------------------------------------------------------------
Total Rights & Warrants
(Cost $287,980) $ 845,304
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bonds--0.3%
Malaysian Ringitt--0.3%
MYR United Engineers Malaysia
1,024,000 (Construction) 4.00%, 05/22/99 $ 848,528
- --------------------------------------------------------------------
Total Corporate Bonds
(Cost $521,580) $ 848,528
====================================================================
Short-Term Obligations--2.2%
$ 6,200,104 State Street Bank & Trust Euro-Time
Deposit, 5.50%, 02/03/97 $ 6,200,104
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $6,200,104) $ 6,200,104
====================================================================
Total Investments
(Cost $244,855,827)/(a)/ $276,452,978
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 45,982,425
Gross unrealized loss for investments in
which cost exceeds value (14,998,273)
====================================================================
Net unrealized gain $ 30,984,152
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $244,890,862.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Common Stock, Rights, Warrants, and Corporate Bond Industry
Concentrations
====================================================================
<S> <C>
Autos and Trucks 2.2%
Banking 7.8%
Breweries 0.4%
Commercial Banks 3.5%
Conglomerates 10.9%
Construction 7.9%
Diversified 0.2%
Electronics 0.4%
Engineering 3.6%
Financial Services 11.5%
Food 2.7%
Household Products 2.3%
Insurance 1.1%
Printing & Publishing 2.7%
Real Estate 12.5%
Recreational Services 3.7%
Telecommunications 6.3%
Transportation 4.1%
Utilities 12.8%
- --------------------------------------------------------------------
Total Common Stock, Rights, Warrants, and
Corporate Bonds 96.6%
====================================================================
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities
January 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
Assets:
Investments in securities, at value (identified cost $80,718,346, $302,169,999,
$513,612,707, $679,366,240, $213,003,477, $549,757,598 and $244,855,827,
respectively) $89,222,318 $393,263,171
Cash, at value 13,884 9,802
Receivables:
Investment securities sold 3,947,652 --
Forward foreign currency exchange contracts 6,692 --
Fund shares sold 565,860 3,095,601
Dividends and interest, at value 451,554 387,080
Variation margin 10,928 95,387
Deferred organization expenses, net 36,173 --
Other assets 97,786 8,495
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 94,352,847 396,859,536
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 9,690,219 --
Forward foreign currency exchange contracts -- --
Fund shares repurchased 44,298 548,016
Amounts owed to affiliates 97,949 388,699
Covered securities sold short (cash received, $936,984) 938,808 --
Accrued expenses and other liabilities 61,446 89,126
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,832,720 1,025,841
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 73,750,866 300,246,199
Accumulated undistributed (distributions in excess of) net investment income 180,204 --
(loss)
Accumulated undistributed (distributions in excess of) net realized gain (loss)
on investment, option and futures transactions 977,487 4,402,524
Accumulated net realized foreign currency gain (loss) 12,575 --
Net unrealized gain on investments, options and futures 8,611,563 91,184,972
Net unrealized loss on translation of assets and liabilities denominated in
foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $83,520,127 $395,833,695
===================================================================================================================================
<CAPTION>
Class A Class B Class A Class B
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Total shares of beneficial interest outstanding, $.001 par
value (100,000,000 and 25,000,000 shares authorized for
each Class A and B, respectively) 4,336,101 112,660 9,688,806 744,222
Net asset and Class A redemption value per share (a) $18.78 $18.73 $23.32 $23.18
Maximum public offering price per share (Class A NAV x
1.0582) $19.87 $18.73 $24.68 $23.18
Institutional Service Institutional Service
------------ -------------- ------------- ------------
Total shares of beneficial interest outstanding, $.001 par
value (50,000,000 shares per each class authorized) -- -- 6,351,958 157,464
Net asset value, offering and redemption price per share -- -- $23.44 $23.27
===============================================================================================================================
(a) At redemption, Class B shares are subject to a contingent deferred sales charge assessed on the amount equal to the lesser
of the current net asset value or the original purchase price of the shares.
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap Equity International Equity Asia Growth
Fund Fund Fund Fund Fund
==================================================================================================================================
<S> <C> <C> <C> <C>
$638,954,258 $932,041,765 $217,608,994 $627,524,320 $276,452,978
59,158 94,994 30,728 1,735,366 1,060,177
1,632,491 1,390,277 4,392,159 959,642 3,093,623
-- -- -- 2,684,757 --
4,847,992 1,524,356 820,288 4,794,141 685,136
572,159 706,624 85,173 440,308 262,880
-- -- -- -- --
19,321 -- 13,467 14,573 77,113
14,043 16,281 2,597 10,188 770
- ----------------------------------------------------------------------------------------------------------------------------------
646,099,422 935,774,297 222,953,406 638,163,295 281,632,677
- ----------------------------------------------------------------------------------------------------------------------------------
9,130,091 9,797,231 6,585,828 8,912,558 --
-- -- -- 3,434,535 1,495
414,917 850,523 165,072 198,616 694,794
716,432 1,160,456 345,810 833,473 400,444
-- -- -- -- --
21,990 99,060 121,890 255,084 846,340
- ----------------------------------------------------------------------------------------------------------------------------------
10,283,430 11,907,270 7,218,600 13,634,266 1,943,073
- ----------------------------------------------------------------------------------------------------------------------------------
492,994,560 657,200,330 203,743,684 542,859,953 266,426,371
(193,256) (275,552) -- (25,666) (1,316,323)
17,673,137 14,266,724 7,385,605 2,530,732 (16,027,669)
-- -- -- (917,847) (411,919)
125,341,551 252,675,525 4,605,517 112,491,393 33,014,375
-- -- -- (32,409,536) (1,995,231)
- ----------------------------------------------------------------------------------------------------------------------------------
$635,815,992 $923,867,027 $215,734,806 $624,529,029 $279,689,604
==================================================================================================================================
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
- ------------- ---------- ------------- ---------- ------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26,534,286 751,089 55,021,724 193,240 10,140,493 176,544 27,765,580 997,807 16,122,122 206,387
$23.18 $23.10 $16.73 $16.67 $20.91 $20.80 $19.32 $19.24 $16.31 $16.24
$24.53 $23.10 $17.70 $16.67 $22.13 $20.80 $20.44 $19.24 $17.26 $16.24
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service
- ------------- ---------- ------------- ---------- ------------- ------------ ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8,321 136,977 -- -- -- -- 3,524,169 34,830 815,499 --
$23.19 $23.17 -- -- -- -- $19.40 $19.34 $16.33 --
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
57
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===================================
<S> <C> <C>
Investment income:
Dividends /(a)/ $ 838,092 $ 5,629,026
Interest /(b)/ 2,107,288 541,011
- ----------------------------------------------------------------------------------------------------------------------------------
Total income 2,945,380 6,170,037
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 309,372 1,413,035
Administration fees 92,811 706,517
Distribution fees 157,253 468,965
Authorized dealer service fees 154,686 444,626
Custodian fees 93,352 95,947
Transfer agent fees 148,576 319,246
Professional Fees 71,598 74,319
Amortization of deferred organization expenses 13,468 9,549
Director fees 1,171 2,728
Other 53,077 96,414
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,095,364 3,631,346
Less--expenses reimbursed and fees waived by Goldman Sachs (472,758) (626,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 622,606 3,005,158
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2,322,774 3,164,879
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 3,811,127 14,386,845
Options written (2,680) --
Futures transactions 148,013 645,873
Foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on:
Investments 5,008,557 49,393,370
Futures 14,475 67,175
Translation of assets and liabilities denominated in foreign currencies (12,568) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign currency
transactions 8,979,499 64,493,263
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 11,302,273 $ 67,658,142
==================================================================================================================================
</TABLE>
/(a)/ For the Balanced, Select Equity, Growth and Income, Capital Growth, Small
Cap Equity, International Equity and Asia Growth Funds, taxes withheld on
dividends were $1,496, $42,274, $23,285, $53,869, $4,211, $900,877 and
$372,334, respectively.
/(b)/ For the Balanced Fund, taxes withheld on interest were $969.
/(c)/ Certain expenses reflected in the above statement of operations are
incurred on a class specific basis.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------
Goldman Sachs Goldman Sachs
Growth and Income Capital Growth
Fund Fund
<S> ========================================
Investment income: <C> <C>
Dividends /(a)/ $ 13,008,785 $ 14,748,431
Interest /(b)/ 1,235,823 2,802,840
- ---------------------------------------------------------------------------------------------------------------------------------
Total income 14,244,608 17,551,271
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 2,782,464 6,522,949
Administration fees 758,854 2,174,316
Distribution fees 1,280,332 2,179,405
Authorized dealer service fees 1,261,615 2,174,316
Custodian fees 102,394 129,556
Transfer agent fees 871,030 908,310
Professional Fees 75,891 74,529
Amortization of deferred organization expenses 19,164 --
Director fees 6,744 13,973
Other 144,279 208,397
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,302,767 14,385,751
Less--expenses reimbursed and fees waived by Goldman Sachs (1,113,014) (2,171,272)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 6,189,753 12,213,979
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 8,054,855 5,337,292
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 58,221,421 53,687,297
Options written (37,206) --
Futures transactions 45,994 --
Foreign currency related transactions -- --
Net change in unrealized gain (loss) on:
Investments 67,575,111 145,350,120
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign curren
transactions 125,805,320 199,037,417
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $133,860,175 $204,374,709
====================================================================================================================================
<CAPTION>
-------------------------------------------
Goldman Sachs Goldman Sachs
Small Cap Equity International Equity
Fund Fund
<S> ===========================================
Investment income: <C> <C>
Dividends /(a)/ $ 968,945 $ 5,944,299
Interest /(b)/ 896,528 1,533,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 1,865,473 7,477,338
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,598,027 3,478,689
Administration fees 532,676 1,159,514
Distribution fees 538,657 1,115,919
Authorized dealer service fees 532,676 1,086,488
Custodian fees 63,636 786,004
Transfer agent fees 511,883 586,243
Professional Fees 72,844 84,162
Amortization of deferred organization expenses 18,742 17,603
Director fees 3,842 5,519
Other 73,764 229,722
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,946,747 8,549,863
Less--expenses reimbursed and fees waived by Goldman Sachs (529,684) (829,788)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,417,063 7,720,075
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1,551,590) (242,737)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 29,166,218 16,714,697
Options written (398,365) --
Futures transactions -- --
Foreign currency related transactions -- 146,694
Net change in unrealized gain (loss) on:
Investments 22,913,571 60,236,901
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- (28,245,657)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions 51,681,424 48,852,635
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $50,129,834 $48,609,898
====================================================================================================================================
<CAPTION>
-----------------
Goldman Sachs
Asia Growth
Fund
<S> ==================
Investment income: <C>
Dividends /(a)/ $ 4,216,521
Interest /(b)/ 716,243
- -----------------------------------------------------------------------------------------------------------
Total income 4,932,764
- -----------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,937,658
Administration fees 645,897
Distribution fees 636,953
Authorized dealer service fees 630,134
Custodian fees 499,487
Transfer agent fees 385,114
Professional Fees 84,316
Amortization of deferred organization expenses 31,711
Director fees 3,496
Other 51,032
- -----------------------------------------------------------------------------------------------------------
Total expenses 4,905,798
Less--expenses reimbursed and fees waived by Goldman Sachs (511,880)
- -----------------------------------------------------------------------------------------------------------
Net expenses 4,393,918
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 538,846
- -----------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions (7,294,240)
Options written --
Futures transactions (141,910)
Foreign currency related transactions (1,099,538)
Net change in unrealized gain (loss) on:
Investments 5,823,115
Futures --
Translation of assets and liabilities denominated in foreign currencies (599,549)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions (3,312,122)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,773,276)
===========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
59
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment, option and futures transactions 3,956,460 15,032,718
Net realized gain (loss) on foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 11,302,273 67,658,142
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
-----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 27,303,030 149,961,461
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
Net assets:
Beginning of year 50,928,007 193,874,478
===================================================================================================================================
End of year $ 83,520,127 $ 395,833,695
===================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 180,204 $ --
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Equity Portfolios, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs
Statements of Changes in Net Assets Growth and Income Capital Growth Small Cap
For the Year Ended January 31, 1997 Fund Fund Equity Fund
====================================================
<S> <C> <C> <C>
From operations:
Net investment income (loss) $ 8,054,855 $ 5,337,292 $ (1,551,590
Net realized gain (loss) on investment, option and futures transactions 58,230,209 53,687,297 28,767,853
Net realized gain (loss) on foreign currency related transactions -- -- --
Net change in unrealized gain (loss) on investments, options and futures 67,575,111 145,350,120 22,913,571
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 133,860,175 204,374,709 50,129,834
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (8,111,894) (5,948,617) --
Class B shares (5,818) -- --
Institutional shares (494) -- --
Service shares (11,500) -- --
In excess of net investment income
Class A shares (135,533) (258,749) --
Class B shares (48,273) (12,838) --
Institutional shares (380) --
Service shares (9,070) -- --
From net realized gain on investment, option and futures transactions
Class A shares (46,442,616) (91,862,169) (10,210,264)
Class B shares (754,312) (179,327) (149,626)
Institutional shares (9,971) -- --
Service shares (255,610) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (55,785,471) (98,261,700) (10,359,890)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 140,362,846 76,008,897 56,119,213
Reinvestment of dividends and distributions 53,352,809 90,088,874 9,876,571
Cost of shares repurchased (72,730,939) (229,399,817) (95,024,895)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 120,984,716 (63,302,046) (29,029,111)
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase 199,059,420 42,810,963 10,740,833
Net Asssets:
Beginning of Year 436,756,572 881,056,064 204,993,973
==================================================================================================================================
End of Year $635,815,992 $923,867,027 $ 215,734,806
==================================================================================================================================
Accumulated distributed (distributions in excess investment income) $ (193,256) $ (275,552) $ --
==================================================================================================================================
<CAPTION>
-----------------------------------------------------
Statements of Changes in Net Assets Goldman Sachs Goldman Sachs
For the Year Ended January 31, 1997 International Asia Growth
Equity Fund Fund
====================================================
<S> <C> <C>
From operations:
Net investment income (loss) $ (242,737) $ 538,846
Net realized gain (loss) on investment, option and futures transactions 16,714,697 (7,436,150)
Net realized gain (loss) on foreign currency related transactions 146,694 (1,099,538)
Net change in unrealized gain (loss) on investments, options and futures 60,236,901 5,823,115
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (28,245,657) (599,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 48,609,898 (2,773,276)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares -- (206,784)
Class B shares -- --
Institutional shares (106,712) --
Service shares -- --
In excess of net investment income
Class A shares -- --
Class B shares -- (5,064)
Institutional shares -- (83,075)
Service shares -- --
From net realized gain on investment, option and futures transactions
Class A shares (5,358,559) --
Class B shares (159,717) --
Institutional shares (689,171) --
Service shares (3,947) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,318,106) (294,923)
- ------------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 321,475,961 144,448,826
Reinvestment of dividends and distributions 5,481,492 221,279
Cost of shares repurchased (75,580,037) (67,451,011)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 251,377,416 77,219,094
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase
Net assets: 293,669,208 74,150,895
Beginning of year 330,859,821 205,538,709
===================================================================================================================================
End of year $624,529,029 $279,689,604
====================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ (25,666) $ (1,316,323)
===================================================================================================================================
</TABLE>
61
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sach
Balanced Select Equity
Fund Fund
==============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 1,083,645 $ 1,518,160
Net realized gain (loss) on investment, option and futures transactions 1,715,887 4,687,943
Net realized gain on foreign currency related transactions -- --
Net change in unrealized gain on investments, options and futures 3,518,420 37,068,509
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,317,952 43,274,612
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (991,655) (1,610,216)
In excess of net investment income -- --
From net realized gain on investment, option and futures transactions (962,754) (3,527,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,954,409) (5,137,404)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 41,736,040 102,149,318
Reinvestment of dividends and distributions 1,802,563 4,880,575
Cost of shares repurchased (4,483,707) (46,260,132)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 39,054,896 60,769,761
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 43,418,439 98,906,969
Net assets:
Beginning of year 7,509,568 94,967,509
==================================================================================================================================
End of year $ 50,928,007 $ 193,874,478
==================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 125,304 $ 86,854
==================================================================================================================================
Summary of share transactions:
===================================================================================================================================
<CAPTION>
Class A Class A Institutional
-------------- -------------- --------------
<S> <C> <C> <C>
Shares sold 2,578,356 2,479,285 3,220,915
Reinvestment of dividends and distributions 108,023 161,481 97,993
Shares repurchased (271,753) (2,578,247) (30,492)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 2,414,626 62,519 3,288,416
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap International Asia Growth
Fund Fund Equity Fund Equity Fund Fund
=================================================================================================================================
<S> <C> <C> <C> <C>
$ 5,307,925 $ 6,032,534 $ (1,717,759) $ 725,369 $ 1,643,482
18,815,320 188,790,639 (5,033,599) (8,757,936) (5,766,395)
-- -- -- 21,213,851 416,433
58,081,439 53,559,848 30,594,034 69,834,990 42,480,420
-- -- -- (12,612,130) (1,710,833)
- --------------------------------------------------------------------------------------------------------------------------------
82,204,684 248,383,021 23,842,676 70,404,144 37,063,107
- ---------------------------------------------------------------------------------------------------------------------------------
(5,300,032) (6,289,354) -- (9,491,864) (1,787,451)
-- -- -- -- (1,657,672)
(11,998,907) (139,713,660) (161,357) (14,089,155) --
- ---------------------------------------------------------------------------------------------------------------------------------
(17,298,939) (146,003,014) (161,357) (23,581,019) (3,445,123)
- ---------------------------------------------------------------------------------------------------------------------------------
199,623,973 144,529,476 56,891,181 85,900,104 88,560,430
16,219,024 131,979,456 149,801 21,651,092 2,951,847
(37,764,413) (359,937,680) (195,215,538) (98,600,969) (43,889,831)
- ---------------------------------------------------------------------------------------------------------------------------------
178,078,584 (83,428,748) (138,174,556) 8,950,227 47,622,446
- ---------------------------------------------------------------------------------------------------------------------------------
242,984,329 18,951,259 (114,493,237) 55,773,352 81,240,430
193,772,243 862,104,805 319,487,210 275,086,469 124,298,279
=================================================================================================================================
$436,756,572 $ 881,056,064 $ 204,993,973 $ 330,859,821 $ 205,538,709
=================================================================================================================================
$ 56,087 $ 607,360 $ -- $ 227,683 $ (1,630,536)
=================================================================================================================================
Class A Class A Class A Class A Class A
------------- --------------- --------------- -------------- --------------
10,766,604 9,130,715 3,285,739 5,082,572 5,830,049
848,870 9,145,811 8,585 1,286,112 197,978
(2,027,335) (22,215,374) (11,228,873) (6,067,690) (2,898,305)
- ---------------------------------------------------------------------------------------------------------------------------------
9,588,139 (3,938,848) (7,934,549) 300,994 3,129,722
=================================================================================================================================
- -------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
63
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
January 31, 1997
- --------------------------------------------------------------------------------
1. Organization
Goldman Sachs Equity Portfolios, Inc. (the "Company") is a Maryland corporation
registered under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. Included in this report are the
financial statements for the Goldman Sachs Balanced Fund ("Balanced Fund"),
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap Equity
Fund"), Goldman Sachs International Equity Fund ("International Equity Fund")
and Goldman Sachs Asia Growth Fund ("Asia Growth Fund"), collectively, "the
Funds." The Select Equity, Growth and Income, International Equity and Asia
Growth Funds offer four classes of shares - Class A, Class B, Institutional and
Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares - Class A and Class B.
2. Significant Accounting Policies
The following is a summary of the significant accounting policies consistently
followed by the Company. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
- ------------------------
Investments in securities traded on a U.S. or foreign securities exchange or the
NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked price, and securities traded on a foreign exchange
will be valued at the official bid price. Unlisted equity and debt securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices. Debt securities are valued at prices supplied
by an independent pricing service, which reflect broker/dealer-supplied
valuations and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued at
fair value using methods approved by the Board of Directors of the Company.
B. Securities Transactions and Investment Income
- -------------------------------------------------
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value of the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums.
In addition, it is the Funds' policy to accrue for estimated capital gains taxes
on foreign securities held by the Funds subject to such taxes.
C. Mortgage Dollar Rolls
- -------------------------
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities in the current month for delivery and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. For financial reporting and
tax reporting purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale.
D. Foreign Currency Translations
- ---------------------------------
The books and records of the Company are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; (ii) purchases and sales of
foreign investments,
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
income and expenses are converted into U.S. dollars based on currency exchange
rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and holdings
of foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
E. Forward Foreign Currency Exchange Contracts
- -----------------------------------------------
Certain of the Funds are authorized to enter into forward foreign currency
exchange contracts for the purchase of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The International Equity and Asia Growth
Funds may enter into such contracts to seek to increase total return. All
commitments are "marked-to-market" daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded in the funds' financial
statements. The Funds record realized gains or losses at the time the forward
contract is offset by entry into a closing transaction or extinguished by
delivery of the currency. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
F. Short Securities Positions
- ------------------------------
The Funds (other than the Select Equity Fund) may enter into covered short
sales. Short securities positions are accounted for at cost and subsequently
marked to market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the fund's records and
any difference between this market value and cash received is reported as
unrealized gain or loss. Gains and losses are realized when a short
- --------------------------------------------------------------------------------
position is closed out by delivering securities back to the broker.
At January 31, 1997, the Balanced Fund had the following covered short positions
open:
- -------------------------------------------------------------------------------
Short Position
Issuer Par Value Market Value
- --------------------------- --------------- --------------------
FNMA TBA 15-Year $900,000 $938,808
- -------------------------------------------------------------------------------
G. Federal Taxes
- -----------------
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their investment company taxable income and capital gains
to their shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
- ----------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
I. Expenses
- ------------
Expenses incurred by the Company which do not specifically relate to an
individual fund of the Company are allocated to the Funds based on each Fund's
relative
- --------------------------------------------------------------------------------
65
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
average net assets for the period.
Class A and Class B shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses which
are directly attributable to such shares. Each class of Shares separately bears
their respective class-specific transfer agency fees. Service Shares separately
bear a service fee.
J. Option Accounting Principles
- --------------------------------
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When a written call option is exercised, the funds
realize a gain or loss from the sale of the underlying security, and the
proceeds of the sale are increased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the funds purchase upon exercise.
There is a risk of loss from a change in value of such options which may exceed
the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds
the premium paid is recorded as an investment and subsequently marked-to-market
to reflect the current market value of the option. If an option which the Funds
have purchased expires on the stipulated expiration date, the funds will realize
a loss in the amount of the cost of the option. If the funds enter into a
closing sale transaction, the funds will realize a gain or loss, depending on
whether the sale proceeds from the closing sale transaction are greater or less
than the cost of the option. If the Funds exercise a purchased put option, the
funds will realize a gain or loss from the sale of the underlying security, and
the proceeds from such sale will be decreased by the premium originally paid. If
the Funds exercise a purchased call option, the cost of the security which the
funds purchase upon exercise will be increased by the premium originally paid.
K. Futures Contracts
- ---------------------
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The Select Equity Fund may enter into such transactions
only with respect to the S&P 500 Index. A Fund will engage in futures
transactions only for bona fide hedging purposes as defined in regulations of
the CFTC or to seek to increase total return (except with respect to
transactions by the Balanced, Growth and Income, Select Equity, Capital Growth
and Small Cap Equity Funds, in futures on foreign currencies) to the extent
permitted by such regulations. The use of futures contracts involve, to varying
degrees, elements of market risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the futures exchange on which the contract is traded.
Subsequent payments ("variation margin") are made or received by the Funds each
day, dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent price,
unless such price does not reflect the fair market value of the contract, in
which case the position will be valued using methods approved by the Board of
Directors of the Company.
Certain risks may arise upon entering into futures contracts. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds'
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
hedging strategies and may also result in a loss to the Funds.
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser to the
Balanced, Growth and Income, Small Cap Equity and International Equity Funds;
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs,
acts as investment adviser to the Select Equity and Capital Growth Funds; and
Goldman Sachs Asset Management International ("GSAM International") acts as
investment adviser to the Asia Growth Fund and subadviser to the International
Equity Fund. Under the Investment Advisory and Subadvisory Agreements, GSAM,
GSFM and GSAM International (the "Investment Advisors"), subject to the general
supervision of the Company's Board of Directors, manage the Company's
portfolios. As compensation for the services rendered under the Investment
Advisory Agreements and the assumption of the expenses related thereto, GSAM is
entitled to a fee, computed daily and payable monthly, at an annual rate equal
to .50%, .55%, .75% and .25% of the average daily net assets of the Balanced,
Growth and Income, Small Cap Equity and International Equity Funds,
respectively. GSFM is entitled to a fee of .50% and .75% of the average daily
net assets of the Select Equity and Capital Growth Funds, respectively. GSAM
International is entitled to an advisory fee for the Asia Growth Fund and a
subadvisory fee for the International Equity Fund of .75% and .50% of the
average daily net assets for those funds, respectively.
GSAM also acts as the Funds' administrator pursuant to Administration
Agreements. Under these Administration Agreements, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreements, GSAM is entitled to
a fee of .15% of the average daily net assets of the Balanced and Growth and
Income Funds, and .25% of the average daily net assets of the Select Equity,
Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, Select Equity, Growth and Income, International
Equity and Asia Growth Funds (excluding advisory, administration, service,
distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced Fund, transfer agent fees) until
further notice to the extent such expenses exceed .10%, .06%, .11%, .20% and
..24% of the average daily net assets of the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
salesload and Class B back-end salesload imposed and has advised the Company
that it retained approximately $94,000, $380,000, $555,000, $323,000, $219,000,
$1,563,000 and $1,397,000 during the year ended January 31, 1997 for the
Balanced, Select Equity, Growth and Income, Capital Growth, Small Cap Equity,
International Equity and Asia Growth Funds, respectively.
The Company, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% and .75% of a Fund's average daily
net assets attributable to Class A and Class B shares, respectively.
The Company, on behalf of each Fund, has adopted an Authorized Dealer
Service Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized
Dealers are compensated for providing personal and account maintenance services.
Each Fund pays a fee under its Service Plan equal, on an annual basis, to .25%
of its average daily net assets attributable to Class A and Class B shares.
Goldman Sachs also serves as the Transfer Agent of the funds for a fee.
For the year ended January 31, 1997, the Advisors, Administrator and
Distributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
- --------------------------------------------------------------------------------
67
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Waivers
------- Reimburse-
Admin- Class A Reimburse- ment
Fund Adviser istrator 12b-1 ment Outstanding
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ -- $ -- $ 153 $ 320 $ 88
Select Equity 170 282 69 105 3
Growth and
Income -- -- 1,113 -- --
Capital
Growth -- -- 2,171 -- --
Small Cap
Equity -- -- 530 -- --
International
Equity 50 464 171 145 --
Asia Growth 103 259 100 50 --
</TABLE>
The Investment Advisors, Administrator and Distributor may discontinue or
modify such waivers and limitations in the future at their discretion.
At January 31, 1997, the amounts owed to affiliates were as follows(in
thousands):
<TABLE>
<CAPTION>
Authorized
Admin- Distri- Dealer Transfer
Fund Adviser istrator butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced $ 33 $ 10 $ 2 $ 15 $ 38 $ 98
Select Equity 143 49 56 57 84 389
Growth and
Income 284 78 28 119 207 716
Capital
Growth 568 190 2 190 210 1,160
Small Cap
Equity 134 45 2 45 120 346
International
Equity 391 78 105 116 143 833
Asia Growth 171 36 50 53 90 400
</TABLE>
4. Portfolio Securities Transactions
Purchases and proceeds of sales or maturities of securities (excluding
short-term investments, futures and options) for the year ended January 31,
1997, were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- --------- --------------- -------------
<S> <C> <C>
Balanced $146,297,709 $123,056,708
Select Equity 242,635,637 102,479,847
Growth and Income 330,177,173 256,802,366
Capital Growth 436,178,218 569,122,643
Small Cap Equity 202,036,820 256,627,457
International Equity 400,682,323 166,164,906
Asia Growth 192,125,629 118,802,040
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$99,727,748 and $91,845,598, respectively.
For the year ended January 31, 1997, written put option transactions in the
Balanced Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 32 5,416
Options repurchased (32) (5,416)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
For the year ended January 31, 1997, written call option transactions in the
Growth and Income Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 438 73,608
Options repurchased (438) (73,608)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended January 31, 1997, written put option transactions in the
Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 2,100 575,871
Options expired (9) (2,026)
Options exercised (1,091) (238,096)
Options repurchased (1,000) (335,749)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
Certain risks arise related to call and put options from the possible
inability of counterparties to meet the terms of their contracts.
At January 31, 1997, the Balanced Fund had the following outstanding forward
foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain
- --------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
expiring 3/14/97 $777,277 $770,585 $6,692
- --------------------------------------------------------------------
Total Foreign
Currency Sale
Contracts $777,277 $770,585 $6,692
- --------------------------------------------------------------------
</TABLE>
At January 31, 1997, the International Equity Fund had the following
outstanding forward foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Swiss Franc
expiring 4/28/97 $39,343,000 $39,665,062 $ (322,062)
Deutsche Mark
expiring 2/27/97 22,305,725 22,183,180 122,545
Hong Kong Dollar
expiring 8/8/97 38,565,981 38,530,005 35,976
Japanese Yen
expiring 4/24/97 122,316,352 119,792,909 2,523,443
- --------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $222,531,058 $220,171,156 $2,359,902
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Purchase Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Hong Kong Dollar
expiring 2/3/97 $35,454 $35,454 $--
- --------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $35,454 $35,454 $--
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At January 31,
1997, the Balanced and International Equity Fund's had sufficient cash and
securities to cover any commitments under these contracts.
The Balanced and International Equity Funds have recorded a "Receivable for
forward foreign currency exchange contracts" and "Payable for forward foreign
currency exchange contracts" resulting from open and closed but not settled
forward foreign currency exchange contracts of $6,692 and $0, and $2,684,757 and
$3,434,535, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$2,793 and $3,112,473, respectively, related to forward contracts closed but not
settled as of January 31, 1997.
For the year ended January 31, 1997, Goldman Sachs earned approximately
$5,000, $78,000, $304,000, $36,000, $11,000 and $66,000 of brokerage commissions
from portfolio transactions executed on behalf of the Balanced, Growth and
Income, Capital Growth, Small Cap Equity, International Equity and Asia Growth
Funds, respectively.
5. Repurchase Agreements
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
- --------------------------------------------------------------------------------
69
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
6. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having advisory
agreements with GSAM or GSFM, transfer uninvested cash balances into joint
accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1997, the Balanced,
Select Equity, Growth and Income, Capital Growth and Small Cap Equity Funds had
undivided interests in the repurchase agreements in the following joint account
which equaled $9,200,000, $3,600,000, $26,800,000, $18,300,000 and $16,600,000,
respectively, in principal amount. At January 31, 1997, the repurchase
agreements held in this joint account, along with the corresponding underlying
securities (including the type of security, market value, interest rate and
maturity date) were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------
Bear Stearns Securities, Inc., dated 01/31/97, repurchase
price $800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26;
FNMA: $720,411,516, 5.50%-8.00%, 02/01/09-09/01/26;
FHLMC: $77,372,676, 6.00%-8.00%, 04/01/98-07/01/26)
<S> <C> <C> <C>
$800,000,000 5.63% 02/03/97 $ 800,000,000
<CAPTION>
Nomura Securities, Inc. dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.50%-10.25%
01/15/20-01/20/27)
<S> <C> <C> <C>
100,000,000 5.65 02/03/97 100,000,000
<CAPTION>
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.38%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535, 05/15/02-11/15/03)
<S> <C> <C> <C>
201,800,000 5.60 02/03/97 201,800,000
</TABLE>
- --------------------------------------------------------------------
Total Joint Repurchase Agreement Account $ 1,101,800,000
- --------------------------------------------------------------------
7. Line of Credit Facility
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line of
credit facility. In addition, the Funds, except the Select Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the year ended January 31, 1997,
the Funds did not have any borrowings under these facilities.
8. Transactions With Affiliated Companies
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the year ended January 31, 1997 which are considered to be
affiliates of Small Cap Equity are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Safety
Razor $ -- $5,751 $ 289 $ -- $ --
- --------------------------------------------------------------------
Alpine Lace
Brands, Inc. 7,790 -- -- -- 2,341
- --------------------------------------------------------------------
APS Holding
Corp. 10,305 654 290 -- 7,869
- --------------------------------------------------------------------
J. Baker, Inc. 1,591 1,349 (1,090) 60 7,565
- --------------------------------------------------------------------
Black Box, Inc. -- 23,013 14,149 -- --
- --------------------------------------------------------------------
Brookstone, Inc. -- 2,722 (758) -- 5,939
- --------------------------------------------------------------------
Congoleum Corp. -- 2,323 (102) -- 3,156
- --------------------------------------------------------------------
Hollinger
International
Corp. -- 10,903 (1,311) 112 --
- --------------------------------------------------------------------
International Post
Ltd. -- 2,215 (3,933) -- 1,729
- --------------------------------------------------------------------
Morningstar
Group Inc. -- 12,216 6,346 -- --
- --------------------------------------------------------------------
Mortons
Restaurant
Group, Inc. -- 4,106 1,625 -- 6,439
- --------------------------------------------------------------------
Opinion Research
Corp. -- -- -- -- 2,022
- --------------------------------------------------------------------
Pegasus
Communications
Corp. 3,697 -- -- -- 3,224
- --------------------------------------------------------------------
Platinum
Entertainment
Corp. 3,354 -- -- -- 2,675
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
70
<PAGE>
9. Other Matters
As of January 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 14% of the
outstanding shares of the Select Equity Fund.
10. Certain Reclassifications
In accordance with Statement of Position 93-2, the Balanced, Select Equity,
Growth and Income, International Equity and Asia Growth Funds have reclassified
$13,068, $9,549, $18,764, $302,042 and $31,712, respectively, from paid-in
capital to accumulated undistributed net investment income. Additionally, the
Small Cap Equity Fund has reclassified $1,532,848 from accumulated net realized
gains on investments to accumulated net investment loss and $18,742 from paid-in
capital to accumulated net investment loss. The Select Equity Fund reclassified
$40,540 from accumulated net realized gains on investments to distributions in
excess of net investment income. The International Equity Fund and the Asia
Growth Fund have reclassified $205,942 and $338,857 from accumulated net
realized foreign currency loss to distributions in excess of net investment
income, respectively. The Asia Growth Fund also reclassified $377,435 from
accumulated net realized gains on investments to distributions in excess of net
investment income. These reclassifications have no impact on the net asset value
of the Funds and are designed to present the Funds' capital accounts on a tax
basis.
71
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
11. Summary of Share Transactions
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 1,529,469 $27,172,279 3,862,697 $81,642,386 5,616,082 $121,074,992
Reinvestment of dividends
and distributions 310,437 5,598,883 370,586 8,175,333 2,390,917 52,287,188
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) (3,328,038) (72,163,062)
-------------------------------------------------------------------------------------
1,393,371 25,237,890 3,124,081 65,994,573 4,678,961 101,199,118
-------------------------------------------------------------------------------------
Class B shares
Shares sold 109,171 2,001,768 733,802 15,946,016 729,877 16,222,639
Reinvestment of dividends
and distributions 5,284 95,768 24,314 535,407 35,976 787,421
Shares repurchased (1,795) (32,396) (13,894) (310,118) (14,764) (340,546)
-------------------------------------------------------------------------------------
112,660 2,065,140 744,222 16,171,305 751,089 16,669,514
-------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,151,881 66,277,175 8,228 186,173
Reinvestment of dividends
and distributions -- -- 275,197 6,102,331 92 2,020
Shares repurchased -- -- (363,536) (7,991,198) -- --
-------------------------------------------------------------------------------------
-- -- 3,063,542 64,388,308 8,321 188,193
-------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 154,590 3,344,141 134,652 2,879,042
Reinvestment of dividends
and distributions -- -- 4,126 91,166 12,587 276,180
Shares repurchased -- -- (1,252) (28,032) (10,262) (227,331)
-------------------------------------------------------------------------------------
-- -- 157,464 3,407,275 136,977 2,927,891
-------------------------------------------------------------------------------------
Net increase (decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 5,575,348 $120,984,716
=====================================================================================
<CAPTION>
Capital Growth Fund
- -------------------------------------------------------
Shares Dollars
--------------------------
<S> <C> <C>
Class A shares
Shares sold 4,677,047 $73,029,007
Reinvestment of dividends
and distributions 5,870,272 89,898,521
Shares repurchased (14,635,348) (229,277,58)
----------------------------
(4,088,029) (66,350,058)
----------------------------
Class B shares
Shares sold 188,331 2,979,890
Reinvestment of dividends
and distributions 12,408 190,353
Shares repurchased (7,499) (122,231)
----------------------------
193,240 3,048,012
----------------------------
Institutional shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
----------------------------
Service shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
-- --
----------------------------
Net increase (decrease) in
shares (3,894,789) $(63,302,046)
============================
</TABLE>
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- ----------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 2,508,268 $52,353,524 12,103,239 $230,847,197 7,588,351 $124,281,405
Reinvestment of dividends
and distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
------------------------------------------------------------------------------------
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
------------------------------------------------------------------------------------
Class B shares
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of dividends
and distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
------------------------------------------------------------------------------------
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of dividends
and distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
------------------------------------------------------------------------------------
-- -- 3,524,169 68,046,277 815,499 13,114,475
------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of dividends
and distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
------------------------------------------------------------------------------------
-- -- 34,830 676,729 -- --
------------------------------------------------------------------------------------
Net increase (decrease) in
shares (1,537,835) $(29,029,111) 13,081,265 $251,377,416 4,676,292 $77,219,094
=====================================================================================
<CAPTION>
Share activity for the year ended January 31, 1996 is as follows:
Select Equity Fund
- -------------------------------------------------------------
Shares Dollars
------------- ---------------
<S> <C> <C>
Class A shares
Shares sold 2,479,285 $44,569,920
Reinvestment of dividends and 161,481
distributions 3,032,597
Shares repurchased (2,578,247) (45,692,944)
------------- ---------------
62,519 1,909,573
------------- ---------------
Institutional shares
Shares sold 3,220,915 57,579,398
Reinvestment of dividends and
distributions 97,993 1,847,978
Shares repurchased (30,492) (567,188)
------------- ----------------
3,288,416 $58,860,188
------------- ----------------
Net increase 3,350,935 $60,769,761
============= ================
</TABLE>
- --------------------------------------------------------------------------------
73
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/h/ shareholders
------------------------------- ------------------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
-----------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $17.31 $0.66 $2.47 $(0.66) $(1.00) --
1997 - Class B Shares/b/............. 17.46 0.42 2.34 (0.42) (1.00) (0.07)
1996 - Class A Shares................ 14.22 0.51 3.43 (0.50) (0.35) --
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 14.18 0.10 0.02 (0.08) -- --
<CAPTION>
Net asset
Net increase value, Portfolio Average
in net end of Total turnover commission
asset value period return/a/ rate rate/g/
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $1.47 $18.78 18.59% 208.11/f/ $.0587
1997 - Class B Shares(b)............. 1.27 18.73 16.22/c/ 208.11/f/ .0587
1996 - Class A Shares................ 3.09 17.31 28.10 197.10/f/ --
For the Period Ended January 31,
- -------------------------------------
1995 - Class A Shares/d/............. 0.04 14.22 0.87/c/ 14.71/c/ --
<CAPTION>
Ratio assuming no
voluntary waiver of fees
or expense limitations
-------------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
end of expenses to income to expenses to income (loss)
period average net average net average to average
(in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $81,410 1.00% 3.76% 1.77% 2.99%
1997 - Class B Shares/b/............. 2,110 1.75/e/ 2.59/e/ 2.27/e/ 2.07/e/
1996 - Class A Shares................ 50,928 1.00 3.65 1.90 2.75
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 7,510 1.00/e/ 3.39/e/ 8.29/e/ (3.90)/e/
</TABLE>
- --------------------------
/a/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/b/ For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/c/ Not annualized.
/d/ For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
/e/ Annualized.
/f/ Includes the effect of mortgage dollar roll transactions.
/g/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/h/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
(The accompanying notes are an integral part of these financial statements.)
74
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/(h)/ shareholders
========================== ====================================
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
============================================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
==============================
1997 - Class A Shares ........................ 19.66 $0.16 $4.46 $(0.16) $(0.80) --
1997 - Class B Shares/(f)/.................... 20.44 0.04 3.70 (0.04) (0.80) (0.16)
1997 - Institutional Shares .................. 19.71 0.30 4.51 (0.28) (0.80) --
1997 - Service Shares/(f)/.................... 21.02 0.13 3.15 (0.13) (0.80) (0.10)
1996 - Class A Shares ........................ 14.61 0.19 5.43 (0.16) (0.41) --
1996 - Institutional Shares/(d)/.............. 16.97 0.16 3.23 (0.24) (0.41) --
1995 - Class A Shares ........................ 15.93 0.20 (0.38) (0.20) (0.94) --
1994 - Class A Shares ........................ 15.46 0.17 2.08 (0.17) (1.61) --
1993 - Class A Shares ........................ 15.05 0.22 0.41 (0.22) -- --
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 14.17 0.11 0.88 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Net Net
increase asset assets
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(g)/ (in 000s)
======================================================================
SELECT EQUITY FUND
- ------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares .............. $3.66 $23.32 23.75% 37.28% $.0417 $225,968
1997 - Class B Shares/(f)/.......... 2.74 23.18 18.59/(b)/ 37.28 .0417 17,258
1997 - Institutional Shares ........ 3.73 23.44 24.63 37.28 .0417 148,942
1997 - Service Shares/(f)/.......... 2.25 23.27 15.92/(b)/ 37.28 .0417 3,666
1996 - Class A Shares .............. 5.05 19.66 38.63 39.35 -- 129,045
1996 - Institutional Shares/(d)/.... 2.74 19.71 20.14/(b)/ 39.35/(b)/ -- 64,829
1995 - Class A Shares .............. (1.32) 14.61 (1.10) 56.18 -- 94,968
1994 - Class A Shares .............. 0.47 15.93 15.12 87.73 -- 92,769
1993 - Class A Shares .............. 0.41 15.46 4.30 144.93 -- 117,757
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/............ 0.88 15.05 7.01/(b)/ 135.02(c) -- 151,142
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses income to expenses to income
to average average net average to average
assets assets net assets net assets
==================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares ........................ 1.29% 0.91% 1.53% 0.67%
1997 - Class B Shares/(f)/.................... 1.83/(c)/ 0.06/(c)/ 2.00/(c)/ (0.11)/(c)/
1997 - Institutional Shares .................. 0.65 1.52 0.85 1.32
1997 - Service Shares/(f)/.................... 1.15/(c)/ 0.69/(c)/ 1.35/(c)/ 0.49/(c)/
1996 - Class A Shares ........................ 1.25 1.01 1.55 0.71
1996 - Institutional Shares/(d)/.............. 0.65/(c)/ 1.49/(c)/ 0.96/(c)/ 1.18/(c)/
1995 - Class A Shares ........................ 1.38 1.33 1.63 1.08
1994 - Class A Shares ........................ 1.42 0.92 1.67 0.67
1993 - Class A Shares ........................ 1.28 1.30 1.53 1.05
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 1.57/(c)/ 1.24/(c)/ 1.82/(c)/ 0.99/(c)/
</TABLE>
- --------------
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales or redemption charges. Total return would be reduced if
a sales or redemption charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
/(e)/ For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
/(f)/ For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
/(g)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment
operations/(h)/ Distributions to shareholders
====================== =====================================
Net
realized
and From net
Net unrealized realized
asset gain(loss) gain In Net
value, on on excess Increase
beginning Net investments From net investment of net Additional in net
of investment and investment and option investment paid-in asset
period income options income transactions income capital value
===============================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $19.98 $0.35 $5.18 $(0.35) $(1.97) $ (0.01) $ -- $3.20
1997 - Class B Shares/(f)/ ........ 20.82 0.17 4.31 (0.17) (1.97) (0.06) -- 2.28
1997 - Institutional Shares/(f)/ .. 21.25 0.29 3.96 (0.30) (1.97) (0.04) -- 1.94
1997 - Service Shares/(f)/ ........ 20.71 0.28 4.50 (0.28) (1.97) (0.07) -- 2.46
1996 - Class A Shares ............. 15.80 0.33 4.75 (0.30) (0.60) -- -- 4.18
1995 - Class A Shares ............. 15.79 0.20/(b)/ 0.30/(b)/ (0.20) (0.33) (0.07) 0.11/(b)/ 0.01
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 14.18 0.15 1.68 (0.15) (0.06) (0.01) -- 1.61
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Net net net
Net assets expenses investment
asset at to income to
value Total Portfolio Average end of average average
end of return turnover commission period net net
period /(a)/ rate rate/(g)/ (in 000s) assets assets
===================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60%
1997 - Class B Shares/(f)/ ........ 23.10 22.23/(d)/ 53.03 .0586 17,346 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 23.19 20.77/(d)/ 53.03 .0586 193 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 23.17 23.87/(d)/ 53.03 .0586 3,174 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 19.98 32.45 57.93 -- 436,757 1.20 1.67
1995 - Class A Shares ............. 15.80 3.97 71.80 -- 193,772 1.25 1.28
<CAPTION>
For the Period Ended January 31,
==================================
<S> <C> <C> <C> <C> <C> <C> <C>
1994 - Class A Shares/(c)/......... 15.79 13.08/(d)/102.23/(d)/ -- 41,528 1.25/(e)/ 1.23/(e)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
=================================
Ratio of
Ratio of net investment
expenses income (loss)
to average to average
net assets net assets
=================================
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C>
1997 - Class A Shares ............. 1.43% 1.39%
1997 - Class B Shares/(f/) ........ 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 1.45 1.42
1995 - Class A Shares ............. 1.58 0.95
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 3.24/(e)/ (0.76)/(e)/
</TABLE>
- ----------------------------------
/(a)/Assumes investment at the net asset v alue at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/Calculated based on the average shares outstanding methodology.
/(c)/For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
/(g)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations/(g)/ Distributions to shareholders
=========================== =============================================
Net realized
and unrealized From net
Net asset gain (loss) on realized gain In excess
value, Net investments, From net on investments, of net
beginning investment options and investment options investment
of period income futures income and futures income
=======================================================================================
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $14.91 $0.10 $3.56 $ (0.10) $ (1.72) $(0.02)
1997 - Class B Shares(b)................. 15.67 0.01 2.81 (0.01) (1.72) (0.09)
1996 - Class A Shares.................... 13.67 0.12 3.93 (0.12) (2.69) --
1995 - Class A Shares.................... 15.96 0.03 (0.69) (0.01) (1.62) --
1994 - Class A Shares.................... 14.64 0.02 2.40 (0.01) (1.07) (0.02)
1993 - Class A Shares.................... 13.65 0.06 2.28 (0.07) (1.28) --
1992 - Class A Shares.................... 11.10 0.28 2.90 (0.31) (0.32) --
For the Period Ended January 31,
================================
1991 - Class A Shares/(c)/............... 11.34 0.34 (0.27) (0.31) -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Net increase Net asset assets at
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(f)/ (in 000s)
=======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $1.82 $16.73 25.97% 52.92% $.0563 $920,646
1997 - Class B Shares(b)................. 1.00 16.67 19.39/(d)/ 52.92 .0563 3,221
1996 - Class A Shares.................... 1.24 14.91 30.45 63.90 -- 881,056
1995 - Class A Shares.................... (2.29) 13.67 (4.38) 38.36 -- 862,105
1994 - Class A Shares.................... 1.32 15.96 16.89 36.12 -- 833,682
1993 - Class A Shares.................... 0.99 14.64 18.01 58.93 -- 665,976
1992 - Class A Shares.................... 2.55 13.65 29.31 48.93 -- 500,307
For the Period Ended January 31,
================================
1991 - Class A Shares(c)................. (0.24) 11.10 0.84/(d)/ 35.63/(d)/ -- 437,533
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
=============================
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses to income (loss) to expenses to income (loss)
average net average average to average
assets net assets net assets net assets
====================================================================
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares.................... 1.40% 0.62% 1.65% 0.37%
1997 - Class B Shares/(b)/................. 2.15/(e)/ (0.39)/(e)/ 2.15/(e)/ (0.39)/(e)/
1996 - Class A Shares.................... 1.36 0.65 1.61 0.40
1995 - Class A Shares.................... 1.38 0.16 1.63 (0.09)
1994 - Class A Shares.................... 1.38 0.13 1.63 (0.12)
1993 - Class A Shares.................... 1.41 0.42 1.66 0.17
1992 - Class A Shares.................... 1.53 2.09 1.78 1.84
For the Period Ended January 31,
- --------------------------------
1991 - Class A Shares/(c)/............... 1.27/(d)/ 3.24/(d)/ 1.47/(d)/ 3.04/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to
January 31, 1997.
/(c)/For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations/(g)/ shareholders
=========================== =======================================
From In excess
net of
Net realized realized realized Net
and unrealized gain on gains on increase
Net asset Net gain (loss) on From investment, investment (decrease)
value, investment investments, net option and option and in net
beginning income options and investment futures futures asset
of period (loss) futures income transactions transactions value
==============================================================================================
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $17.29 $(0.21) $4.92 $ - $(1.09) $ - $3.62
1997 - Class B Shares/(b)/......... 20.79 (0.11) 1.21 - (1.09) - 0.01
1996 - Class A Shares ............. 16.14 (0.23) 1.39 - (0.01) - 1.15
1995 - Class A Shares ............. 20.67 (0.07) (3.53) - (0.69) (0.24) (4.53)
1994 - Class A Shares ............. 16.68 (0.04) 5.03 - (1.00) - 3.99
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 14.18 0.03 2.50 (0.03) - - 2.50
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Net asset Net assets
value, Portfolio Average at end of
end of Total turnover commission period
period return/(a)/ rate rate/(f)/ (in 000s)
================================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $20.91 27.28% 99.46% $.0461 $212,061
1997 - Class B Shares/(b)/......... 20.80 5.39/(d)/ 99.46 .0461 3,674
1996 - Class A Shares ............. 17.29 7.20 57.58 - 204,994
1995 - Class A Shares ............. 16.14 (17.53) 43.67 - 319,487
1994 - Class A Shares ............. 20.67 30.13 56.81 - 261,074
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 16.68 17.86/(d)/ 7.12/( e)/ - 59,339
<CAPTION>
- ---------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
Ratio of ===========================
Ratio of net Ratio of
net investment Ratio of net
expenses income expenses investment
to average (loss) to to average loss to
net average net net average net
assets assets assets assets
=======================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C>
1997 - Class A Shares ............. 1.60% (0.72)% 1.85% (0.97)%
1997 - Class B Shares/(b)/......... 2.35/(e)/ (1.63)/(e)/ 2.35/(e)/ (1.63)/(e)/
1996 - Class A Shares ............. 1.41 (0.59) 1.66 (0.84)
1995 - Class A Shares ............. 1.53 (0.53) 1.78 (0.78)
1994 - Class A Shares ............. 1.60 (0.45) 1.85 (0.70)
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 1.65/(e)/ 0.62/(e)/ 2.70/(e)/ (0.43)/(e)/
- ------------------
</TABLE>
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/(c)/For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions
investment operations/(g)/ to shareholders
================================================= ==============================
Net Net realized From net
realized and unrealized realized
and unrealized gain (loss) gain on
Net asset gain (loss) on on foreign From investment,
value, Net investments, currency net option and
beginning investment options related investment futures
of period income (loss) and futures transactions income transactions
============================================================================================
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
=====================================
1997 - Class A Shares............... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21)
1997 - Class B Shares/(e)/.......... 18.91 (0.06) 0.94 (0.34) -- (0.21)
1997 - Institutional Shares/(e)/.... 17.45 0.04 3.39 (1.24) (0.03) (0.21)
1997 - Service Shares/(e)/.......... 17.70 (0.02) 2.95 (1.08) -- (0.21)
1996 - Class A Shares .............. 14.52 0.13 2.58 1.42 (0.58) (0.87)
1995 - Class A Shares............... 18.10 0.06 (3.04) (0.01) -- (0.59)
1994 - Class A Shares............... 14.35 0.05 4.08 (0.38) -- --
For the Period Ended January 31,
=====================================
1993 - Class A Shares/(b)/.......... 14.18 (0.01) 0.29 (0.11) -- --
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net
increase Net asset
(decrease) value, Portfolio Average Net assets at
in net asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (in 000s)
==================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... $ 2.12 $19.32 13.48% 38.01% $.0318 $536,283
1997 - Class B Shares/(e)/.............. 0.33 19.24 2.83/(c)/ 38.01 .0318 19,198
1997 - Institutional Shares/(e)/........ 1.95 19.40 12.53/(c)/ 38.01 .0318 68,374
1997 - Service Shares/(e)/.............. 1.64 19.34 10.42/(c)/ 38.01 .0318 674
1996 - Class A Shares .................. 2.68 17.20 28.68 68.48 -- 330,860
1995 - Class A Shares................... (3.58) 14.52 (16.65) 84.54 -- 275,086
1994 - Class A Shares................... 3.75 18.10 26.13 60.04 -- 269,091
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 0.17 14.35 1.23/(c)/ 0.00 -- 66,063
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees or
expense limitations
===============================
Ratio of net Ratio of
Ratio of investment net investment
net income Ratio of income
expenses to (loss) to expenses (loss)
average net average net to average to average
assets assets net assets net assets
=============================================================
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... 1.69% (0.07)% 1.88% (0.26)%
1997 - Class B Shares/(e)/.............. 2.23/(d)/ (0.97)/(d)/ 2.38/(d)/ (1.12)/(d)/
1997 - Institutional Shares/(e)/........ 1.10/(d)/ 0.43/(d)/ 1.25/(d)/ 0.28/(d)/
1997 - Service Shares/(e)/.............. 1.60/(d)/ (0.40)/(d)/ 1.75/(d)/ (0.55)/(d)/
1996 - Class A Shares .................. 1.52 0.26 1.77 0.01
1995 - Class A Shares................... 1.73 0.40 1.98 0.15
1994 - Class A Shares................... 1.76 0.51 2.01 0.26
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 1.80/(d)/ (0.42)/(d)/ 2.58/(d)/ (1.20)/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
/(c)/Not annualized.
/(d)/Annualized.
/(e)/For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) Distributions to
from investment operations /(g)/ shareholders
--------------------------------------------- ------------------------------
Net
realized and
unrealized
Net Net gain on
asset Net realized and foreign
value, investment unrealized currency From net In excess
beginning income gain(loss) on related investment of net investment
of period (loss) investments transactions income income
----------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ --
1997 - Class B Shares/(e)/................ 17.31 (0.05) (0.48) (0.51) -- (0.03)
1997 - Institutional Shares/(e)/.......... 16.61 0.04 (0.11) (0.11) (0.04) (0.06)
1996 - Class A Shares..................... 13.31 0.17 3.44 (0.12) (0.17) (0.14)
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ 14.18 0.11 (0.89) 0.01 (0.10) --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Net
increase Net
(decrease) asset
in net value, Portfolio Average Net assets at
asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (000s)
------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $(0.18) $16.31 (1.01)% 48.40% $.0151 $263,014
1997 - Class B Shares/(e)/................ (1.07) 16.24 (6.02)/(c)/ 48.40 .0151 3,354
1997 - Institutional Shares/(e)/.......... (0.28) 16.33 (1.09)/(c)/ 48.40 .0151 13,322
1996 - Class A Shares..................... 3.18 16.49 26.49 88.80 -- 205,539
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ (0.87) 13.31 (5.46)/(c)/ 36.08/(c)/ -- 124,298
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio Ratio Ratio
of net of net Ratio of of net
expenses to investment expenses investment
Net assets at average income(loss) to average income(loss)
end of period net to average net to average
(000s) assets net assets assets net assets
-------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................................ $263,014 1.67% 0.20% 1.87% 0.00%
1997 - Class B Shares/(e)/........................... 3,354 2.21/(d)/ (0.56)/(d)/ 2.37/(d)/ (0.72)/(d)/
1997 - Institutional Shares/(e)/..................... 13,322 1.10/(d)/ 0.54/(d)/ 1.26/(d)/ 0.38/(d)/
1996 - Class A Shares................................ 205,539 1.77 1.05 2.02 0.80
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/........................... 124,298 1.90/(d)/ 1.83/(d)/ 2.38/(d)/ 1.35/(d)/
</TABLE>
- --------------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January 31,
1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of operations)
to January 31, 1997 for Institutional and Class B shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate on security transactions on which
commissions are charged. This rate may vary due to various types of
transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Goldman Sachs Equity Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Equity Portfolios, Inc. (a Maryland Corporation), comprising the
Balanced Fund, Select Equity Fund, Growth and Income Fund, Capital Growth Fund,
Small Cap Equity Fund, International Equity Fund and Asia Growth Fund, including
the statements of investments, as of January 31, 1997 and the related statements
of operations, the statements of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Goldman Sachs Equity
Portfolios, Inc. as of January 31, 1997 the results of their operations and the
changes in their net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------- ----------------------------------------
[This Page Intentionally Left Blank]
- -------------------------------------- ----------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Equity Portfolios, Inc.
Prospectus which contains facts concerning the Fund's objectives and policies,
management, expenses and other information.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------- ---------------------------------------------
DEAR SHAREHOLDERS:
The U.S. stock market handsomely rewarded investors during the six-month
period ended July 31, 1997. Despite predictions that the rally's momentum would
falter following robust gains in 1995 and 1996, the market defied expectations
by continuing its dramatic push into previously unexplored heights. Investors
in most European markets also fared well, while the performance of several
Asian markets was dampened by regional issues.
U.S. STOCK MARKET REACHED RECORD LEVELS AS VOLATILITY INCREASED
The U.S. stock market soared during the period under review, achieving an
impressive 22.6% gain, as measured by the Standard & Poor's 500 stock index. As
was the case for much of last year, the market was led by "mega-cap" stocks,
the largest capitalization stocks in the index. To a significant extent, the
market's rally was attributable to highly favorable economic conditions: low
inflation, low unemployment, strong productivity gains and healthy profits. As
the market extended its advance, however, volatility increased. This trend was
particularly evident during the first half of the period, when stronger-than-
expected economic data prompted Federal Reserve policy makers to raise the
Federal funds rate by a quarter-percentage point in March to 5.50%. The Fed's
increase--its first since February 1995--fanned fears of a series of rate
hikes, and caused the market to sell off sharply from mid-March through mid-
April.
By the end of April, however, newly released data reassured investors that
the market-friendly environment remained intact: Moderating growth made further
rate hikes appear less likely, inflation remained subdued and most companies
continued to report strong earnings. These favorable factors helped the market
quickly recoup its losses and propelled indexes to record highs throughout the
latter half of the period. By mid-July, the Dow Jones Industrial Average closed
above 8000 for the first time, only five months after it hit the 7000
milestone.
ECONOMIC ACTIVITY MODERATED DURING THE SPRING, FOLLOWING A ROBUST FIRST QUARTER
Real GDP surged at a 4.9% annualized rate during the first quarter of 1997,
spurred by an upswing in consumer spending, rising factory output and buoyant
construction outlays. During the second quarter, however, real GDP eased to a
somewhat more moderate 3.6% growth rate (annualized), partly because a cool
spring impacted weather-sensitive areas such as retail sales and construction.
In July, most economic data pointed toward strengthening growth, as indicated
by a tightening labor market, a rebound in consumer purchases and an increase
in home sales.
OUTLOOK: ECONOMIC GROWTH IS EXPECTED TO ACCELERATE DURING THE REMAINDER OF THE
YEAR
Despite slowing economic activity during the second quarter, Goldman Sachs'
economists expect above-average growth to resume later in the year. If growth
does accelerate, increasing pressure on labor resources is likely to cause wage
inflation to climb and trigger further
- -------------------------------- ---------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction/Market Overview......... 1
Goldman Sachs Balanced Fund.......... 3
Goldman Sachs CORE U.S. Equity Fund.. 12
Goldman Sachs CORE Large Cap Growth
Fund................................ 20
Goldman Sachs Capital Growth Fund.... 26
Goldman Sachs Mid Cap Equity Fund.... 32
</TABLE>
<TABLE>
<S> <C>
Goldman Sachs International Equity
Fund................................ 36
Goldman Sachs Small Cap Equity Fund.. 43
Goldman Sachs Asia Growth Fund....... 48
Financial Statements................. 54
Notes to Financial Statements........ 62
Financial Highlights................. 73
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Fed monetary tightening by year-end. While the stock market's recent gains have
been impressive, additional rate hikes could affect equity performance. As
always, it is important to maintain realistic expectations regarding your
equity investments' returns.
We appreciate your investment in Goldman Sachs equity funds and look forward
to continuing to serve your investment needs in the future.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
August 29, 1997
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Balanced Fund seeks to provide investors with a combination
of long-term growth of capital and current income by investing in a diversified
portfolio that includes both equity and fixed income securities. Under normal
market conditions, the fund is expected to maintain an asset mix of 45% to 65%
in equity securities, with the remainder (at a minimum 25%) in fixed income
senior securities. The fund's portfolio management team reviews its asset mix
on a regular basis and adjusts it to reflect changes in the economic
environment.
Stocks are selected using a value style, focusing on those stocks judged to
be inexpensive relative to their expected long-term earnings and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, the portfolio is actively
managed within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
PERFORMANCE REVIEW: SUCCESSFUL EQUITY AND FIXED INCOME INVESTMENTS
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET BENCHMARK
ASSET VALUE) TOTAL RETURN+
----------------- -------------
<S> <C> <C>
Class A* 15.42% 14.71%
Class B* 15.01% 14.71%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%) assuming
reinvestment of all dividends and interest.
During the period under review, both of the fund's share classes outperformed
the benchmark, as the accompanying table demonstrates. The equity and fixed
income portions of the fund both achieved favorable results, with equity
investments contributing most to relative outperformance. In addition, the
fund's asset mix yielded positive results. As of July 31, 1997, 56.4% of the
fund's net assets was invested in equities, 40.6% in fixed income and the
remainder in cash equivalents.
We are pleased to note that the fund fared well relative to its peers.
According to Lipper Analytical Services, Inc., Class A and B shares placed
within the top 15% of balanced funds (35th and 46th out of 317 funds for Class
A and B, respectively) for the 12-month period ended July 31, 1997. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results.)
HEALTHCARE, CONSUMER GOODS AND AIRLINE STOCKS WERE AMONG THE FUND'S BEST
PERFORMERS
The fund's top-performing stocks came from a diverse range of sectors,
including healthcare, consumer goods and airlines. AETNA, INC., a leading
healthcare provider, benefited from a friendlier regulatory environment and
consolidation in the healthcare industry. SUNBEAM CORP., INC., a consumer
products company, achieved strong results as investors responded positively to
its recent reforms, including major asset sales, improved distribution and a
new line of feature-laden products. CONTINENTAL AIRLINES, INC. performed well
as its improved service enabled it to continue to increase its share of
business traffic, which is typically more profitable than leisure travel. In
contrast, FRUIT OF THE LOOM, INC. was a disappointing performer as it was
impacted by a price war in screenprint tee shirts but held its prices steady in
order to maintain margins.
During the period, we significantly increased the fund's weighting in
technology stocks. New investments in the sector included two computer hardware
manufacturers: BAY NETWORKS, INC. (networking and
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
connectivity products) and QUANTUM CORP. (disk drives and other information
storage products).
TOP 10 EQUITY HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
Lear Corp. Autoparts/Original 2.6%
Equipment
Sunbeam Corp., 2.1
Inc. Appliances
Aetna, Inc. Healthcare 2.1
Management
Quantum Corp. Computer Component 2.1
Manufacturer
Unicom Corp. Electric Utility 2.0
Tosco Corp. Oil Refining and 2.0
Marketing
Lockheed Martin 2.0
Corp. Defense
Cigna Corp. Insurance 2.0
Morgan Stanley Financial Services 1.8
Dean Witter,
Discover & Co.
Avnet, Inc. Electronic 1.8
Components
Distributor
</TABLE>
FIXED INCOME HOLDINGS PERFORMED WELL AMID FAVORABLE CONDITIONS
Mortgage-backed securities (MBS) continued to account for the fund's largest
fixed income allocation at 13.7% of the portfolio's total net assets. The MBS
sector was one of the strongest performers during the period, benefiting from
declining volatility and stable mortgage prepayments. Corporate bonds, a 10.1%
allocation, also performed well as spreads continued to tighten amid positive
earnings growth and continued structural consolidation (e.g., mergers and
acquisitions activity, restructuring). Asset-backed securities (ABS) (6.0%)
experienced selling pressure early in the year, and then strengthened as
concerns regarding general credit deterioration and potentially vulnerable
insurance guarantees diminished. Emerging market debt was one of the smaller
portfolio allocations (3.0%), but significantly contributed to performance due
to a combination of positive emerging market country credit trends and global
liquidity. The remainder of the fixed income allocation was invested in U.S.
Treasuries (6.9%) to manage the fund's interest rate risk.
OUTLOOK
We remain committed to our strategy of identifying and purchasing stocks that
trade at a discount to their long-term earnings power and dividend-yielding
ability. In a market that has been characterized by speculation and momentum at
different times since the beginning of 1995, we believe that a value approach
is well suited to weather the ups and downs associated with a turbulent market.
In the fixed income markets, we are generally maintaining a neutral posture
as most sectors are currently trading at tight spreads. Regarding specific
sectors, support remains strong in the MBS market, but we believe spreads could
widen should volatility increase or investor demand diminish. In the ABS
sector, we expect spreads to stabilize or tighten modestly as new issuance
subsides and bargain hunters emerge, and will continue to emphasize issues with
tight underwriting standards and strong servicing capabilities. We have a
neutral view for the corporate sector, which is unlikely to experience much
further compression despite an anticipated reacceleration in economic activity
during the second half of the year. Finally, we are moderately optimistic
regarding the emerging debt sector, where we expect to shift the fund's
allocations among the different countries as we identify attractive investment
opportunities.
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
We will continue to carefully monitor the fund's asset allocation and adjust
its equity and fixed income weightings as economic and market conditions
change.
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ G. Lee Anderson
G. Lee Anderson
Portfolio Manager,
U.S. Active Equity Value
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
August 29, 1997
/s/ Jonathan A. Beinner
Jonathan A. Beinner
Co-Head,
U.S. Fixed Income
/s/ C. Richard Lucy
C. Richard Lucy
Co-Head,
U.S. Fixed Income
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--56.2%
AEROSPACE/DEFENSE--2.0%
25,100 Lockheed Martin Corp. $ 2,673,150
- ------------------------------------------------------
AIRLINES--2.4%
16,100 AMR Corp.* 1,731,756
39,000 Continental Airlines, Inc.* 1,462,500
- ------------------------------------------------------
3,194,256
- ------------------------------------------------------
APPLIANCE MANUFACTURER--2.1%
73,000 Sunbeam Corp. 2,856,125
- ------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--2.6%
71,700 Lear Corp.* 3,432,638
- ------------------------------------------------------
AUTO/VEHICLE--1.6%
51,600 Ford Motor Co. 2,109,150
- ------------------------------------------------------
BANKS--5.2%
20,600 BankAmerica Corp. 1,555,300
20,700 Chase Manhattan Corp. 2,350,744
12,500 Fleet Financial Group, Inc. 848,438
9,000 NationsBank Corp. 640,688
13,400 Republic of New York Corp. 1,547,700
- ------------------------------------------------------
6,942,870
- ------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION--0.8%
32,300 Owens Illinois Corp.* 1,114,350
- ------------------------------------------------------
CHEMICAL PRODUCTS--1.6%
31,200 Union Carbide Corp. 1,727,700
22,200 Geon Co. 427,350
- ------------------------------------------------------
2,155,050
- ------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--0.5%
19,600 MCI Communications, Inc. 692,125
- ------------------------------------------------------
DATACOM EQUIPMENT--1.2%
51,300 Bay Networks, Inc.* 1,564,650
- ------------------------------------------------------
DEFENSE--1.0%
17,300 McDonnell Douglas Corp. 1,323,450
- ------------------------------------------------------
ELECTRIC UTILITIES--2.8%
41,200 Long Island Lighting Co. 1,011,975
120,600 Unicom Corp. 2,736,113
- ------------------------------------------------------
3,748,088
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE--0.8%
26,100 Royal Caribbean Cruise Lines $1,035,844
- --------------------------------------------------
FOREST PRODUCTS--2.5%
18,600 Georgia Pacific Corp. 1,756,538
90,500 Stone Container Corp.* 1,504,563
- --------------------------------------------------
3,261,101
- --------------------------------------------------
HEALTHCARE MANAGEMENT--6.3%
24,200 Aetna Inc. 2,757,288
54,200 Columbia HCA Healthcare 1,747,950
46,000 Foundation Health Systems* 1,489,250
79,400 Tenet Healthcare Corp.* 2,377,038
- --------------------------------------------------
8,371,526
- --------------------------------------------------
HOME BUILDERS--2.4%
22,600 Centex Corp. 1,259,950
51,000 Lennar Corp. 1,899,750
- --------------------------------------------------
3,159,700
- --------------------------------------------------
INSURANCE BROKERS--0.3%
4,200 Loews Corp. 454,125
- --------------------------------------------------
INSURANCE-LIFE--2.0%
13,300 Cigna Corp. 2,653,350
- --------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--0.3%
9,200 Allmerica Financial Corp. 407,100
- --------------------------------------------------
INTEGRATED OIL--1.7%
15,600 Atlantic Richfield Co. 1,167,075
9,900 Texaco, Inc. 1,149,019
- --------------------------------------------------
2,316,094
- --------------------------------------------------
LOGISTICS/RAIL--0.7%
29,200 Canadian Pacific Ltd. 881,475
- --------------------------------------------------
OIL REFINING & MARKETING--2.0%
85,600 Tosco Corp. 2,680,350
- --------------------------------------------------
PERSONAL COMPUTERS-PERIPHERALS--2.1%
94,600 Quantum Corp* 2,749,313
- --------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND
SERVICES--1.8%
47,000 Morgan Stanley Dean Witter 2,458,688
- --------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS--1.8%
36,800 Avnet, Inc. $ 2,421,900
- -----------------------------------------------------
STEEL--1.0%
29,800 AK Steel Holding Corp. 1,367,075
- -----------------------------------------------------
SUPERMARKETS--2.1%
70,300 Fleming Companies, Inc. 1,120,406
41,200 Supervalu, Inc. 1,668,600
- -----------------------------------------------------
2,789,006
- -----------------------------------------------------
TEXTILES--1.3%
65,000 Fruit of the Loom, Inc.* 1,779,375
- -----------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--1.6%
33,500 Goodyear Tire & Rubber Co. 2,162,844
- -----------------------------------------------------
TOBACCO--0.8%
24,800 Philip Morris Companies, Inc. 1,119,100
- -----------------------------------------------------
TRANSPORTATION-MISCELLANEOUS--0.9%
33,400 CNF Transportation Inc. 1,164,825
- -----------------------------------------------------
TOTAL COMMON STOCKS
(COST $58,220,390) $ 75,038,693
- -----------------------------------------------------
PREFERRED STOCKS--0.2%
ENTERTAINMENT AND LEISURE--0.2%
3,000 Royal Caribbean Cruise Lines* $ 204,000
- -----------------------------------------------------
MEDIA/ENTERTAINMENT--0.0%
69 Time Warner, Inc. 78,853
- -----------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $210,450) $ 282,853
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--6.0%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 106,351
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 256,758
Case Equipment Loan Trust, Series 1995-A, Class A
51,206 7.30 03/15/02 51,581
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/06 140,612
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Chevy Chase Auto Receivables Trust, Series 1995-2, Class A
$ 55,501 5.80% 06/15/02 $ 55,449
Discover Card Master Trust 1994-2, Class A
70,000 6.03 10/06/04 70,568
Discover Card Master Trust 1996-4, Class A
740,000 6.05 10/16/13 749,479
Discover Card Master Trust 1996-4, Class B
420,000 6.23 10/16/13 421,575
DVI Equipment Lease
391,239 6.55 07/10/04 393,136
Fasco Auto Trust, Series 1996-1, Class A
211,701 6.65 11/15/01 215,935
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 201,686
First USA Credit Card Master Trust
350,000 5.77 04/17/00 350,000
JP Morgan Commercial Mortgage Finance Corp., Series 1997-C4
400,000 7.32 12/26/28 416,562
MBNA Credit Card Master Trust
1,050,000 5.94 04/15/09 1,046,388
Mid-State Trust, Series 4, Class A
898,191 8.33 04/01/30 982,558
Morgan Stanley Capital Commercial Mortgage, Inc., Series 1997-C1
400,000 7.46 05/15/06 417,422
Mortgage Capital Funding Inc., Series 1997, Class A3
500,000 7.29 03/20/07 522,895
Navistar Financial Trust, Series 1995-A, Class A2
97,049 6.55 11/20/01 97,656
Navistar Financial Trust, Series 1995-B, Class A3
96,077 6.05 04/15/02 96,256
PXRE Capital Trust I
65,000 8.85 02/01/27 70,185
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 728,217
Sears Credit Card Master Trust, Series 1995-3, Class A
70,000 7.00 10/15/04 71,640
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 118,077
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Standard Credit Card Master Trust, Series 1995-1, Class A
$ 360,000 8.25% 01/07/07 $ 395,773
- --------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $7,865,244) $ 7,976,759
- --------------------------------------------------------------------------------------------------
CORPORATE BONDS--10.1%
FINANCE BONDS--3.7%
Asia Pulp and Paper International Finance Co.
$ 250,000 8.30% 06/28/99 $ 249,373
100,000 10.25 10/01/00 103,678
BankAmerica Corp.
1,000,000 7.75 07/15/02 1,058,620
Capital One Bank
150,000 6.90 04/15/99 151,664
290,000 6.88 04/24/00 294,539
900,000 6.60 08/20/01 898,083
Conseco, Inc.
160,000 10.50 12/15/04 192,754
Conseco Finance
200,000 8.70 11/15/26 215,468
Continental Bank
100,000 12.50 04/01/01 119,738
Countrywide Funding Corp.
150,000 8.00 12/15/26 159,333
100,000 6.08 07/14/99 100,009
200,000 7.73 08/09/01 209,930
Edison Mission Energy Funding Corp.
94,758 6.77 09/15/03 95,689
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 252,110
Golden West Financial Corp.
200,000 10.25 12/01/00 223,420
Meditrust, Inc.
120,000 7.82 09/10/26 129,162
Signet Banking Corp.
500,000 9.63 06/01/99 528,390
Washington Real Estate
55,000 7.13 08/13/03 56,170
- --------------------------------------------------------------------------------------------------
TOTAL FINANCE BONDS
(COST $4,993,688) $ 5,038,130
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INDUSTRIAL BONDS--5.9%
360 Communications Co.
$ 255,000 7.13% 03/01/03 $ 260,138
Auburn Hills Trust
50,000 12.00 05/01/20 78,081
Blockbuster Entertainment
50,000 6.63 02/15/98 50,072
Chelsea GCA Realty
226,000 7.75 01/26/01 233,024
Chrysler Corp.
60,000 7.45 02/01/97 62,490
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,050
General Motors Acceptance Corp.
170,000 7.13 05/10/00 174,072
210,000 5.63 02/05/01 205,945
H + T Master Trust
220,000 8.18 08/15/02 220,000
Health & Retirement
250,000 6.20 07/09/07 250,000
Hertz Corp.
305,000 6.00 01/15/03 298,845
K Mart Corp.
40,000 9.55 06/30/98 40,570
40,000 9.60 09/15/98 40,500
Loewen Group International
200,000 7.75 10/15/01 203,500
Northwest Airlines
216,108 8.97 01/02/15 233,327
NWA Trust, Series A
66,300 8.26 03/10/06 71,090
NWCG Holding Corp.
450,000 6.81 06/15/99 400,721
Oryx Energy Co.
245,000 9.50 11/01/99 258,928
Owens-Illinois, Inc.
45,000 10.00 08/01/02 47,475
RJR Nabisco, Inc.
240,000 8.63 12/01/02 253,406
135,000 8.00 07/15/01 138,803
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 123,625
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INDUSTRIAL BONDS (CONTINUED)
Taubman Realty Group, Inc.
$ 230,000 8.00% 07/30/01 $ 241,155
TCI Communications, Inc.
20,000 6.82 09/15/10 20,043
Tele-Communications, Inc.
805,000 6.28 09/15/03 804,598
125,000 9.65 10/01/03 134,944
Tenet Healthcare Corp.
60,000 9.63 09/01/02 66,150
Time Warner, Inc.
375,000 7.45 02/01/98 377,149
750,000 7.95 02/01/00 777,878
250,000 7.98 08/15/04 265,603
445,000 9.63 05/01/02 501,092
Tosco Corp.
110,000 7.00 07/15/00 112,069
U.S. Home Corp.
170,000 7.95 03/01/01 169,575
US Air Inc.
327,134 8.93 04/15/08 366,184
USI American Holdings
60,000 7.25 12/01/06 60,838
Viacom International
95,000 10.25 09/15/01 104,025
160,000 9.13 08/15/99 163,800
- --------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS
(COST $7,707,711) $ 7,851,765
- --------------------------------------------------------------------------------------------------
UTILITY BONDS--0.4%
Arkla, Inc.
$ 250,000 9.20% 12/18/97 $ 252,398
Central Maine Power Co.
100,000 7.38 01/01/99 101,742
160,000 7.45 08/30/99 161,925
- --------------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS
(COST $521,661) $ 516,065
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $13,223,060) $ 13,405,960
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT--3.0%
Argentina Bocon
$ 124,502 5.70% 04/01/01 $ 120,232
Argentina Bontes
10,000 8.00 12/13/98 10,115
50,000 8.75 05/09/02 50,950
Asia Pulp and Paper International Finance Co.
40,000 10.25 10/01/00 41,200
Banco Nacional de Obras
20,000 9.63 11/15/03 21,383
Banco de Colombia
30,000 8.63 06/02/00 31,354
BCO de Colombia
110,000 8.63 06/02/00 114,963
Bridas Corp.
90,000 12.50 11/15/99 99,788
60,000 9.50 06/17/99 61,061
Cemex S.A.
50,000 12.75 07/15/06 59,948
Cemex S.A. + Tolmex
20,000 10.00 11/05/99 20,926
City of Moscow
120,000 9.50 05/31/00 122,400
Comision Federal Electric
360,000 8.00 08/04/97 360,011
Corp. Andina de Fomento
100,000 7.25 04/30/98 100,898
80,000 8.38 07/29/01 83,215
DGS International Finance
100,000 10.00 06/01/07 106,200
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,430
Empresa Col Petroleos
80,000 7.25 07/08/98 80,729
Financiera Energy Nacional
220,000 9.38 06/15/06 263,822
230,000 5.88 02/17/98 228,445
200,000 8.46 06/19/98 202,590
Groupo Iusacell
80,000 10.00 07/15/04 80,870
Grupo Industrial Durango
90,000 12.00 07/15/01 99,675
30,000 12.63 08/01/03 34,418
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT (CONTINUED)
Guangdong Enterprises
$ 100,000 8.88% 05/22/07 $ 105,562
Inst Fomento Industrial
210,000 8.38 07/29/01 218,440
Poland Communications, Inc.
90,000 9.88 11/01/03 91,532
Republic of Argentina
51,000 8.63 04/04/98 51,401
63,000 8.63 04/06/98 63,496
Republic of Croatia
80,000 7.00 02/27/02 79,477
Republic of Panama
446,158 7.03 05/10/02 446,171
Russian Federation
80,000 10.00 06/26/07 81,231
Sampoerna International Finance Co.
110,000 8.38 06/15/06 114,256
Trikem SA
100,000 10.63 07/24/07 101,241
YPF Sociedad Anonima
103,577 7.50 10/26/02 106,125
- ------------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $3,890,452) $ 3,965,555
- ------------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS--13.7%
Asset Securitization Corp.
$ 450,000 7.49% 04/14/27 $ 479,444
Collateralized Mortgage Obligation Trust Series 64, Class Z
457,920 9.00 11/20/20 513,905
Federal Home Loan Mortgage Corp.(FHLMC)
1,000,000 7.50 TBA-15yr(a) 2,009,430
1,000,000 6.35 03/25/18 1,000,310
Federal National Mortgage Association (FNMA)
1,000,000 6.50 TBA-30yr(a) 1,000,930
1,000,000 7.50 TBA-30yr(a) 1,016,250
4,000,000 7.00 TBA-30yr(a) 3,993,720
1,000,000 8.50 TBA-30yr(a) 1,041,870
1,000,000 6.55 10/25/20 1,003,430
279,391 6.50 09/01/25 273,630
329,685 6.50 10/01/25 322,887
383,168 6.50 11/01/25 376,462
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (CONTINUED)
First Union 1997C1 A2
$ 300,000 7.30% 04/18/29 $ 313,887
Government National Mortgage Association (GNMA)
3,000,000 8.00 TBA-30yr(a) 3,097,500
953,398 7.00 07/15/23 958,165
896,622 7.50 05/15/23 915,389
- ---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $18,087,031) $ 18,317,209
- ---------------------------------------------------------------------------------------------
SOVEREIGN CREDIT--0.8%
Province of Quebec
$ 200,000 13.25% 09/15/14 $ 235,528
Republic of Colombia
160,000 7.13 05/11/98 160,946
Republic of Croatia
100,000 7.00 02/27/02 100,554
State of Israel
190,000 6.38 12/15/05 184,399
United Mexican States
190,000 7.88 08/06/01 191,849
Republic of Argentina
JPY20,000,000 8.77 09/06/00 180,279
- ---------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(COST $1,051,516) $ 1,053,555
- ---------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--6.8%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13(d) $ 685,246
250,000 8.88 08/15/17 320,548
1,760,000 8.75 05/15/20(d) 2,256,654
170,000 7.88 02/15/21 200,573
280,000 7.63 02/15/25 325,674
United States Treasury Notes
450,000 6.88 08/31/99(d) 459,914
180,000 7.88 11/15/04(d) 199,715
1,250,000 6.13 07/31/00(d) 1,260,938
800,000 5.63 11/30/00 795,248
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (CONTINUED)
United States Treasury Principal Only Stripped Securities(b)
$ 80,000 5.75% 08/15/99 $ 71,279
2,520,000 6.11 05/15/05 1,578,805
1,990,000 6.52 05/15/20 461,700
2,290,000 6.52 08/15/20 522,830
- -----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $8,747,169) $ 9,139,124
- -----------------------------------------------------------------------------------------------
YANKEE BONDS--0.1%
Korea Electric Power
$ 92,815 7.40% 04/01/16 $ 98,403
- -----------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(COST $89,749) $ 98,403
- -----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--0.1%
Argentina Treasury Bill
$ 80,000 6.17%(b) 10/17/97 $ 79,721
Republic of Argentina
90,000 5.36(b) 08/15/97 89,933
- -----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $168,673) $ 169,654
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--12.1%
Joint Repurchase Agreement Account(d)
$16,200,000 5.84% 08/01/97 $ 16,200,000
- -----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $16,200,000) $ 16,200,000
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $127,753,734)(C) $145,647,765
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $18,844,921
Gross unrealized loss for investments in which
cost exceeds value (965,456)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain $17,879,465
- -----------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain
- -------------------------- --------- ---------- ----------
<S> <C> <C> <C>
September
2-Year U.S. Treasury Note 10 1997 $ 19,375
September
5-Year U.S. Treasury Note 6 1997 13,874
September
10-Year U.S. Treasury Bond 13 1997 32,158
September
30-Year U.S. Treasury Bond 12 1997 67,689
--------
$133,096
- -----------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + /-2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(b) The interest rate disclosed for these securities represents effective
yields to maturity.
(c) The aggregate cost for federal income tax purposes is $127,768,300.
(d) Portions of these securities are being segregated as collateral for futures
contracts, TBA securities and mortgage dollar rolls.
(e) Each 2-Year U.S. Treasury Note contract represents $200,000 in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year and 30-Year Treasury Bond
represents $100,000 in notional par value. The total net notional amount
and market value at risk are $5,100,000 and $5,567,000, respectively. The
determination of notional amounts does not consider market risk factors and
therefore notional amounts as presented here are indicative only of volume
of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs CORE U.S. Equity Fund is designed to provide investors with
a broadly diversified portfolio that can be used as a core holding within an
overall investment program. The fund's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of large-cap and blue-chip equity
securities representing all major sectors of the U.S. economy. The fund's
mandate is to remain fully invested while maintaining risk, style,
capitalization and industry characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's
performance relative to the market should result almost exclusively from stock
selection within sectors. We believe the fund offers investors an attractive
combination of value and growth, while seeking not to assume more risk than the
broad market.
The fund employs a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Global Investment Research Department
with quantitative analysis generated by a proprietary multifactor model
developed by the Asset Management Division. The model evaluates each stock
using many different criteria including valuation, momentum and safety. It also
objectively analyzes the impact of current economic conditions on different
types of stocks. Those stocks ranked highly by both the multifactor model and
by Goldman Sachs research are considered for the fund's portfolio.
NAME CHANGE
The name of the Goldman Sachs Select Equity Fund was changed in May to the
Goldman Sachs CORE U.S. Equity Fund. CORE stands for "Computer-Optimized,
Research-Enhanced," which, compared with its previous name, better describes
our strategy of using quantitative and fundamental research to pick stocks for
a diversified and risk-controlled portfolio. The fund's investment focus and
process remain the same.
PERFORMANCE REVIEW: SUCCESSFUL STOCK SELECTION DROVE THE FUND'S PERFORMANCE
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET S&P 500
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 22.08% 22.55%
Class B* 21.74% 22.55%
Institutional* 22.48% 22.55%
Service* 22.17% 22.55%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge.
We are pleased to report that the fund fared well compared with its peers.
For the five-year period ended July 31, 1997, the fund's Class A shares were
rated "four stars" (in a universe of 1,146 domestic equity funds) by
Morningstar, Inc., an independent mutual fund rating agency./1/
In addition, the fund's Institutional shares ranked within the top quartile
of the Lipper growth fund category (172 of 764) for the 12-month period ended
July 31, 1997, according to Lipper Analytical Services, Inc.
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five-, and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The fund's Class A shares received four stars and were rated among
2,040 domestic equity funds for the three-year period. The Morningstar rating
applies only to the fund's Class A shares; the fund's Class B, Institutional
and Service shares have not been rated. Class B, Institutional and Service
shares are subject to additional fees and expenses that may have the effect of
lowering performance and may affect any future Morningstar rating. Morningstar
rates funds against peers in the same category. In all, there are four
Morningstar categories (domestic equity, international equity, taxable bond and
municipal). Morningstar ratings range from five stars (highest) to one star
(lowest). Funds with five-star ratings are in the top 10% of their category,
four-star ratings in the next 22.5%, three stars the next 35%, two stars the
next 22.5% and one star the lowest 10% of their categories.
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results.) Class A, B and
Service shares also fared well, and they all ranked within the top third of the
Lipper growth fund category. (Class A, B and Service shares ranked 211, 240 and
197, respectively, out of 764 growth funds.)
Successful stock selection drove the fund's performance during the period.
During the first half of the period, the fund particularly benefited from the
direction set by our proprietary mutifactor model. Of the three investment
themes considered by the model--value, momentum, and safety--the portfolio had
an above-average tilt toward safety. This strategy worked in the fund's favor
as defensive value stocks generally outperformed volatile growth stocks beyond
the largest capitalization tier of the S&P 500. In addition, the qualitative
stock recommendations produced by the Goldman Sachs Global Investment Research
Department achieved strong results during the second quarter.
The fund's best performers came from a wide range of sectors, including
technology (MICROSOFT CORP., INTERNATIONAL BUSINESS MACHINES INC.), electrical
equipment (GENERAL ELECTRIC CO.), retailing (DAYTON HUDSON CORP.) and machinery
(CATERPILLAR, INC.).
PORTFOLIO COMPOSITION: THE FUND FAVORED DEFENSIVE, VALUE STOCKS
In general, the fund's sector exposures approximated that of the S&P 500
stock index, although its current tilt toward defensive, value stocks resulted
in a slight overweighting in "cheap" sectors (e.g., consumer durables) and less
volatile sectors (e.g., utilities and energy) and a slight underweighting in
"pricey" sectors (e.g., consumer nondurables) and cyclical sectors (e.g., basic
industries). These differences, as shown in Table II, stemmed from the fund's
bottom-up stock selection process, not from an economic forecast for specific
sectors.
The fund's valuation characteristics were slightly more attractive than those
of the benchmark. For example, the fund had a lower price/earnings ratio based
on 1997 estimated earnings than the S&P 500 (18.7x versus 20.8x) and a lower
price/book ratio (3.8x versus 4.0x). In other respects, the fund maintained
growth and risk characteristics in line with the S&P 500.
TABLE I
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
General Electric
Co. Electronics 4.2%
Exxon Corp. Petroleum and 2.8
Natural Gas
Intel Corp. Semiconductors and 2.2
Electronics
Microsoft Corp. Computer Software 1.8
Coca Cola Co. Beverages 1.7
General Motors Automobile 1.7
Corp. Manufacturer
Merck & Co.,
Inc. Pharmaceuticals 1.6
GTE Corporation Telecommunications 1.6
Mobil Petroleum and 1.5
Corporation Natural Gas
Bristol-Myers
Squibb Co. Pharmaceuticals 1.5
</TABLE>
TABLE II
SECTOR BREAKOUT AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
INDUSTRY SECTORS PORTFOLIO S&P 500 INDEX DIFFERENCE
---------------- ------------- ------------- ----------
<S> <C> <C> <C>
Capital Spending 17.8% 18.6% -0.8%
Consumer 17.5 19.9 -2.4
Nondurables
Finance 15.9 17.1 -1.2
Consumer
Services 10.9 11.7 -0.8
Utilities 9.3 8.5 0.8
Energy 9.1 8.1 1.0
Basic Industry 5.9 6.9 -1.0
Miscellaneous 4.5 5.5 -1.0
Consumer
Durables 4.2 2.4 1.8
Cash (Equitized 3.0 0.0 3.0
with S&P 500
futures)
Transportation 1.9 1.3 0.6
</TABLE>
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OUTLOOK
We intend to maintain a balanced approach by considering each of our
investment themes (value, momentum and safety) when making investment
decisions. In the near term, however, recent cautionary signals--such as
increasing stock market volatility and record-low dividend yields--have led us
to adopt a more defensive posture. As a result, we are focusing primarily on
low-risk stocks with attractive valuations, while slightly reducing our weight
on momentum.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
August 29, 1997
14
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.6%
ADVERTISING--0.3%
27,400 Omnicom Group $ 1,912,863
- -----------------------------------------------------
AEROSPACE--0.7%
42,600 United Technologies Corp. 3,602,363
- -----------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT--1.2%
24,500 Case Corp. 1,529,719
43,100 Conagra, Inc. 3,030,469
47,800 Tenneco, Inc. 2,228,675
- -----------------------------------------------------
6,788,863
- -----------------------------------------------------
AIRLINES--1.1%
23,400 AMR Corp.* 2,516,963
36,600 Delta Air Lines, Inc. 3,252,825
- -----------------------------------------------------
5,769,788
- -----------------------------------------------------
APPLIANCE MANUFACTURER--0.5%
76,500 Sunbeam Corp. 2,993,063
- -----------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--0.3%
22,600 Cummins Engine, Inc. 1,774,100
- -----------------------------------------------------
AUTO/VEHICLE--2.5%
112,900 Ford Motor Co. 4,614,788
150,400 General Motors Corp. 9,306,000
- -----------------------------------------------------
13,920,788
- -----------------------------------------------------
AUTOMOBILES & AUTOMOBILE PARTS--0.3%
42,500 Genuine Parts Co. 1,386,563
- -----------------------------------------------------
BANK HOLDING COMPANIES--0.4%
25,400 Comerica, Inc. 1,920,875
- -----------------------------------------------------
BANKS--4.8%
32,750 Banc One Corp. 1,838,094
46,900 Bank of New York, Inc. 2,277,581
41,500 Chase Manhattan Corp. 4,712,844
25,200 Citicorp. 3,420,900
27,800 First Bank System, Inc. 2,474,200
33,600 First Chicago Corp. 2,549,400
94,600 NationsBank Corp. 6,734,338
10,000 Wells Fargo & Company 2,749,375
- -----------------------------------------------------
26,756,732
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BEVERAGES--2.5%
135,800 Coca Cola Co. $ 9,404,150
112,700 Pepsico, Inc. 4,317,819
- -----------------------------------------------------------
13,721,969
- -----------------------------------------------------------
BIOTECHNOLOGY--0.2%
14,700 Amgen, Inc.* 864,544
- -----------------------------------------------------------
BUILDING MATERIALS--0.3%
38,000 USG Corp.* 1,786,000
- -----------------------------------------------------------
BUSINESS SERVICES--0.5%
53,500 Automatic Data Processing, Inc. 2,648,250
- -----------------------------------------------------------
CHEMICAL PRODUCTS--0.7%
40,300 Du Pont (E.I.) de Nemours & Co. 2,697,581
44,500 IMC Global, Inc. 1,404,531
- -----------------------------------------------------------
4,102,112
- -----------------------------------------------------------
CHEMICALS-COMMODITY--1.4%
44,900 Dow Chemicals Co. 4,265,500
67,300 Monsanto Co. 3,352,381
- -----------------------------------------------------------
7,617,881
- -----------------------------------------------------------
COMMERCIAL SERVICES--0.3%
31,800 Interim Services, Inc.* 1,448,888
- -----------------------------------------------------------
COMMUNICATIONS SERVICES COMPANIES--0.4%
73,800 Airtouch Communications, Inc.* 2,430,788
- -----------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--3.6%
52,400 Ameritech Corp. 3,533,725
48,500 Bellsouth Corp. 2,297,688
185,100 GTE Corp. 8,607,150
49,900 Sprint Corp. 2,470,050
87,200 Worldcom, Inc.* 3,046,550
- -----------------------------------------------------------
19,955,163
- -----------------------------------------------------------
CONSUMER GOODS--0.5%
42,000 Nike, Inc. 2,617,125
- -----------------------------------------------------------
CONSUMER STAPLES--1.7%
50,500 American Home Products Corp. 4,163,094
32,600 Procter & Gamble Co. 4,959,275
- -----------------------------------------------------------
9,122,369
- -----------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
15
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
DEFENSE--1.7%
75,000 Boeing Co. $ 4,410,938
36,200 Textron, Inc. 2,536,263
36,000 TRW, Inc. 2,106,000
- --------------------------------------------------------------
9,053,201
- --------------------------------------------------------------
DEPARTMENT STORES--3.6%
105,300 Dayton Hudson Corp. 6,805,013
37,100 Federated Department Stores, Inc.* 1,625,444
27,300 Fred Meyer, Inc.* 1,564,631
64,200 Sears Roebuck & Co. 4,064,663
150,700 Walmart Stores, Inc. 5,660,669
- --------------------------------------------------------------
19,720,420
- --------------------------------------------------------------
DIVERSIFIED MANUFACTURING--0.6%
36,900 Allied Signal, Inc. 3,404,025
- --------------------------------------------------------------
ELECTRIC UTILITIES--2.6%
74,600 Duke Power Co. 3,781,288
125,800 Edison International, Inc. 3,176,450
21,300 Empresa Nacional de Electric ADR 1,797,188
42,900 Teco Energy, Inc. 1,088,588
90,700 Texas Utilities Co. 3,214,181
57,600 Unicom Corp. 1,306,800
- --------------------------------------------------------------
14,364,495
- --------------------------------------------------------------
ELECTRICAL--0.3%
51,200 Cinergy Corp. 1,721,600
- --------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--4.6%
37,300 Emerson Electric Co. 2,200,700
327,000 General Electric Co. 22,951,313
- --------------------------------------------------------------
25,152,013
- --------------------------------------------------------------
ENTERPRISE SYSTEMS--3.2%
76,000 Compaq Computer Corp.* 4,341,500
63,700 Hewlett Packard Co. 4,462,981
65,300 International Business Machines 6,905,475
49,900 Sun Microsystems, Inc.* 2,279,806
- --------------------------------------------------------------
17,989,762
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE--0.8%
53,642 Walt Disney, Co. $ 4,334,944
- -----------------------------------------------------------------
FINANCIAL SERVICES--4.0%
25,700 American Express Co. 2,152,375
33,000 American Financial Group 1,575,750
90,700 BankAmerica Corp. 6,847,850
91,700 Federal National Mortgage Association 4,338,556
76,600 Providian Financial Corp. 3,001,763
60,033 Travelers Group, Inc. 4,318,624
- -----------------------------------------------------------------
22,234,918
- -----------------------------------------------------------------
FOOD--0.7%
35,100 Interstate Bakeries Corp. 2,141,100
7,800 Unilever, Inc. 1,700,400
- -----------------------------------------------------------------
3,841,500
- -----------------------------------------------------------------
FOOD PRODUCERS--0.6%
33,500 Dean Foods Co. 1,614,281
16,000 Ralston Purina Co. 1,444,000
- -----------------------------------------------------------------
3,058,281
- -----------------------------------------------------------------
FOREST PRODUCTS--1.4%
80,000 Avery Dennison Corp. 3,530,000
28,000 Georgia Pacific Corp. 2,644,250
26,600 Kimberly Clark Corp. 1,348,288
- -----------------------------------------------------------------
7,522,538
- -----------------------------------------------------------------
GAS DISTRIBUTION & PIPELINE--0.6%
45,100 Columbia Gas Systems, Inc. 3,100,625
- -----------------------------------------------------------------
GROCERY PRODUCTS--0.4%
97,500 IBP, Inc. 2,218,125
- -----------------------------------------------------------------
HEALTH & MEDICAL SERVICES--2.0%
62,800 Abbott Laboratories 4,109,475
85,400 Johnson & Johnson 5,321,488
28,900 Lincare Holdings, Inc.* 1,416,100
- -----------------------------------------------------------------
10,847,063
- -----------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES--0.2%
31,900 Alberto Culver Co. Class B 895,194
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTHCARE MANAGEMENT--0.8%
62,600 Columbia HCA Healthcare $ 2,018,850
51,800 Wellpoint Health Networks* 2,551,150
- --------------------------------------------------------------
4,570,000
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.1%
58,800 Gillette Co. 5,821,200
- --------------------------------------------------------------
INDUSTRIAL--0.7%
61,400 Corning, Inc. 3,795,288
- --------------------------------------------------------------
INDUSTRIAL MACHINERY--0.7%
70,800 Caterpillar, Inc. 3,964,800
- --------------------------------------------------------------
INFORMATION MANAGEMENT--0.9%
189,700 Dun & Bradstreet Corp. 5,121,900
- --------------------------------------------------------------
INSURANCE--0.3%
12,900 MBIA, Inc. 1,522,200
- --------------------------------------------------------------
INSURANCE SERVICES--0.3%
35,600 Protective Life Corp. 1,811,150
- --------------------------------------------------------------
INSURANCE SPECIALTY--0.3%
40,900 Everest Reinsurance Holdings 1,584,875
- --------------------------------------------------------------
INSURANCE-LIFE--0.7%
18,300 Cigna Corp. 3,650,850
- --------------------------------------------------------------
INSURANCE-MULTI-LINE--0.3%
22,654 Aegon N V Amer Reg 1,718,872
- --------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.4%
25,356 Allstate Corp. 2,003,124
54,075 American International Group, Inc. 5,758,988
- --------------------------------------------------------------
7,762,112
- --------------------------------------------------------------
INTEGRATED OIL--6.5%
21,600 Amoco Corp. 2,030,400
41,800 Atlantic Richfield Co. 3,127,163
240,500 Exxon Corp. 15,452,125
82,200 Phillips Petroleum Co. 3,786,338
104,000 Royal Dutch Petroleum 5,817,500
27,200 Texaco, Inc. 3,156,900
55,000 Unocal Corp. 2,200,000
- --------------------------------------------------------------
35,570,426
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INVESTMENT BROKERS & MANAGERS--1.1%
49,200 Merrill Lynch Co. $ 3,465,525
40,800 Salomon, Inc. 2,588,250
- ---------------------------------------------------------
6,053,775
- ---------------------------------------------------------
LOGISTICS/RAIL--0.8%
37,900 Norfolk Southern Corp. 4,197,425
- ---------------------------------------------------------
MACHINERY AND EQUIPMENT--0.4%
28,600 Ingersoll-Rand Co. 1,946,588
- ---------------------------------------------------------
MEDIA/ENTERTAINMENT--0.6%
40,500 King World Productions, Inc.* 1,635,188
52,600 Meredith Corp. 1,456,363
- ---------------------------------------------------------
3,091,551
- ---------------------------------------------------------
MISCELLANEOUS MANUFACTURER--0.3%
79,200 Coltec Industries, Inc.* 1,742,400
- ---------------------------------------------------------
NONFERROUS METALS--0.6%
47,200 Alumax, Inc.* 2,000,100
15,500 Phelps Dodge Corp. 1,318,469
- ---------------------------------------------------------
3,318,569
- ---------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.9%
42,000 Miller Herman, Inc. 2,084,250
35,600 Xerox Corp. 2,928,100
- ---------------------------------------------------------
5,012,350
- ---------------------------------------------------------
OIL & GAS--2.6%
58,600 Ensco International, Inc.* 3,874,925
106,700 Mobil Corp. 8,162,550
60,100 Rowan Companies, Inc.* 1,975,788
- ---------------------------------------------------------
14,013,263
- ---------------------------------------------------------
OIL & GAS EXPLORATION--0.5%
101,900 Marine Drilling Companies* 2,528,394
- ---------------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--1.6%
63,000 Creative Technology* 1,283,625
29,700 Eastman Kodak Co. 1,989,900
74,400 Quantum Corp.* 2,162,250
90,200 Western Digital Corp.* 3,472,700
- ---------------------------------------------------------
8,908,475
- ---------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS--5.7%
103,800 Bristol-Myers Squibb $ 8,141,813
18,200 Eli Lilly & Co. 2,056,600
43,900 Forest Laboratories, Inc.* 1,997,450
84,000 Merck & Co., Inc. 8,730,750
56,000 Pfizer, Inc. 3,339,000
93,000 Schering Plough Corp. 5,074,313
13,500 Warner Lambert Co. 1,885,781
- --------------------------------------------------------------
31,225,707
- --------------------------------------------------------------
PRINTING--0.3%
51,400 Lexmark International Group, Inc.* 1,673,713
- --------------------------------------------------------------
RESTAURANTS--0.3%
28,000 McDonalds Corp. 1,505,000
- --------------------------------------------------------------
RESTAURANTS & HOTELS--0.3%
23,800 HFS, Inc.* 1,386,350
- --------------------------------------------------------------
RETAIL--1.5%
65,000 American Stores Co. 1,641,250
87,600 Best Buy Co., Inc.* 1,138,800
49,950 Home Depot, Inc. 2,491,256
44,800 Ross Stores, Inc. 1,416,800
58,400 TJX Companies, Inc. 1,744,700
- --------------------------------------------------------------
8,432,806
- --------------------------------------------------------------
RETAIL TRADE--0.4%
47,100 Gap, Inc. 2,093,006
- --------------------------------------------------------------
SAVINGS AND LOANS--0.6%
60,600 HF Ahmanson & Co. 3,223,163
- --------------------------------------------------------------
SECURITY--0.5%
30,400 Tyco International Ltd. 2,462,400
- --------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES--0.1%
13,800 Morgan Stanley Dean Witter 721,913
- --------------------------------------------------------------
SEMICONDUCTORS--3.9%
32,800 Advanced Micro Devices, Inc.* 1,150,050
132,400 Intel Corp. 12,155,975
33,700 Micron Technology, Inc.* 1,640,769
58,400 Motorola, Inc. 4,690,250
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS (CONTINUED)
48,100 National Semiconductor Corp.* $ 1,515,150
- -----------------------------------------------------------
21,152,194
- -----------------------------------------------------------
SOFTWARE & SERVICES--2.0%
68,700 Microsoft Corp.* 9,721,050
24,000 Oracle Corp.* 1,306,500
- -----------------------------------------------------------
11,027,550
- -----------------------------------------------------------
SPECIALTY RETAIL--0.3%
34,700 Tiffany & Co. 1,568,006
- -----------------------------------------------------------
SUPERMARKETS--0.6%
58,567 Safeway, Inc.* 3,140,655
- -----------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--0.7%
43,303 Lucent Technologies, Inc. 3,678,049
- -----------------------------------------------------------
TEXTILES--0.3%
32,400 Sara Lee Corp. 1,419,525
- -----------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--0.3%
29,100 Goodyear Tire & Rubber Co. 1,878,769
- -----------------------------------------------------------
TOBACCO--1.9%
176,500 Philip Morris Companies, Inc. 7,964,563
75,300 RJR Nabisco, Inc. 2,470,781
- -----------------------------------------------------------
10,435,344
- -----------------------------------------------------------
TRANSPORTATION--0.4%
52,400 Shell Transport & Trading PLC 2,338,350
- -----------------------------------------------------------
UTILITIES--1.6%
38,200 Cia de Telecomunicaciones Chile 1,258,213
94,900 Dominion Resources, Inc. 3,487,575
42,100 DQE, Inc. 1,328,781
50,700 Telecom Argentina ADR 2,931,076
- -----------------------------------------------------------
9,005,645
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $364,176,160) $528,674,399
- -----------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS(B)--0.1%
$ 150,000 U.S. Treasury Bill
4.81%, 08/28/97 $ 149,459
145,000 U.S. Treasury Bill
4.91%, 09/18/97 144,926
50,000 U.S. Treasury Bill
4.93%, 09/18/97 49,971
65,000 U.S. Treasury Bill
4.86%, 09/18/97 64,780
115,000 U.S. Treasury Bill
5.03%, 9/18/97 114,863
- ---------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $521,989) $ 523,999
- ---------------------------------------------------------------
REPURCHASE AGREEMENT--2.4%
$12,900,000 Joint Repurchase Agreement Account
5.84%, 08/01/97(b) $ 12,900,000
- ---------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $12,900,000) $ 12,900,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS
(COST $377,598,149)(A) $542,098,398
- ---------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $166,979,947
Gross unrealized loss for investments in which
cost exceeds value (2,842,693)
- ---------------------------------------------------------------
Net unrealized gain $164,497,254
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Futures contracts open at July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(c) Month Gain
- ------------------- --------- ---------- ----------
<S> <C> <C> <C>
September
S&P 500 Stock Index 25 1997 364,677
- ----------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $377,601,144.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and market value at risk are $1,250,000 and
$11,974,375, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder
in the Goldman Sachs CORE Large Cap Growth Fund. In the future, we will be
sending you annual and semiannual reports that describe the fund's performance,
as well as information regarding specific holdings. This semiannual report
covers the abbreviated period from May 1, 1997, when the fund began operations,
through July 31, 1997.
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs CORE Large Cap Growth Fund is designed to provide investors
with a broadly diversified portfolio of growth-oriented equity securities of
large-cap U.S. issuers. The selected securities typically have higher
prospective growth rates than the general domestic economy. The fund's
portfolio is designed to maintain risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. Therefore, the fund's
performance relative to the Growth Index comes primarily from stock selection
within sectors.
The fund employs a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Global Investment Research Department
with quantitative analysis generated by a proprietary multifactor model
developed by the Asset Management Division. The model evaluates each stock
using many different criteria including valuation, momentum and safety. It also
objectively analyzes the impact of current economic conditions on different
types of stocks. Those stocks ranked highly by both the multifactor model and
by Goldman Sachs research are considered for the fund's portfolio.
PERFORMANCE REVIEW: STOCK SELECTION BENEFITED PERFORMANCE, BUT RESULTS WERE
DAMPENED BY DEFENSIVE POSTURE
PERFORMANCE SUMMARY: MAY 1, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN RUSSELL 1000
(BASED ON NET GROWTH INDEX
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 19.50% 21.37%
Class B* 19.40% 21.37%
Institutional* 19.50% 21.37%
Service* 19.40% 21.37%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge. Performance for Class A, B, Institutional and Service
shares is from their inception through the end of the period.
The fund's performance during the period was primarily driven by specific
stock selection. Within the growth universe, the fund focused on more stable
companies trading at reasonable valuations, as our proprietary multifactor
model emphasized stocks with lower price/earnings ratios and less potential for
earnings disappointments. In addition, qualitative stock recommendations
produced by the Goldman Sachs Global Investment Research Department also
benefited the fund's performance.
Given cautionary market conditions (i.e., increasing volatility and record-
low dividend yields), we maintained a "safety-first" stock-selection bias. This
approach led us to seek stocks with relatively stable characteristics (i.e.,
predictable earnings and less volatile prices) relative to the large-cap growth
universe. ALTHOUGH DEFENSIVE STOCKS OUTPERFORMED, AIDING OUR "STOCK-SELECTION"
RETURNS, OUR IMPLICIT CAUTION (OR LOWER BETA) HURT THE PORTFOLIO'S RELATIVE
PERFORMANCE. Additionally, May proved to be a difficult month for momentum
strategies, which led the fund to trail the benchmark for the period despite
achieving healthy gains in June.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
The fund's best performing stocks during the period came from a wide range of
sectors. These included financial holdings such as AMERICAN INTERNATIONAL
GROUP, INC., TRAVELERS, INC. and MERRILL LYNCH & CO., INC., pharmaceutical
companies such as PFIZER INC. and WARNER LAMBERT CO., and computer manufacturer
COMPAQ COMPUTER CORP.
PORTFOLIO COMPOSITION
As of July 31, 1997, the fund held 139 stocks. The fund's fundamental
characteristics were generally more attractive than those of the benchmark. For
example, within the growth universe, the fund had a lower price/earnings ratio
based on 1997 estimated earnings than the Russell 1000 Growth Index (20.1x
versus 25.5x) and a lower price/book ratio (4.1x versus 6.4x), while having a
higher five-year earnings-per-share growth projection (26% versus 24%).
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY LINE OF BUSINESS TOTAL NET ASSETS
------- ---------------- ----------------
<S> <C> <C>
Intel Corp. Semiconductors 4.2%
and Electronics
Microsoft Corp. Computer Software 3.5
Dayton Hudson Department Stores 2.8
Corp.
General Electric
Co. Electronics 2.8
American Property/Casualty 2.8
International Insurance
Group, Inc.
Corning Inc. Glass Products 2.2
Manufacturer
Pfizer Inc. Pharmaceuticals 2.0
Philip Morris Tobacco and Food 1.9
Companies, Inc. Products
Gillette Co. Cosmetics and 1.9
Toiletries
Abbott Health & Medical 1.9
Laboratories Services
</TABLE>
OUTLOOK
We intend to maintain a balanced approach by considering all of our
investment themes (value, momentum and safety) when making investment
decisions. In the near term, however, recent cautionary signals such as
increasing market volatility and record-low dividend yields have led us to
adopt a slightly more defensive posture. Therefore, we are currently favoring
less volatile stocks selling at reasonable valuations, while avoiding stocks
whose primary attractions are strong prior earnings and price momentum. Despite
these near-term preferences, we continue to adhere to our primary investment
style as defined by the Russell 1000 Growth Index. As a result, we will
continue to have a significant growth tilt relative to the overall market.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
August 29, 1997
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------
<C> <S> <C>
COMMON STOCKS--95.8%
AEROSPACE--0.2%
600 United Technologies Corp. $ 50,738
- ---------------------------------------------------
AEROSPACE/DEFENSE--0.6%
1,700 Gulfstream Aerospace Corp.* 45,263
5,700 Rohr Inc.* 135,375
- ---------------------------------------------------
180,638
- ---------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT--0.9%
6,100 Tenneco, Inc. 284,413
- ---------------------------------------------------
AIRLINES--1.6%
2,000 Delta Air Lines, Inc. 177,750
4,200 UAL Corp.* 344,663
- ---------------------------------------------------
522,413
- ---------------------------------------------------
APPLIANCE MANUFACTURER--0.9%
2,900 Creative Technology* 59,088
5,500 Sunbeam Corp. 215,188
- ---------------------------------------------------
274,276
- ---------------------------------------------------
BANKS--0.5%
2,500 NationsBank Corp. 177,969
- ---------------------------------------------------
BEVERAGES--0.8%
3,800 Coca Cola Co. 263,150
- ---------------------------------------------------
BIOTECHNOLOGY--0.4%
2,200 Amgen, Inc.* 129,388
- ---------------------------------------------------
BROADCAST MEDIA--0.1%
900 Belo A H Corp 40,050
- ---------------------------------------------------
BUILDING MATERIALS--0.4%
2,500 USG Corp.* 117,500
- ---------------------------------------------------
BUSINESS SERVICES--0.5%
17,000 Medaphis Corp.* 153,000
- ---------------------------------------------------
CHEMICAL PRODUCTS--0.6%
1,900 Cytec Industries, Inc.* 75,050
3,900 IMC Global Inc. 123,094
- ---------------------------------------------------
198,144
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS-COMMODITY--0.9%
1,700 Dow Chemicals Co. $ 161,500
2,700 Monsanto Co. 134,494
- -----------------------------------------------
295,994
- -----------------------------------------------
COMMERCIAL SERVICES--0.3%
2,500 Interim Services, Inc.* 113,906
- -----------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--2.4%
13,100 GTE Corp. 609,150
2,000 Tellabs Inc.* 119,750
1,900 Worldcom, Inc.* 66,381
- -----------------------------------------------
795,281
- -----------------------------------------------
CONSUMER GOODS--0.5%
2,900 Nike, Inc. 180,706
- -----------------------------------------------
CONSUMER PRODUCTS--0.5%
4,300 Blyth Industries Inc* 154,531
- -----------------------------------------------
CONSUMER STAPLES--1.6%
3,600 Procter & Gamble Co. 547,650
- -----------------------------------------------
DATACOM EQUIPMENT--0.8%
3,300 Cisco Systems, Inc.* 262,556
- -----------------------------------------------
DEPARTMENT STORES--4.4%
14,600 Dayton Hudson Corp. 943,525
3,400 Fred Meyer Inc.* 194,863
2,000 Sears Roebuck & Co. 126,625
4,900 Walmart Stores, Inc. 184,056
- -----------------------------------------------
1,449,069
- -----------------------------------------------
DIVERSIFIED MANUFACTURING--0.8%
5,700 Acx Technologies Inc.* 144,281
1,800 Dover Corp. 128,475
- -----------------------------------------------
272,756
- -----------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--
3.6%
13,300 General Electric Co. 933,494
3,300 Jabil Circuit Inc.* 160,669
1,500 Linear Technology Corp. 100,313
- -----------------------------------------------
1,194,476
- -----------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERPRISE SYSTEMS--2.0%
2,300 Avid Technology Inc.* $ 79,063
4,600 Hewlett Packard Co. 322,288
6,600 Silicon Graphics Inc.* 165,000
2,500 Sun Microsystems, Inc.* 114,219
- -------------------------------------------------------------
680,570
- -------------------------------------------------------------
ENTERTAINMENT AND LEISURE--2.6%
9,400 Carnival Cruise Lines Corp. Class A 395,975
4,100 Hollywood Entertainment Co.* 76,875
5,000 Walt Disney, Co. 404,063
- -------------------------------------------------------------
876,913
- -------------------------------------------------------------
FINANCIAL SERVICES--2.6%
1,200 American Express Co. 100,500
2,100 BankAmerica Corp. 158,550
1,500 CMAC Investment Corp. 70,781
3,500 Federal National Mortgage Association 165,594
4,900 Travelers Group, Inc. 352,494
- -------------------------------------------------------------
847,919
- -------------------------------------------------------------
FOOD--0.5%
2,800 Interstate Bakeries Corp. 170,800
- -------------------------------------------------------------
FOREST PRODUCTS--0.5%
4,100 Avery Dennison Corp. 180,913
- -------------------------------------------------------------
GAS DISTRIBUTION & PIPELINE--0.6%
2,700 Columbia Gas Systems, Inc. 185,625
- -------------------------------------------------------------
HEALTH & MEDICAL SERVICES--4.3%
9,500 Abbott Laboratories 621,656
1,200 Biomet Inc. 23,925
4,400 Dura Pharmaceuticals Inc.* 171,600
2,600 Health Management Association* 83,038
5,300 Johnson & Johnson 330,256
2,400 Lincare Holdings Inc.* 117,600
3,800 Prime Hospitality Corp.* 69,825
- -------------------------------------------------------------
1,417,900
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH SUPPLIERS/SERVICES--0.7%
4,900 Alberto Culver Co., Class B $ 137,506
900 Medtronic Inc. 78,525
- -----------------------------------------------------
216,031
- -----------------------------------------------------
HEALTHCARE MANAGEMENT--1.3%
5,800 Columbia HCA Healthcare 187,050
3,200 Quest Diagnostics Inc.* 55,600
4,100 Wellpoint Health Networks* 201,925
- -----------------------------------------------------
444,575
- -----------------------------------------------------
HOUSEHOLD DURABLES--0.5%
3,000 Ethan Allen Interiors Inc. 159,000
- -----------------------------------------------------
HOUSEHOLD PRODUCTS--2.2%
6,300 Gillette Co. 623,700
3,500 Premark International Inc. 110,469
- -----------------------------------------------------
734,169
- -----------------------------------------------------
INDUSTRIAL--2.2%
11,700 Corning Inc. 723,206
- -----------------------------------------------------
INDUSTRIAL MACHINERY--1.6%
6,800 Caterpillar, Inc. 380,800
2,700 Tecumseh Products Co. Class A 151,875
- -----------------------------------------------------
532,675
- -----------------------------------------------------
INFORMATION MANAGEMENT--1.1%
13,100 Dun & Bradstreet Corp. 353,700
- -----------------------------------------------------
INSURANCE SERVICES--1.9%
2,000 AMBAC Inc. 170,375
2,500 Conseco, Inc. 101,875
3,000 MGIC Investment Corp. 157,688
2,700 Protective Life Corp. 137,363
1,300 SunAmerica, Inc. 78,650
- -----------------------------------------------------
645,951
- -----------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE-PROPERTY AND CASUALTY--2.8%
8,700 American International Group, Inc. $ 926,550
- -----------------------------------------------------------
INTEGRATED OIL--1.2%
3,700 Exxon Corp. 237,725
2,000 Norsk Hydro ADR 104,500
600 Phillips Petroleum Co. 27,638
1,000 Unocal Corp. 40,000
- -----------------------------------------------------------
409,863
- -----------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.5%
4,400 Banctec Inc.* 107,525
800 Pitney-Bowes Inc. 60,100
- -----------------------------------------------------------
167,625
- -----------------------------------------------------------
OIL & GAS--2.8%
5,400 El Paso Natural Gas Co. 312,188
3,800 Ensco International Inc.* 251,275
4,900 Mobil Corp. 374,850
- -----------------------------------------------------------
938,313
- -----------------------------------------------------------
OIL & GAS EXPLORATION--1.3%
16,000 Marine Drilling Companies* 397,000
1,800 Union Texas Petroleum Holdings Inc. 37,463
- -----------------------------------------------------------
434,463
- -----------------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--5.2%
7,500 Compaq Computer Corp.* 428,438
2,200 Dell Computer Corporation* 188,100
7,400 Komag Inc.* 154,013
2,400 Quantum Corp.* 69,750
14,500 Read Rite Corp.* 375,188
13,300 Western Digital Corp.* 512,050
- -----------------------------------------------------------
1,727,539
- -----------------------------------------------------------
PHARMACEUTICALS--3.8%
1,400 Merck & Co. 145,513
11,100 Pfizer, Inc. 661,838
3,000 Schering Plough Corp. 163,688
2,200 Warner Lambert Co. 307,313
- -----------------------------------------------------------
1,278,352
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RECREATIONAL PRODUCTS--0.3%
3,200 Mattel, Inc. $ 111,200
- ---------------------------------------------------------------
RESTAURANTS & HOTELS--0.4%
2,507 HFS, Inc.* 146,033
- ---------------------------------------------------------------
RETAIL--3.3%
22,200 Best Buy Co. Inc.* 288,600
4,059 CVS Corporation 230,856
10,000 Ross Stores, Inc. 316,250
8,800 TJX Companies, Inc. 262,900
- ---------------------------------------------------------------
1,098,606
- ---------------------------------------------------------------
SECURITY--1.4%
5,600 Tyco International Ltd. 453,600
- ---------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES--1.9%
2,800 Bear Stearns Companies Inc. 114,275
2,400 Merrill Lynch Co. 169,050
5,500 Salomon, Inc. 348,906
- ---------------------------------------------------------------
632,231
- ---------------------------------------------------------------
SEMICONDUCTORS--5.9%
7,400 Advanced Micro Devices Inc.* 259,463
15,200 Intel Corp. 1,395,550
2,000 Microchip Technology* 74,500
1,100 Micron Technology 53,556
5,900 National Semiconductor Corp.* 185,850
- ---------------------------------------------------------------
1,968,919
- ---------------------------------------------------------------
SOFTWARE & SERVICES--5.5%
4,600 Cadence Design Systems, Inc.* 204,413
1,500 Computer Associates International, Inc. 102,094
3,100 Electronic Data Systems 134,075
8,200 Microsoft Corp.* 1,160,300
3,200 Oracle Corp. 174,200
4,000 Sybase Inc.* 59,000
- ---------------------------------------------------------------
1,834,082
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL--2.8%
9,600 Footstar Inc.* $ 256,800
2,700 Gap, Inc. 119,981
2,700 Limited Inc. 60,244
9,000 Pier 1 Imports Inc. 158,625
4,000 Tiffany & Co. 180,750
7,800 Zale Corp.* 169,650
- -----------------------------------------------------
946,050
- -----------------------------------------------------
STEEL--0.5%
2,800 AK Steel Holding Corp. 128,450
1,900 British Steel PLC ADR 52,844
- -----------------------------------------------------
181,294
- -----------------------------------------------------
SUPERMARKETS--1.7%
4,100 Kroger Company* 121,206
6,400 Safeway, Inc.* 343,200
1,500 Smith's Food & Drug Center* 89,063
- -----------------------------------------------------
553,469
- -----------------------------------------------------
TECHNICAL SERVICES--0.4%
2,400 3Com Corp.* 131,250
- -----------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--1.1%
4,600 Motorola Inc. 369,438
- -----------------------------------------------------
TEXTILES--0.8%
4,100 Burlington Industries, Inc.* 53,044
4,000 Jones Apparel Group Inc* 207,750
- -----------------------------------------------------
260,794
- -----------------------------------------------------
TOBACCO--2.7%
14,300 Philip Morris Companies, Inc. 645,288
7,800 RJR Nabisco, Inc. 255,938
- -----------------------------------------------------
901,226
- -----------------------------------------------------
UTILITIES--0.7%
7,600 DQE Inc. 239,875
- -----------------------------------------------------
WASTE MANAGEMENT--0.1%
1,000 U.S.A. Waste Services Inc* 40,313
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ----------------------------------------------------------------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE--0.8%
7,000 Tech Data Corp* $ 259,859
- ----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $28,026,861) $31,839,495
- ----------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ----------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT--2.4%
$800,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 800,000
- ----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $800,000) $ 800,000
- ----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $28,826,861)(A) $32,639,495
- ----------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $ 3,958,026
Gross unrealized loss for investments in
which cost exceeds value (155,914)
- ----------------------------------------------------------------
Net unrealized gain $ 3,802,112
- ----------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $28,837,383.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
25
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
primarily through investments in large-capitalization growth stocks. To meet
its objective, the fund is managed with a "growth at a reasonable price"
investment style, which means we utilize extensive fundamental research to
identify companies in a diversified range of industries that we believe offer
attractive growth potential at a reasonable price.
The fund's investment management team believes that wealth is created through
the long-term ownership of growing businesses. We view each stock purchase as
if we were buying the entire business. To implement this investment strategy,
we focus on growing companies with characteristics such as strong brand
franchises, dominant market share, recurring revenue, product pricing
flexibility, long product life cycles, high returns on invested capital, high
profit margins, strong free cash flow, excellent management and favorable long-
term prospects. Finally, we will buy a stock meeting our rigorous criteria only
if it trades at a reasonable discount to the company's intrinsic value.
PERFORMANCE REVIEW: BOTH SHARE CLASSES OUTPERFORMED THE BENCHMARK
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET S&P 500
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 23.25% 22.55%
Class B* 22.74% 22.55%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
We are pleased to note that the fund continued to perform well compared with
its peers. For the five- and one-year periods ended July 31, 1997, the fund's
Class A shares were rated "four stars" (in universes of 1,146 and 2,040
domestic equity funds for the five- and one-year periods, respectively) by
Morningstar, Inc., an independent mutual fund rating agency./1/ The fund also
fared well versus its peers in the Lipper growth fund category, placing in the
top 15% (83 and 101 out of 764 funds for Class A and B shares, respectively)
for the 12-month period and in the top quartile (70 out of 286 funds for Class
A shares) for the five-year period, as of July 31, 1997, according to Lipper
Analytical Services, Inc. (Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results. Class B shares were not ranked for the five-year period because they
did not exist during the entire period.)
INVESTMENTS IN PHARMACEUTICAL, FINANCIAL AND CONSUMER PRODUCTS COMPANIES
BENEFITED PERFORMANCE
The strongest contributors to the fund's performance included pharmaceutical
companies BRISTOL-MYERS SQUIBB CO. and PFIZER INC. These stocks were buoyed by
a number of positive factors, including new product introductions, a benign
political environment, a more accommodative FDA, strong unit growth, powerful
free cash flow and reasonable valuations. Over the coming decades, we believe
these companies are positioned to
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The one-year rating is calculated using the same methodology, but is
not a component of the overall rating. The fund's Class A shares received three
stars for the three-year period and were rated among 2,040 domestic equity
funds. The Morningstar rating applies only to the fund's Class A shares; the
fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are four Morningstar categories
(domestic equity, international equity, taxable bond and municipal).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
benefit as the baby boomers age and require more health-related products and
services.
In the financial sector, two of the fund's commercial bank holdings,
BANKAMERICA CORP. and NATIONSBANK CORP., were prime beneficiaries of the
"Goldilocks" economy. This favorable environment, which has been characterized
by steady economic growth, modest loan demand, low inflation and stable
interest rates, contributed to strong earnings gains for both banks. In
addition, MBNA CORP., the second largest credit card lender in the world,
appreciated due to surging growth in credit card accounts, new affiliations
with sponsoring organizations for its affinity cards and the rapid growth of
its U.K. business.
Several producers of household products also performed well. These included
companies with world-class franchises and/or strong brand names such as PROCTER
& GAMBLE CO., GILLETTE CO. and COLGATE-PALMOLIVE CO., all of which reported
solid earnings gains and high returns on equity. These companies are benefiting
from strong international growth as capitalism spreads throughout the world and
per capita income rises.
An investment that lagged during the period was GAYLORD ENTERTAINMENT CO., a
diversified entertainment and communications company, as investors responded
negatively to the sale of its two cable channels (The Nashville Network and
Country Music Television) to Westinghouse Electric Corp. Under terms of the
agreement, Gaylord will receive a fixed dollar amount of Westinghouse stock,
which minimized the company's risk but also limited its upside potential in the
surging stock market. We continue to believe Gaylord is attractively valued.
NEW POSITIONS IN SEVERAL MEDIA STOCKS
Among the new positions added during the period were media stocks such as
GANNETT CO., INC., TRIBUNE CO. and NEW YORK TIMES CO., all of which have
dominant local franchises in newspapers and broadcasting. These companies have
reported strong year-to-date earnings gains as they have benefited from healthy
advertising revenue and reduced newsprint costs. Sales included FISHER
SCIENTIFIC INTERNATIONAL, INC., a maker of scientific instruments, supplies and
equipment, after it appreciated strongly due to takeover rumors.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY LINE OF BUSINESS TOTAL NET ASSETS
------- ---------------- ----------------
<S> <C> <C>
BankAmerica
Corp. Commercial Bank 3.4%
Banc One Corp. Commercial Bank 3.1
Intel Corp. Semiconductors and 3.0
Electronics
General Electric
Co. Electronics 2.9
Pfizer Inc. Pharmaceuticals 2.9
Bristol-Myers Pharmaceuticals 2.9
Squibb Co.
NationsBank
Corp. Commercial Bank 2.8
MBNA Corp. Specialty Finance 2.6
and Agencies
Lucent 2.4
Technologies Telecommunications
Co. Equipment
Texaco Inc. International 2.3
Integrated Oil
Company
</TABLE>
OUTLOOK
In our opinion, the outlook for the economy and the stock market appears
attractive, with low inflation, stable interest rates and modest economic
growth expected to help the fund's holdings produce favorable earnings gains.
However, we do expect increased volatility in the stock market as a result of
options and futures expirations, as well as investors' perceptions of inflation
and interest rate fluctuations.
During the past six months, we increased the fund's diversification among
industry sectors and increased its holdings of large-cap growth stocks. We
believe the fund is currently well positioned to benefit from the positive
investing climate that we anticipate.
27
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ George D. Adler
George D. Adler
Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
August 29, 1997
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
/s/ Ernest C. Segundo, Jr.
Ernest C. Segundo, Jr.
Portfolio Manager,
U.S. Active Equity Growth
/s/ David G. Shell
David G. Shell
Portfolio Manager,
U.S. Active Equity Growth
28
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--98.1%
ADVERTISING & MARKETING--1.7%
711,580 Valassis Communications, Inc.* $ 19,968,714
- --------------------------------------------------------------------
ALCOHOL--0.7%
207,700 Anheuser Busch Companies, Inc. 8,918,119
- --------------------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--0.8%
206,600 Lear Corp.* 9,890,975
- --------------------------------------------------------------------
BANKS--7.2%
649,522 Banc One Corp. 36,454,422
468,700 NationsBank Corp. 33,365,581
253,400 State Street Bank Corp. 14,206,238
- --------------------------------------------------------------------
84,026,241
- --------------------------------------------------------------------
BEVERAGES--2.7%
234,500 Coca Cola Co. 16,239,125
408,100 Pepsico Inc. 15,635,331
- --------------------------------------------------------------------
31,874,456
- --------------------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION--0.3%
99,700 Sherwin Williams Co. 3,196,631
- --------------------------------------------------------------------
BUSINESS SERVICES--1.0%
289,400 First Data Corp. 12,625,075
- --------------------------------------------------------------------
CABLE/TELEVISION COMMUNICATIONS--0.3%
69,000 Cablevision Systems Corp. Class A* 4,096,875
- --------------------------------------------------------------------
CHEMICAL PRODUCTS--0.5%
86,100 Du Pont (E.I.) de Nemours & Co. 5,763,319
- --------------------------------------------------------------------
CHEMICALS-COMMODITY--0.4%
88,700 Monsanto Co. 4,418,369
- --------------------------------------------------------------------
CHEMICALS-SPECIALTY--1.0%
26,900 Betzdearbon, Inc. 1,761,950
101,200 Minnesota Mining and Manufacturing Co. 9,588,700
- --------------------------------------------------------------------
11,350,650
- --------------------------------------------------------------------
COMMERCIAL SERVICES--0.9%
226,500 Ecolab Inc. 10,574,719
- --------------------------------------------------------------------
COMMUNICATIONS SERVICES COMPANIES--0.2%
56,900 Airtouch Communications, Inc.* 1,874,144
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER STAPLES--3.8%
143,700 American Home Products Corp. $ 11,846,269
49,200 Amway Asia Pacific Ltd. 1,891,125
44,400 Clorox Co. 6,199,350
160,940 Procter & Gamble Co. 24,482,998
- -------------------------------------------------------------
44,419,742
- -------------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--1.2%
530,700 Tele-Communications, Inc.* 13,566,019
- -------------------------------------------------------------
COSMETICS--1.0%
168,100 Avon Products Inc. 12,197,756
- -------------------------------------------------------------
DATACOM EQUIPMENT--0.4%
62,100 Cisco Systems, Inc.* 4,940,831
- -------------------------------------------------------------
DEFENSE--1.5%
226,800 McDonnell Douglas Corp. 17,350,200
- -------------------------------------------------------------
DEPARTMENT STORES--1.3%
69,900 Federated Dept. Stores, Inc.* 3,062,494
329,500 Walmart Stores, Inc. 12,376,844
- -------------------------------------------------------------
15,439,338
- -------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.5%
107,400 American Standard Companies* 5,336,438
- -------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--5.9%
485,100 General Electric Co. 34,047,956
386,400 Intel Corp. 35,476,350
- -------------------------------------------------------------
69,524,306
- -------------------------------------------------------------
ENTERPRISE SYSTEMS--1.3%
87,400 Hewlett Packard Co. 6,123,463
79,100 International Business Machines 8,364,825
- -------------------------------------------------------------
14,488,288
- -------------------------------------------------------------
ENTERTAINMENT AND LEISURE--1.2%
112,100 Mirage Resorts, Inc.* 2,998,675
130,400 Walt Disney, Co. 10,537,950
- -------------------------------------------------------------
13,536,625
- -------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
29
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES--6.2%
527,400 BankAmerica Corp. $ 39,818,700
453,000 Federal Home Loan Mortgage Corp. 16,336,313
345,300 Federal National Mortgage Association 16,337,006
- -------------------------------------------------------------------
72,492,019
- -------------------------------------------------------------------
FOOD--3.4%
111,600 Campbell Soup Co. 5,789,250
133,100 Kellogg Company 12,228,563
218,900 Nabisco Holdings Corp. 9,303,250
160,480 William Wrigley Jr. Co. 12,346,930
- -------------------------------------------------------------------
39,667,993
- -------------------------------------------------------------------
FOOD PRODUCERS--0.5%
64,800 Ralston Purina Co. 5,848,200
- -------------------------------------------------------------------
FOREST PRODUCTS--0.8%
97,300 Georgia Pacific Corp. 9,188,769
- -------------------------------------------------------------------
FUNERAL SERVICES--1.1%
379,500 Service Corp. International 12,903,000
- -------------------------------------------------------------------
HEALTH & MEDICAL SERVICES--1.8%
331,900 Johnson & Johnson 20,681,519
- -------------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES--0.5%
35,470 Perkin-Elmer Corp. 2,895,239
64,500 U.S. Surgical Corp. 2,394,563
- -------------------------------------------------------------------
5,289,802
- -------------------------------------------------------------------
HEALTHCARE MANAGEMENT--2.0%
104,720 Aetna Inc. 11,931,535
164,950 Columbia HCA Healthcare 5,319,638
219,000 Tenet Healthcare Corp.* 6,556,313
- -------------------------------------------------------------------
23,807,486
- -------------------------------------------------------------------
HOTELS & RESTAURANTS--1.2%
202,220 Marriott International, Inc. 13,902,625
- -------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.2%
118,100 Colgate Palmolive Co. 8,946,075
173,100 Gillette Co. 17,136,900
- -------------------------------------------------------------------
26,082,975
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL--0.5%
97,900 Corning Inc. $ 6,051,444
- -----------------------------------------------------------------
INFORMATION MANAGEMENT--1.0%
180,770 Reuters Holdings PLC 11,682,261
- -----------------------------------------------------------------
INSURANCE SERVICES--1.1%
4,800 AMBAC Financial Group, Inc. 408,900
214,100 SunAmerica, Inc. 12,953,050
- -----------------------------------------------------------------
13,361,950
- -----------------------------------------------------------------
INSURANCE-LIFE--0.5%
210,100 Nationwide Financial Services, Inc. 6,355,525
- -----------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--0.8%
90,000 American International Group, Inc. 9,585,000
- -----------------------------------------------------------------
INTEGRATED OIL--4.4%
52,200 Amoco Corp. 4,906,800
47,400 Atlantic Richfield Co. 3,546,113
74,300 Exxon Corp. 4,773,775
164,800 Royal Dutch Petroleum 9,218,500
227,900 Texaco, Inc. 26,450,644
76,200 Unocal Corp. 3,048,000
- -----------------------------------------------------------------
51,943,832
- -----------------------------------------------------------------
LOGISTICS/RAIL--0.3%
31,800 Norfolk Southern Corp. 3,521,850
- -----------------------------------------------------------------
MANUFACTURING--0.2%
53,400 Millipore Corp. 2,359,613
- -----------------------------------------------------------------
MEDIA--0.2%
154,200 Tele Communications Inc.* 2,640,675
- -----------------------------------------------------------------
MEDIA/ENTERTAINMENT--3.8%
54,500 Central Newspapers, Inc. 3,804,781
106,900 Gannett Co. 10,616,506
166,200 Gaylord Entertainment Co. 3,853,763
133,100 New York Times Co. 6,688,275
237,610 Time Warner Inc. 12,964,596
114,300 Tribune Co. 6,050,756
- -----------------------------------------------------------------
43,978,677
- -----------------------------------------------------------------
MISCELLANEOUS-CONSUMER--0.5%
76,800 HBO & Company 5,942,400
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NONFERROUS METALS--0.3%
42,400 Aluminum Company of America $ 3,752,400
- ---------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.3%
49,000 Xerox Corp. 4,030,250
- ---------------------------------------------------------
OIL & GAS--1.6%
181,800 Mobil Corp. 13,907,700
71,400 Schlumberger Ltd. 5,453,175
- ---------------------------------------------------------
19,360,875
- ---------------------------------------------------------
PACKAGING--0.3%
105,500 Owens Illinois Corp.* 3,639,750
- ---------------------------------------------------------
PHARMACEUTICALS--10.5%
428,800 Bristol-Myers Squibb 33,634,000
159,340 Eli Lilly & Co. 18,005,420
143,200 Merck & Co. 14,883,850
565,820 Pfizer, Inc. 33,737,018
237,800 Schering Plough Corp. 12,974,963
60,400 Sigma Aldrich Corp. 2,091,350
55,800 Warner Lambert Co. 7,794,563
- ---------------------------------------------------------
123,121,164
- ---------------------------------------------------------
RECREATIONAL PRODUCTS--0.3%
97,300 Hasbro Inc. 2,985,894
- ---------------------------------------------------------
RESTAURANTS--0.2%
54,300 McDonalds Corp. 2,918,625
- ---------------------------------------------------------
RETAIL--0.9%
82,300 CVS Corporation 4,680,813
122,200 Home Depot, Inc. 6,094,725
- ---------------------------------------------------------
10,775,538
- ---------------------------------------------------------
RETAIL TRADE--1.2%
259,230 Walgreen Co. 14,646,495
- ---------------------------------------------------------
SEMICONDUCTORS--0.7%
124,800 Avnet Inc. 8,213,400
- ---------------------------------------------------------
SOFTWARE & SERVICES--3.4%
76,900 Autodesk Inc. 3,258,638
58,600 Intuit Inc.* 1,475,988
147,700 Microsoft Corp.* 20,899,550
148,900 Oracle Corp.* 8,105,744
36,100 Peoplesoft, Inc.* 2,111,850
102,500 Sterling Commerce, Inc.* 3,862,969
- ---------------------------------------------------------
39,714,739
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY FINANCE--2.6%
683,925 MBNA Corp. $ 30,776,625
- -----------------------------------------------------------------
SPECIALTY RETAIL--1.8%
90,100 Autozone, Inc.* 2,579,113
205,800 Tandy Corp. 12,232,238
174,300 Toys R US Inc.* 5,937,094
- -----------------------------------------------------------------
20,748,445
- -----------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--2.4%
335,960 Lucent Technologies, Inc. 28,535,603
- -----------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--0.5%
86,300 Goodyear Tire & Rubber Co. 5,571,731
- -----------------------------------------------------------------
TOBACCO--1.8%
336,800 Philip Morris Companies, Inc. 15,198,100
202,000 UST Inc. 5,870,625
- -----------------------------------------------------------------
21,068,725
- -----------------------------------------------------------------
UTILITIES--0.5%
79,300 Aes Corp.* 6,264,700
- -----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $798,962,978) $1,152,790,404
- -----------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- -----------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--2.3%
$27,500,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 27,500,000
- -----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $27,500,000) $ 27,500,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $826,462,978)(A) $1,180,290,404
- -----------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 354,450,568
Gross unrealized loss for investments in which
cost exceeds value (1,068,462)
- -----------------------------------------------------------------
Net unrealized gain $ 353,382,106
- -----------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $826,908,298.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
31
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Mid Cap Equity Fund seeks long-term capital appreciation
primarily by investing at least 65% of its total assets in equities with market
capitalizations of between $500 million and $10 billion at the time of
investment. However, the fund currently intends to emphasize investments in
companies with market capitalizations of under $5 billion at the time of
investment. The fund is managed with a value style, which means we focus on
companies whose stocks we believe are inexpensive relative to their expected
long-term earnings growth and their asset value. Investments may include well-
known companies that are temporarily out of favor due to cyclical economic
conditions or are experiencing near-term difficulties the portfolio managers
judge to be temporary in nature. In-depth fundamental research of a company's
financial structure, its competitive position in the market and its
management's commitment to increasing shareholder value are all critical parts
of the fund's investment approach. Though we are not sector investors, we
closely monitor the fund's sector and industry exposures compared with the
benchmark in an effort to avoid unintentional over- or underweightings.
PERFORMANCE REVIEW: FUND ACHIEVED STRONG RESULTS
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
FUND TOTAL RUSSELL
RETURN MIDCAP
(BASED ON NET INDEX TOTAL
ASSET VALUE) RETURN
------------- -----------
<S> <C> <C>
Institutional* (1/31/97-7/31/97) 26.37% 17.63%
Service* (7/18/97-7/31/97) 2.87% N/A
</TABLE>
* Institutional and Service share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Service shares is from their inception date through the
end of the period.
WE ARE PLEASED TO NOTE THAT IN ADDITION TO SIGNIFICANTLY OUTPERFORMING THE
MID-CAP BENCHMARK DURING THE PERIOD, THE FUND'S INSTITUTIONAL SHARES ALSO
OUTPERFORMED THE BROADER LARGE-CAP MARKET, AS REPRESENTED BY THE S&P 500.
During the period, the market rally continued to be led by the largest, most
liquid stocks, which many investors perceived to be the most convenient vehicle
for rapid investment. As a result, the S&P 500 stock index, which is heavily
weighted toward large-cap stocks, returned 22.6%. In contrast, the mid-cap
sector of the market returned 17.6% (as measured by the Russell Midcap Index)
and small caps returned 13.1% (as measured by the Russell 2000 index).
FUND PERFORMED WELL RELATIVE TO ITS PEERS
The fund also fared very well compared with its peers. For the 12-month
period ended July 31, 1997, the fund's Institutional shares ranked second out
of 198 mid-cap funds, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. The fund's Service shares
were not ranked because they did not exist during the entire 12-month period.)
TOP PERFORMERS INCLUDED COMPANIES BENEFITING FROM RESTRUCTURING PROGRAMS AND
ACQUISITIONS
The fund's best performers during the period included several companies that
benefited from major restructuring initiatives. INTERNATIONAL MULTIFOODS CORP.,
a distributor of specialty foods, appreciated due to its new management's focus
on turning around its vending distribution business and the proposed sale of
its Canada Frozen bakery products unit. SUNBEAM CORP., INC., a leading consumer
products company, performed well as investors responded positively to its
dramatic reforms, which included major asset sales, improved distribution and a
new line of products. LENNAR CORP., a diversified homebuilder, announced its
intention to spin off its commercial real estate business and merge its
homebuilding operations with a major California builder. SHOPKO STORES, INC., a
leading regional retailer, decided to end its ownership by SuperValu, Inc. by
repurchasing
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
approximately 8.2 million shares of its common stock, which helped the market
focus on ShopKo's competitive strengths.
Other holdings contributed to the fund's positive results when they initiated
or accepted takeover offers. ROYAL CARIBBEAN CRUISE LINES LTD., the second
largest cruise operator, appreciated when it agreed to acquire Celebrity Cruise
Lines, and AMERICAN STATES FINANCIAL CORP., a property/casualty insurer, was
acquired by Safeco Corp. at a premium.
SPECIFIC ENERGY- AND UTILITY-RELATED STOCKS LAGGED
Not all of the fund's holdings fulfilled our expectations. UNICOM CORP., an
electric utility, was impacted by negative press and regulatory rulings, but we
believe the market has overreacted to these issues and continue to have
confidence in the company's fundamentals. In addition, we expect Unicom to
benefit from a recent change in senior management and an improving operating
environment. TOSCO CORP., an oil refiner and marketer, suffered from soft
margins in its West Coast refining operations due to excess supply during the
first half of the year. However, we are optimistic that the long-term supply-
and-demand situation will improve.
PORTFOLIO CHANGES
New positions included LEAR CORP., the world's largest supplier of automotive
interior systems, which appears to be well positioned to benefit from
automakers' trend toward outsourcing, and two computer hardware manufacturers:
BAY NETWORKS, INC., (networking and connectivity products) and QUANTUM CORP.
(disk drives and other information storage products).
During the period, we sold TERADYNE, INC., a manufacturer of semiconductor
testing equipment, and DECISIONONE CORP., the leading independent provider of
computer support services to U.S. companies, after they appreciated and reached
our price targets.
OUTLOOK
We remain committed to our strategy of identifying and purchasing stocks that
trade at a discount to their
TOP 10 EQUITY HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL NET
COMPANY LINE OF BUSINESS ASSETS
------- ---------------- ------------
<S> <C> <C>
Lear Corp. Autoparts/Original 3.9%
Equipment
Tosco Corp. Oil Refining and 3.2
Marketing
ShopKo Stores,
Inc. Discount Retailer 3.1
Quantum Corp. Computer Component 3.0
Manufacturer
Sunbeam Corp.,
Inc. Appliances 2.8
Darden 2.8
Restaurants Restaurants and
Inc. Hotels
Owens & Minor Health 2.7
Inc. Suppliers/Services
Goodyear Tire & Tire and Rubber 2.6
Rubber Co. Products
Quest
Diagnostics, Clinical
Inc. Laboratories 2.5
Republic New 2.5
York Corp. Banks
</TABLE>
intrinsic value. In a market that has been characterized by speculation and
momentum at different times since the beginning of 1995, we believe that a
value approach is well suited to weather the ups and downs associated with a
turbulent market.
/s/ Eileen A. Aptman /s/ Ronald E. Gutfleish
Eileen A. Aptman Ronald E. Gutfleish
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ G. Lee Anderson
G. Lee Anderson
Portfolio Manager,
U.S. Active Equity Value
August 29, 1997
33
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.2%
AIRLINES--2.0%
102,400 Continental Airlines, Inc.* $ 3,840,000
- -------------------------------------------------------
APPLIANCE MANUFACTURER--2.8%
138,200 Sunbeam Corp. 5,407,075
- -------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--3.9%
154,800 Lear Corp.* 7,411,050
- -------------------------------------------------------
BANKS--3.7%
176,400 National Bank of Canada 2,297,706
40,700 Republic of New York Corp. 4,700,850
- -------------------------------------------------------
6,998,556
- -------------------------------------------------------
CHEMICAL PRODUCTS--1.7%
60,800 Union Carbide Corp. 3,366,800
- -------------------------------------------------------
CHEMICALS-COMMODITY--0.8%
75,600 Geon Co. 1,455,300
- -------------------------------------------------------
DATACOM EQUIPMENT--4.6%
132,600 Bay Networks Inc* 4,044,300
271,200 Quest Diagnostics Inc.* 4,712,100
- -------------------------------------------------------
8,756,400
- -------------------------------------------------------
DEPARTMENT STORES--3.1%
199,900 ShopKo Stores Inc.* 5,772,113
- -------------------------------------------------------
ELECTRIC UTILITIES--5.8%
242,100 Central Maine Power Co. 3,268,350
125,400 Long Island Lighting Co. 3,080,138
201,200 Unicom Corp. 4,564,725
- -------------------------------------------------------
10,913,213
- -------------------------------------------------------
ENTERTAINMENT AND LEISURE--2.0%
96,400 Royal Caribbean Cruise Lines 3,825,875
- -------------------------------------------------------
FINANCIAL SERVICES--1.9%
75,800 American States Financial Corp. 3,519,963
- -------------------------------------------------------
FOOD--2.1%
142,000 International Multifoods Corp. 4,011,500
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FOREST PRODUCTS--3.4%
31,000 Georgia Pacific Corp. $ 2,927,563
208,300 Stone Container Corp.* 3,462,988
- -----------------------------------------------------
6,390,551
- -----------------------------------------------------
HEALTH & MEDICAL SERVICES--2.1%
297,700 Perrigo Co.* 3,870,100
- -----------------------------------------------------
HEALTHCARE MANAGEMENT--5.2%
118,700 Foundation Health Systems* 3,842,913
85,000 Sierra Health Services, Inc.* 2,794,375
105,200 Tenet Healthcare Corp.* 3,149,425
- -----------------------------------------------------
9,786,713
- -----------------------------------------------------
HOME BUILDERS--3.4%
44,900 Centex Corp. 2,503,175
104,600 Lennar Corp. 3,896,350
- -----------------------------------------------------
6,399,525
- -----------------------------------------------------
INSURANCE SPECIALTY--1.5%
80,900 Old Rep International Corp. 2,831,500
- -----------------------------------------------------
INSURANCE-LIFE--3.4%
68,849 American General Corp. 3,666,209
36,900 Reliastar Financial Corp. 2,829,769
- -----------------------------------------------------
6,495,978
- -----------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.8%
74,800 Allmerica Financial Corp. 3,309,900
- -----------------------------------------------------
MEDIA/ENTERTAINMENT--1.3%
78,200 Carmike Cinemas* 2,473,075
- -----------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES--4.8%
160,700 Imation Corporation* 3,947,194
347,200 Owens & Minor Inc. 5,164,600
- -----------------------------------------------------
9,111,794
- -----------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES--2.2%
52,300 Unionbancal Corporation 4,066,325
- -----------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
OIL REFINING & MARKETING--6.3%
415,100 Groupe AB SA ADR* $ 3,242,969
192,400 Tosco Corp. 6,024,525
60,500 Valero Energy Corp.* 2,601,500
- -----------------------------------------------------
11,868,994
- -----------------------------------------------------
PACKAGING--1.5%
83,200 Owens Illinois Corp.* 2,870,400
- -----------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--3.0%
196,400 Quantum Corp* 5,707,875
- -----------------------------------------------------
PHARMACEUTICALS--1.7%
65,935 Block Drug Co. 3,115,429
- -----------------------------------------------------
RESTAURANTS--2.8%
560,300 Darden Restaurants, Inc. 5,357,869
- -----------------------------------------------------
SEMICONDUCTORS--4.0%
62,600 Avnet Inc. 4,119,863
130,462 Vishay Intertechnology, Inc.* 3,489,859
- -----------------------------------------------------
7,609,722
- -----------------------------------------------------
STEEL--1.7%
70,300 AK Steel Holding Corp. 3,225,013
- -----------------------------------------------------
SUPERMARKETS--3.4%
168,800 Fleming Companies, Inc. 2,690,250
90,600 Supervalu, Inc. 3,669,300
- -----------------------------------------------------
6,359,550
- -----------------------------------------------------
TEXTILES--4.0%
168,000 Angelica Corp. 3,234,000
161,200 Fruit of The Loom, Inc.* 4,412,850
- -----------------------------------------------------
7,646,850
- -----------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--2.6%
76,200 Goodyear Tire & Rubber Co. 4,919,663
- -----------------------------------------------------
TRANSPORTATION-MISCELLANEOUS--1.7%
89,800 CNF Transportation Inc. 3,131,769
- -----------------------------------------------------
TOTAL COMMON STOCKS
(COST $136,678,430) $181,826,440
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Description Value
- --------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--2.9%
$5,600,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 5,600,000
- --------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $5,600,000) $ 5,600,000
- --------------------------------------------------------------
TOTAL INVESTMENTS
(COST $142,278,430)(A) $187,426,440
- --------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 48,533,786
Gross unrealized loss for investments in which
cost exceeds value (3,408,004)
- --------------------------------------------------------------
Net unrealized gain $ 45,125,782
- --------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $142,300,658.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment
opportunities. While the fund does not allocate assets across specific
countries based on top-down economic or market forecasts, the portfolio
managers strive to manage risk by remaining diversified by country and industry
sector and by closely monitoring economic and political events in countries in
which the fund does invest.
MARKET OVERVIEW: EUROPEAN MARKETS PERFORMED BEST WHILE ASIA LAGGED
During the six-month period under review, slower than expected economic
growth persisted in several European and Asian countries while growth in other
countries, such as the U.K., accelerated. Most European equity markets
continued to perform very well, buoyed by healthy earnings and an increased
focus on improving shareholder value. In Asia, several markets posted strong
results while others were impacted by a variety of regional and country-
specific issues.
..Europe. Europe's overall economic recovery continued, but growth for specific
countries was mixed. The economies of the U.K., Spain, the Netherlands and
parts of Scandinavia showed the most improvement, while those of Germany and
France were disappointing despite signs of a moderate upturn. The climate for
equities in continental Europe remained positive, as stocks continued to
benefit from loose monetary policies, subdued inflation and the strong U.S.
dollar. During the period under review, the European equity markets climbed
26.1%, as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies. However, the performance of U.K. equities lagged most European
markets as the strong pound sterling impacted the profitability of export-
dependent companies. In addition, investors feared further monetary tightening
would be necessary to rein in the U.K.'s rising inflationary pressures.
..Japan. For the six-month period ended July 31, Japanese stocks (as measured by
the TOPIX index in yen without dividends reinvested) rose 12.5%,
underperforming most other equity markets. Though Japan's economy strengthened,
the recovery remained fragile and investors lacked confidence in the
sustainability of corporate profits. With future earnings uncertain, investors
focused on international blue-chip stocks that benefited from the weakness of
the yen, and shied away from the rest of the market. Despite these concerns,
the market strengthened during the second half of the period, when healthy
demand from pension plans and foreign investors helped support equity prices.
..Asia (ex-Japan). The Asian stock markets returned 1.3% during the period, as
measured by the Morgan Stanley Capital International All Country Asia Free
(Ex Japan) Index (without dividends reinvested). The weak performance indicated
by the Index masks the extreme divergence of performance among the individual
Asian markets. For example, India rose 26.1%, Hong Kong returned 17.3%,
Thailand fell 7.4% and the Philippines dropped 22.7% (all in local currency
terms). Among the key events affecting the Asian markets during the period were
the July handover of Hong Kong to China and the devaluation of the Thai baht.
Though investor optimism regarding the handover helped buoy the region's
performance, the Thai devaluation sparked currency turmoil that impacted
several markets, such as the Philippines.
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
PERFORMANCE REVIEW: FUND OUTPERFORMED THE BENCHMARK PRIMARILY DUE TO SUCCESSFUL
STOCK SELECTION
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN FT/S&P ACTUARIES
(BASED ON NET EUROPE & PACIFIC
ASSET VALUE) INDEX TOTAL RETURN
----------------- ------------------
<S> <C> <C>
Class A* 20.81% 16.72%
Class B* 20.48% 16.72%
Institutional* 21.19% 16.72%
Service* 20.89% 16.72%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge.
During the period, all of the fund's share classes outperformed the
benchmark, the Financial Times/S&P Actuaries Europe & Pacific Index ("Europac")
unhedged. (Europac is a capitalization-weighted composite of approximately
1,500 stocks from 23 countries in Europe and the Asia-Pacific region and is
calculated on a monthly basis.) We are also pleased to note that the fund
continued to perform well compared with its peers. For the three-year period
ended July 31, 1997, the fund's Class A shares were rated "four stars" (in a
universe of 555 international equity funds) by Morningstar, Inc., an
independent mutual fund rating agency./1/
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The Morningstar rating applies only to the fund's Class A shares; the
fund's Class B, Institutional and Service shares have not been rated. Class B,
Institutional and Service shares are subject to additional fees and expenses
that may have the effect of lowering performance and may affect any future
Morningstar rating. Morningstar rates funds against peers in the same category.
In all, there are four Morningstar categories (domestic equity, international
equity, taxable bond and municipal). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
The fund's strong performance can primarily be attributed to successful stock
selection across regions. In addition, several of the fund's country weightings
favorably contributed to its results. These included an overweighting in
Europe, which performed well during the period, and a relative underweighting
in Japan and other Asian markets, which were generally weaker.
Europe. As of July 31, the fund was overweighted in European stocks relative
to the Index, 56.8% versus 53.0%. Two of the fund's best performers in the
region were temporary employment agencies ADECCO (Switzerland) and RANDSTAD
HOLDINGS (Netherlands), which appreciated due to earnings upgrades and a
cyclical upturn in the temporary employment industry. A number of technology-
related holdings also achieved strong results, including ASM LITHOGRAPHY (Dutch
manufacturer of wafer steppers), SGS THOMSON (French semiconductor
manufacturer), MISYS (British software manufacturer) and ERICSSON (Swedish
supplier of mobile handsets and infrastructure). In contrast, RENTOKIL GROUP
(British environmental services) suffered when the strong pound sterling
translated into weaker foreign earnings, which fueled concerns regarding the
company's ability to match its prior 20% annualized earnings growth record.
New European investments included ASM Lithography, one of only three volume
manufacturers of wafer stepper machines used in the manufacturing of
semiconductors. This stock performed very well since it was added, as noted.
Sales during the period included Randstad Holdings, which reached our price
target.
Japan. As of July 31, the fund's 30.5% allocation in Japan was underweighted
compared with the benchmark (32.6%). The Japanese portion of the fund
significantly outperformed the TOPIX index, as it held a large number of
internationally competitive export-oriented companies that fared well during
the period. SMC CORP., a manufacturer of pneumatic control devices used in
automated assembly lines, continued to benefit from its dominant market share
in Japan and successful
37
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
expansion of its overseas operations. CANON, INC., a manufacturer of office
equipment, cameras and computer peripherals, performed well due to good
earnings results and a bright outlook for PC peripherals. TDK CORP., an
electronic components manufacturer, continued to surprise the market with
better than expected profits resulting from its strong market position in
"magneto-resistive" type of hard disk drive heads. However, the performance of
MITSUBISHI HEAVY INDUSTRIES LTD. was disappointing due to a difficult pricing
outlook for the domestic electric power generation market. Japanese positions
initiated during the period include NINTENDO, one of the largest video game
manufacturers, which is positioned to benefit from Nintendo 64, its new game
platform, and ONO PHARMACEUTICAL CO., which introduced a new anti-asthma drug
with substantial market potential.
Asia-Pacific. The portfolio was underweighted in Asia (outside Japan)
compared with the benchmark, 8.7% versus 10.1%. One of the fund's best
performers in the region was ASIA SATELLITE TELECOMMUNICATION HOLDINGS LTD., a
leading satellite owner and operator in the Asia-Pacific region. The company
performed well when satellite utilization and transponder rates remained firm,
which eased market concerns that an impending oversupply of transponders would
impact the profitability of Asian satellite operators. In contrast, COMMERCE
ASSET HOLDINGS, the fifth largest financial group in Malaysia, came under
pressure due to concerns of a slowdown in future earnings growth resulting from
tighter monetary conditions, a more difficult operating environment for its
merchant banking and stockbrokerage businesses, and potential deterioration in
the credit quality of its loan portfolio. A new addition was VILLAGE ROADSHOW,
an Australian media and entertainment company with interests in cinema, radio,
theme park and resort businesses. The company appears to be well positioned to
benefit from aggressive expansion in Europe and Asia, as well as from a number
of partnerships that are expected to give it a competitive advantage.
PORTFOLIO COMPOSITION: DIVERSIFICATION BY COUNTRY AND INDUSTRY
As of July 31, 1997, 96.2% of the fund's net assets were invested in equities
and the remainder (4.8%) was invested in cash equivalents. The fund was widely
diversified by both country and industry, with positions in 60 companies based
in 16 countries. In terms of total net assets, the fund's five largest country
exposures were Japan (30.5%), the U.K. (13.5%), Sweden (7.6%), Switzerland
(7.0%) and Germany (6.9%).
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY (Line of Business) COUNTRY NET ASSETS
-------------------------- ------- ----------
<S> <C> <C>
Novartis Switzerland 3.6%
Pharmaceuticals
Rentokil Group U.K. 3.1
Environmental
Services
ASM Lithography Netherlands 2.9
Manufacturer of
Wafer Steppers
SMC Corp. Japan 2.8
Manufacturer of
Industrial
Controls
Canon, Inc. Japan 2.8
Office Equipment
Manufacturer
Hoechst Germany 2.7
Chemical and Drug
Manufacturer
Mitsubishi Heavy
Industries, Ltd. Japan 2.4
Heavy Machinery
Manufacturer
Bank of Ireland Ireland 2.4
Commercial Bank
Electrocomponents U.K. 2.4
Catalog
Distributor of
Industrial
Components
Adecco SA Switzerland 2.3
Commercial
Services
</TABLE>
38
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
OUTLOOK
We remain optimistic regarding the performance of European equities, given
the current favorable environment of low interest rates, contained
inflationary pressures and improved economic growth prospects. Furthermore,
currency devaluation relative to the U.S. dollar and the British pound is
helping strengthen European corporate competitiveness, while corporate
restructuring and the focus on enhancing shareholder value are trends that we
expect to continue unabated.
In Japan, we believe the market may consolidate in the short term, as
investors have become more cautious regarding the economic outlook due to
indications of economic softening. However, Japanese equities should continue
to benefit from a number of factors: Corporate fundamentals are expected to
remain sound, particularly for manufacturing companies; inflationary pressures
are still virtually nonexistent; and interest rates are unlikely to rise to
levels that would be harmful to the stock market.
We are generally positive on the long-term outlook of other Asian markets.
However, we remain cautious over the near term as the volatility of these
markets will be higher due to uncertainties resulting from the delinking of a
number of currencies from the U.S. dollar. Select Asian equities remain
attractively valued on a historical basis and are expected to benefit from a
pickup in export growth, improved inflation and a modest economic recovery
throughout the region subsequent to the currency devaluations. We will manage
our exposure in a conservative manner as we remain committed to our long-term
investment style.
FORTHCOMING MANAGEMENT TEAM CHANGES
During the period, Goldman Sachs Asset Management International continued to
expand and strengthen its global investment team. With growth comes change,
however, and we are sorry to announce that Messrs. Jack and Jongen, two of the
portfolio managers of the European portion of the fund, will be leaving
Goldman Sachs in September to pursue other opportunities. To ensure decision-
making continuity and a smooth transition, Messrs. Jack and Jongen have taken
an active role in integrating new members into the team. For example, James
Hordern, a specialist in European equities, joined the firm from Mercury Asset
Management in July, and we expect to add another senior European portfolio
manager shortly. The fund's investment process will continue to be based on a
team approach, which enables it to benefit from the contribution of several
viewpoints and a continuity of style, unlike an investment approach that is
dependent on specific individuals.
/s/ Ivor H. Farman
Ivor H. Farman
Portfolio Manager, London
/s/ Alessandro P. G. Lunghi
Alessandro P. G. Lunghi
Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Portfolio Manager, Singapore
August 29, 1997
39
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.2%
AUSTRALIAN DOLLAR--3.0%
1,060,422 Australia & New Zealand
Bank Group (Commercial
Banks) $ 8,479,696
2,982,818 Village Roadshow
(Entertainment
& Leisure) 7,958,141
992,791 Woodside Petroleum, Ltd.
(Oil & Gas) 8,420,543
- ---------------------------------------------------
24,858,380
- ---------------------------------------------------
BRITISH POUND STERLING--13.5%
2,670,475 Electrocomponents
(Electronics) 19,806,549
1,857,248 Farnell Electronics
(Electronics) 15,633,965
754,039 Misys PLC (Business
Services) 18,806,989
7,108,918 Rentokil Group (Business
Services) 25,371,412
819,521 Siebe (Engineering) 14,792,264
1,053,405 Standard Chartered
(Banking) 17,363,097
- ---------------------------------------------------
111,774,276
- ---------------------------------------------------
DEUTSCHE MARK--6.9%
141,131 Adidas AG (Textiles) 16,552,259
88,741 Fresenius AG (Health
Care) 18,213,660
483,530 Hoechst AG (Health Care) 22,670,802
- ---------------------------------------------------
57,436,721
- ---------------------------------------------------
FRENCH FRANC--6.1%
90,735 CLF Dexia France
(Financial Services) 8,976,498
25,428 Comptoirs Modernes
(Retail Trade) 12,291,282
105,352 Credit Local de France
(Financial Services) 10,422,572
208,421 SGS Thomson
Microelectronics
(Electronics) 18,839,444
- ---------------------------------------------------
50,529,796
- ---------------------------------------------------
HONG KONG DOLLAR--3.5%
4,000,037 Asia Satellite Telephone
(Utility) 12,011,735
1,388,900 Dao Heng Bank Group
(Commercial Bank) 8,467,043
692,678 Sun Hung Kai Properties
Co.
(Real Estate) 8,700,411
- ---------------------------------------------------
29,179,189
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
IRISH POUND--2.4%
1,640,114 Bank of Ireland (Commercial Banks) $ 20,028,917
- ---------------------------------------------------------------------------
ITALIAN LIRA--3.9%
2,415,600 Ente Nazionale Idrocarburi (Oil & Gas) 14,097,734
3,811,980 Telecom Italia Mobile (Utility) 12,836,950
3,392,066 Telecom Italia Mobile (Di Risp Shares) (Utility) 5,853,045
- ---------------------------------------------------------------------------
32,787,729
- ---------------------------------------------------------------------------
JAPANESE YEN--30.5%
268,459 Aderans Company Ltd. (Retail Trade) 7,508,232
109,000 Autobachs Seven Co.
(Automobiles & Automobile Parts) 8,141,613
726,265 Canon, Inc.
(Office Equipment Manufacturer) 23,196,295
152,252 Hoya Corp. (Electronics) 7,718,732
285,108 Inaba Denkisangyo
(Electronics) 4,456,694
220,000 Ito En (Beverages) 4,926,067
397,497 Kokuyo Co., Ltd. (Computers/Office) 9,504,997
195,615 Kyocera Corp. (Electronics) 16,859,087
339,776 Max Co. (Office Equipment Manufacturer) 5,655,756
260,750 Mirai Industry Co. (Electronics) 5,177,545
2,853,707 Mitsubishi Heavy Industries Ltd. (Machinery) 20,133,884
2,639,790 Mitsui Marine & Fire (Insurance) 18,133,918
151,642 Nintendo (Toys) 15,375,614
253,000 Ono Pharmaceutical (Pharmaceuticals) 8,807,435
498,354 Santen Pharmaceutical Co. (Pharmaceuticals) 8,674,349
111,323 Sanyo Shinpan Financial (Financial) 6,753,689
357,654 Shimachu Co. (Retail-Furniture) 9,277,547
238,511 SMC Corp. (Machinery) 23,579,033
407,129 Taikisha Ltd. (Machinery) 6,157,675
376,002 Takeda Chemical Industry (Pharmaceuticals) 11,405,552
223,037 TDK Corp. (Consumer Goods) 19,222,453
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPANESE YEN (CONTINUED)
409,835 Tostem Corp. (Building Materials) $ 9,211,331
122,727 York Benimaru (Food-Retailer) 3,411,676
- ------------------------------------------------------------------------
253,289,174
- ------------------------------------------------------------------------
MALAYSIAN RINGGIT--1.0%
1,645,557 Commerce Asset Holdings
(Commercial Banks) 4,117,792
581,000 United Engineers Malaysia (Engineering) 4,053,232
- ------------------------------------------------------------------------
8,171,024
- ------------------------------------------------------------------------
NETHERLANDS GUILDER--6.5%
173,039 Aegon (Insurance) 13,120,017
292,315 ASM Lithography HL
(Electronics-Semiconductors) 23,728,652
131,669 Wolters Kluwer (Publishing) 17,324,701
- ------------------------------------------------------------------------
54,173,370
- ------------------------------------------------------------------------
PHILIPPINE PESO--0.3%
13,746,266 Metro Pacific Corp.
(Wholesale Trade) 2,166,784
- ------------------------------------------------------------------------
PORTUGUESE ESCUDO--1.4%
682,475 Elec de Portugal (Utility) 11,562,336
- ------------------------------------------------------------------------
SINGAPORE DOLLAR--1.0%
1,850,266 Parkway Holdings (Conglomerate) 8,489,767
83 Singapore Land (Real Estate) 409
- ------------------------------------------------------------------------
8,490,176
- ------------------------------------------------------------------------
SPANISH PESETA--1.6%
60,358 Banco Popular (Commercial Banks) 13,357,266
- ------------------------------------------------------------------------
SWEDISH KRONA--7.6%
395,232 Ericsson Telecommunications (Computer/Office) 17,805,028
572,104 Securitas AB (Business Services) 16,632,389
648,000 Sparbanken Sverige (Banking) 14,210,348
4,685,493 Swedish Match AB (Tobacco) 14,854,823
- ------------------------------------------------------------------------
63,502,588
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWISS FRANC--7.0%
49,797 Adecco SA (Commercial Services) $ 19,371,530
6,384 Cie Financier Richemont AG (Consumer Goods) 9,402,497
18,330 Novartis AG (Pharmaceuticals) 29,381,753
- -------------------------------------------------------------------------
58,155,780
- -------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $634,200,651) $799,463,506
- -------------------------------------------------------------------------
SHORT-TERM OBLIGATION--4.8%
$39,478,820 State Street Bank & Trust Euro-Time Deposit,
5.69%, 08/01/1997 $ 39,478,820
- -------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(COST $39,478,820) $ 39,478,820
- -------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $673,679,471)(A) $838,942,326
- -------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $178,334,650
Gross unrealized loss for investments in which cost
exceeds value (18,650,863)
- -------------------------------------------------------------------------
Net unrealized gain $159,683,787
- -------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $679,258,539.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
41
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
- -------------------------------------------
<S> <C>
COMMON STOCK INDUSTRY CONCENTRATIONS
- -------------------------------------------
Automobiles & Automobile Parts 1.0%
Banking 3.8%
Beverages 0.6%
Building Materials 1.1%
Business Services 7.3%
Commercial Banks 6.6%
Commercial Services 2.3%
Computers/Office 3.3%
Conglomerate 1.0%
Consumer Goods 3.4%
Electronics 10.6%
Electronics-Semiconductors 2.9%
Engineering 2.3%
Entertainment & Leisure 1.0%
Financial 0.8%
Financial Services 2.3%
Food Retailer 0.4%
Health Care 4.8%
Insurance 3.8%
Machinery 6.0%
Office Equipment Manufacturer 3.5%
Oil & Gas 2.7%
Pharmaceuticals 7.0%
Publishing 2.1%
Real Estate 1.0%
Retail-Furniture 1.1%
Retail Trade 2.4%
Textiles 2.0%
Tobacco 1.8%
Toys 1.9%
Utility 5.1%
Wholesale Trade 0.3%
- -------------------------------------------
Total Common Stocks 96.2%
- -------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
42
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Small Cap Equity Fund seeks long-term capital appreciation,
primarily through investments in equity securities of U.S. companies with
market capitalizations of $1 billion or less. The fund is managed according to
a "business value" approach to investing, which means we look for attractive
companies with high or improving returns on capital that we believe can achieve
solid, sustainable growth, as well as generate free cash after investing for
future growth. This approach differs markedly from many emerging growth small-
cap funds that invest in companies with high price-to-earnings multiples solely
on the basis of rapid, but frequently unsustainable, growth rates. Our rigorous
fundamental research includes meeting with a company's management and examining
a company's competitors, customers and suppliers.
NAME CHANGE
To more closely reflect the fund's value investment style, its name was
changed in August from the Goldman Sachs Small Cap Equity Fund to the Goldman
Sachs Small Cap Value Fund. Please note that the fund's objective and
investment focus remain the same.
PERFORMANCE REVIEW: FUND SIGNIFICANTLY OUTPERFORMED THE BENCHMARK
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET RUSSELL 2000
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 17.65% 13.07%
Class B* 17.26% 13.07%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Overall, small-cap stocks continued to lag large-cap stocks during the
period, primarily due to the relatively weak performance of emerging growth
small caps early in the year. Though the emerging growth sector strengthened
during the second quarter, small-cap stocks with value characteristics, which
the fund emphasizes, significantly outperformed small-cap growth stocks for the
period as a whole. The period was marked by significant volatility, with the
Russell 2000 down nearly 10% toward the end of April, and then rebounding to
close up 13% at the end of July. The turbulence was primarily driven by
concerns over tightening monetary policy in the first quarter, which faded as
more moderate growth was reported in the second quarter.
THE FUND'S CLASS A AND CLASS B SHARES BOTH SIGNIFICANTLY OUTPERFORMED THE
BENCHMARK DURING THE PERIOD, PRIMARILY DUE TO SUCCESSFUL STOCK SELECTION IN A
WIDE RANGE OF INDUSTRIES. In general, the fund's best performers achieved
strong results relative to the benchmark due to several reasons:
..The stock prices of several holdings rebounded when company fundamentals
stabilized and began to improve after previous earnings disappointments or
operational difficulties. These included health-related companies such as
MARINER HEALTH GROUP INC. and SUN HEALTHCARE GROUP INC. (providers of long-term
care services) as well as specialty retailers such as GENERAL NUTRITION COS.
INC. (vitamins and nutrition supplements) and J. BAKER, INC. (men's apparel and
discount licensed shoe departments). The solid performance of Mariner Health
Group and Sun Healthcare Group was particularly notable as the healthcare
sector was among the weakest overall performers in the Russell 2000 over the
period.
..A number of stocks appreciated when their continued strong underlying growth
began to be more widely recognized by the market. These included two of the
fund's restaurant investments, IHOP CORP. and MORTON'S RESTAURANT GROUP, INC.;
financial stocks such as IPC HOLDINGS LTD. (catastrophe reinsurance) and HORACE
MANN EDUCATORS CORP. (property, casualty and life insurance for the educator
market); CARBIDE/GRAPHITE GROUP, INC. (a manufacturer of electrodes for steel
mini-
43
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
mills); and MOVADO GROUP INC. (owner of the Movado, Concord and Esquire watch
brands).
..Some holdings performed well when they received and accepted merger proposals.
These included HERITAGE MEDIA CORP. (in-store marketing products and services),
DECISIONONE CORP. (computer support provider) and LESLIE'S POOLMART, INC.
(swimming pool supplies).
An investment that did not meet our expectations was GROUPE AB, the largest
independent provider of content for French television, which declined due to
concerns over the potential cancellation of a major customer's expected youth
programming orders. We believe the market has overreacted to this news as
Groupe AB has the potential to benefit from the distribution of its library of
youth programming to other television broadcasters. In addition, the company
has large upside opportunity as one of three main providers of direct-to-home
satellite services in the French market.
NEW INVESTMENTS IN HEALTHCARE AND BASIC INDUSTRY, SALES IN SEVERAL HOLDINGS
New investments in healthcare during the period included QUEST DIAGNOSTICS,
INC., one of the top three clinical laboratories in the U.S., which is
positioned to benefit from its turnaround plan, and PHYSICIANS RESOURCE GROUP
INC., the leading provider of physician practice management services to
ophthalmic practices. In basic industry, new investments included FEDDERS
CORP., the largest manufacturer of room air conditioners in North America,
which has exciting international growth opportunities, and REXEL INC., a well-
managed, expanding distributor of electrical products to the construction and
utility industries.
During the period, we sold a number of holdings (e.g., HORACE MANN EDUCATORS
CORP., THE MORNINGSTAR GROUP and AMERICAN SAFETY RAZOR CO.) after they reached
our target prices. Though the fund's cash position increased significantly as a
result of new sales, we are gradually reinvesting the cash as we identify
attractive investments that meet our disciplined selection criteria.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
Movado Group, Luxury Watch 4.3%
Inc. Distributor
Friedman's, Inc. Jewelry Retailer 3.6
Groupe AB Media Content 3.5
Provider
Heritage Media Media/Marketing 3.2
Corp. Services
J. Baker, Inc. Specialty Apparel 2.8
Landstar System
Inc. Trucking 2.8
Quest
Diagnostics, Clinical
Inc. Laboratories 2.5
Terra Nova 2.5
Bermuda Property/Casualty
Holdings Insurance
Morton's Restaurants 2.5
Restaurant
Group, Inc.
DecisionOne Computer Support 2.5
Corp. Provider
</TABLE>
OUTLOOK
The stock market as a whole has reached historically high valuations as a
result of the most recent rally. However, we believe the outlook for small-cap
stocks is potentially more positive than that of large caps, as small-cap
valuations have remained at relatively modest levels. If the investment
environment becomes more volatile due to a deterioration in sentiment, stock
selection will play an increasingly important role in determining returns. We
remain optimistic that our disciplined, bottom-up investment approach will
enable us to continue to identify attractive opportunities.
/s/ Paul D. Farrell /s/ Matthew B. McLennan
Paul D. Farrell Matthew B. McLennan
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
August 29, 1997
44
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--83.3%
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--2.0%
889,700 APS Holding Corp.* $ 6,394,719
- ---------------------------------------------------------------
BANKS--0.8%
63,325 Banca U.S.* 1,021,116
94,200 Northwest Savings Bank 1,660,275
- ---------------------------------------------------------------
2,681,391
- ---------------------------------------------------------------
COMMERCIAL PRODUCTS--3.0%
211,000 Figgie International, Inc. Class A* 3,006,750
239,300 Figgie International, Inc. Class B* 3,305,331
194,600 Spartech Corp. 2,991,975
- ---------------------------------------------------------------
9,304,056
- ---------------------------------------------------------------
COMMERCIAL SERVICES--3.1%
151,700 Black Box Corp.* 5,537,050
74,600 Galileo International Inc.* 1,967,575
539,200 Opinion Research Corp.* 2,089,400
- ---------------------------------------------------------------
9,594,025
- ---------------------------------------------------------------
COMMUNICATIONS-MEDIA SERVICES--1.6%
176,700 Rural Cellular Corp.* 1,833,263
78,300 Telephone & Data Systems, Inc. 3,004,763
- ---------------------------------------------------------------
4,838,026
- ---------------------------------------------------------------
DATACOM EQUIPMENT--2.5%
327,700 DecisionOne Corp.* 7,598,544
- ---------------------------------------------------------------
ELECTRIC UTILITIES--2.4%
538,800 Central Maine Power Co. 7,273,800
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT--4.3%
187,700 Carbide/Graphite Group* 5,443,300
378,300 Fedders Corp Class A* 2,246,156
258,100 Fedders Corp. 1,564,731
214,900 Rexel, Inc.* 3,921,925
- ---------------------------------------------------------------
13,176,112
- ---------------------------------------------------------------
ENGINEERING--0.2%
59,500 RCM Technologies* 654,500
- ---------------------------------------------------------------
ENTERTAINMENT AND LEISURE--1.3%
11,600 CMP Media Inc.* 313,200
70,100 Royal Caribbean Cruise Lines 2,782,094
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE (CONTINUED)
44,700 Silverleaf Resorts, Inc.* $ 877,238
- ---------------------------------------------------------
3,972,532
- ---------------------------------------------------------
FINANCIAL SERVICES--0.9%
118,500 Amerin Corp.* 2,918,063
- ---------------------------------------------------------
FOOD--0.4%
259,900 Cadiz Land Co., Inc.* 1,348,231
- ---------------------------------------------------------
FOOD PRODUCERS--1.0%
374,600 Alpine Lace Brands, Inc.* 3,043,625
- ---------------------------------------------------------
HEALTH & MEDICAL SERVICES--1.9%
82,100 Matria Healthcare, Inc.* 369,450
61,100 Perrigo Co.* 794,300
564,100 Physicians Resource Group I* 4,724,338
- ---------------------------------------------------------
5,888,088
- ---------------------------------------------------------
HEALTHCARE MANAGEMENT--7.3%
443,200 Mariner Health Group, Inc.* 5,955,500
445,300 Quest Diagnostics Inc.* 7,737,088
164,200 Sierra Health Services, Inc.* 5,398,075
168,300 Sun Healthcare Group, Inc.* 3,565,856
- ---------------------------------------------------------
22,656,519
- ---------------------------------------------------------
HOME FURNISHING & SERVICES--0.7%
197,600 Congoleum Corp.* 2,198,300
- ---------------------------------------------------------
INSURANCE-LIFE--0.3%
37,300 ARM Financial Group, Inc.* 773,975
- ---------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--7.0%
142,700 IPC Holdings Ltd. 4,245,325
117,700 Scpie Holdings, Inc. 3,104,338
126,600 Seibels Bruce Group* 1,076,100
301,900 Symons International Group* 5,660,625
329,600 Terra Nova Bermuda Holdings 7,663,200
- ---------------------------------------------------------
21,749,588
- ---------------------------------------------------------
JEWELRY--4.3%
458,075 Movado Group, Inc. 13,284,175
- ---------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
45
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MEDIA--3.7%
1,369,400 Groupe AB SA ADR* $ 10,698,438
34,400 Scientific Games Holdings, Inc.* 597,270
- --------------------------------------------------------------
11,295,708
- --------------------------------------------------------------
MEDIA/ENTERTAINMENT--1.1%
432,300 International Post Ltd.* 1,296,900
367,400 Platinum Entertainment, Inc.* 2,158,475
- --------------------------------------------------------------
3,455,375
- --------------------------------------------------------------
PACKAGING--0.6%
93,600 Shorewood Packaging Corp.* 1,977,300
- --------------------------------------------------------------
PHARMACEUTICALS--0.5%
87,900 Chirex, Inc.* 1,505,288
- --------------------------------------------------------------
RADIO AND TELEVISION BROADCASTING--4.8%
562,800 Heritage Media Corp.* 9,919,350
370,200 Pegasus Communications, Inc.* 4,905,150
- --------------------------------------------------------------
14,824,500
- --------------------------------------------------------------
REAL ESTATE--1.1%
186,800 Insignia Financial Group, Inc.* 3,549,200
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--1.0%
132,900 Boykin Lodging Trust Inc 3,148,069
- --------------------------------------------------------------
RECREATIONAL PRODUCTS--0.8%
335,800 DSI Toys Inc.* 2,518,500
- --------------------------------------------------------------
RESTAURANTS & HOTELS--3.4%
90,700 IHOP Corp.* 2,879,725
362,000 Mortons Restaurant Group, Inc.* 7,602,000
- --------------------------------------------------------------
10,481,725
- --------------------------------------------------------------
RETAIL HARDGOODS--3.7%
731,000 Brookstone Inc.* 6,487,625
290,700 Finlay Enterprises, Inc.* 4,941,900
- --------------------------------------------------------------
11,429,525
- --------------------------------------------------------------
SPECIALTY FINANCE--1.3%
341,500 Long Beach Financial Corp.* 3,927,250
- --------------------------------------------------------------
SPECIALTY RETAIL--9.5%
720,100 Friedmans, Inc.* 11,071,538
43,100 General Nutrition Companies, Inc.* 1,228,350
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL (CONTINUED)
67,100 Hibbett Sporting Goods, Inc.* $ 1,526,525
999,300 J. Baker, Inc. 8,743,875
34,900 Linens N'things, Inc.* 981,563
765,300 Loehmann's, Inc.* 5,309,269
125,400 Multiple Zones International, Inc.* 603,488
- ---------------------------------------------------------------
29,464,608
- ---------------------------------------------------------------
STEEL--1.3%
84,400 J & L Specialty Steel, Inc. 1,139,400
153,500 Lukens Inc. 2,935,688
- ---------------------------------------------------------------
4,075,088
- ---------------------------------------------------------------
TEXTILES--1.8%
151,800 Pluma, Inc.* 2,191,613
144,900 Synthetic Industries, Inc.* 3,396,086
- ---------------------------------------------------------------
5,587,699
- ---------------------------------------------------------------
TRUCKING--3.7%
193,400 Allied Holdings, Inc.* 2,949,350
341,900 Landstar Systems, Inc.* 8,547,500
- ---------------------------------------------------------------
11,496,850
- ---------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $230,250,550) $258,084,954
- ---------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.1%
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 446,250
- ---------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $498,537) $ 446,250
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Contracts Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS--0.3%
500 S&P 500 Index Put Strike 900
exp.09/97 $ 518,750
200 S&P 500 Index Put Strike 825
exp.09/97 47,500
300 S&P 500 Index Put Strike 775
exp.09/97 30,000
350 S&P 500 Index Put Strike 800
exp.09/97 48,125
500 S&P 500 Index Put Strike 875
exp.09/97 325,000
- ------------------------------------------------------------------------------
969,375
- ------------------------------------------------------------------------------
TOTAL OPTIONS
(COST $3,270,771) $ 969,375
- ------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS--16.1%
$49,800,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 49,800,000
- ------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $49,800,000) $ 49,800,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $283,819,858)(A) $309,300,579
- ------------------------------------------------------------------------------
<CAPTION>
Contracts Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS WRITTEN--(0.2%)
CALL OPTIONS WRITTEN
500 Black Box Corp., Call Strike $35 expiring 09/20/97 262,500
500 Black Box Corp., Call Strike $40 expiring 09/20/97 100,000
400 General Nutrition Companies, Inc., Call Strike $25
expiring 10/18/97 185,000
400 Royal Caribbean Cruise Lines Call Strike $40
expiring 09/20/97 80,000
- ------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $528,963) 627,500
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Description Value
- -------------------------------
<C> <S> <C>
FEDERAL INCOME TAX
INFORMATION:
Gross
unrealized
gain for
investments in
which value
exceeds cost $ 52,656,504
Gross
unrealized
loss for
investments in
which cost
exceeds value (27,422,188)
- -------------------------------
Net unrealized
gain $ 25,234,316
- -------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $284,066,263.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
47
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets: China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its price-
to-book value and the predictability of its earnings stream as among the best
measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers
and competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell
a position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in a country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
MARKET OVERVIEW: REGIONAL FACTORS DAMPENED PERFORMANCE OF SEVERAL KEY MARKETS
Asian stock markets returned 1.3% during the period, as measured by the MSCI
All Country Asia Free (Ex Japan) Index (without dividends reinvested). During
the first half of the period, several key issues dampened the region's
performance, including continued uncertainty in Thailand, the results of the
Indian budget process and several weaker than expected Asian economic
indicators. In May and June, the Asian equity markets improved as earlier
concerns eased and investors grew increasingly optimistic regarding the Hong
Kong handover. The period closed on a volatile note, however, when Thailand's
devaluation of the baht sparked currency turmoil throughout the region,
particularly the ASEAN (Association of South East Asian Nations) countries.
On an individual country level, Taiwan and India were two of the strongest
performing markets, rising 31.4% and 26.7%, respectively (in U.S. dollar
terms). Taiwan's market benefited from local liquidity, an accommodative
monetary policy and a constant inflow of foreign capital, all of which helped
it reach a seven-year record high in July. In India, stocks briefly came under
pressure due to political uncertainty but recovered when Indian politicians
renewed their commitment to liberalization and deregulation. Hong Kong, the
most heavily weighted country in the Index, also performed well, particularly
during the latter half of the period when property stocks rebounded on
positive sentiment related to the July handover and China-related "red-chip"
stocks soared on investor excitement over China's potential asset injections.
In contrast, several markets experienced sharp declines. Thailand was one of
the weakest performers, as it suffered from an overextended financial sector,
sharp downgrades to earnings forecasts and an uncertain political outlook. The
Thai situation impacted countries such as Malaysia and the Philippines, where
spillover concerns regarding a run on their respective currencies led
investors to decrease their weightings in those stock markets.
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
PERFORMANCE REVIEW: TOP PERFORMING STOCKS IN A VARIETY OF MARKETS
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET MSCI AC ASIA FREE
ASSET VALUE) (EX JAPAN) INDEX+
----------------- -----------------
<S> <C> <C>
Class A* 1.29% 1.30%
Class B* 0.99% 1.30%
Institutional* 1.59% 1.30%
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge.
+ Represents a price-only index that does not reflect reinvested dividends.
Though the region's performance was generally weak, the fund benefited from
our specific stock selections. Several of the fund's country weightings also
worked in its favor, such as its overweighting in Hong Kong, which performed
well, and its underweighting in Thailand and Malaysia, two of the weakest
markets. Conversely, the fund's overweighting in the Philippines was negative
for the portfolio.
The fund's top performers came from a variety of different countries. In
India, HINDUSTAN LEVER, LTD., which is 51% owned by Unilever, appreciated as
its core business in detergents and soaps achieved strong growth rates and its
merger with Brooke Bond Lipton India Ltd. was finally approved by the Indian
Supreme Court. TAIWAN-SOGO SHINKONG, a Taiwan-based security services company
that controls approximately 38% of the market, recorded strong results driven
by increased demand for its products following several high-profile kidnappings
in Taiwan.
The fund's overweighting in Hong Kong's banking sector also contributed
significantly to performance as our bank stocks did very well, particularly in
May. HSBC HOLDINGS PLC, a banking and financial services organization, rose
approximately 50% during the period due to a favorable re-rating and strong
earnings fueled by fast growth in the Hong Kong banking market. Other favorable
investments in the sector were WING HANG BANK LTD., the portfolio's largest
holding as of July 31, and DAO HENG BANK GROUP LTD., a new position added
during the period.
PORTFOLIO COMPOSITION
As of July 31, 1997, 93.6% of the fund's net assets was invested in equities
and 6.0% was in cash equivalents, with the remainder in other securities. By
country, the portfolio's five largest allocations were in Hong Kong (40.6%),
Malaysia (12.1%), Singapore (10.5%), India (6.2%) and Taiwan (6.1%). Compared
with the Index, as of the end of the period, the portfolio was overweighted in
Hong Kong and the Philippines and underweighted in Malaysia, Indonesia,
Thailand and Taiwan.
The fund's 40.6% allocation in Hong Kong included 4.4% in China-based
companies that are traded on the Hong Kong stock exchange. The fund has not
made any direct investments in China due to its poor regulatory environment and
generally weak company management. Instead, we seek to participate in China's
growth potential through China-related stocks in other countries or stocks of
companies that operate in China but are listed on the Hong Kong exchange, where
companies are required to meet higher standards. We expect these management
issues and stock market regulations to continue under Hong Kong's new China-
appointed Special Administrative Region (SAR) government. In addition, we
expect to limit the fund's exposure to "red-chip" stocks traded in Hong Kong,
as most of them are trading at a substantial premium to their asset values with
little or no fundamental justification.
PORTFOLIO CHANGES INCLUDED NEW POSITIONS IN HEALTHCARE AND PROPERTY DEVELOPMENT
STOCKS
During the period, we added a number of stocks to the portfolio. In March, we
initiated a position in PARKWAY HOLDINGS (Singapore), the largest healthcare
group in the region, which is currently focusing on
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
regional expansion and has established hospitals in Indonesia, Malaysia and
India. Another new investment was NEW WORLD DEVELOPMENT, a Hong Kong-based
property developer with rapidly increasing exposure to projects in China. New
World Development is expected to be one of the prime beneficiaries of the land
supply policies of the new SAR government. During the period, we sold
METROPOLITAN BANK AND TRUST, the largest bank in the Philippines, due to its
expensive valuation and a deterioration of the company's fundamentals.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY (LINE OF BUSINESS) COUNTRY NET ASSETS
-------------------------- ------- ----------
<S> <C> <C>
Wing Hang Bank Ltd. Hong Kong 4.1%
Banking and
Finance
Taiwan-Sogo
Shinkong Taiwan 4.0
Consumer Goods and
Services
Dao Heng Bank Group
Ltd. Hong Kong 3.7
Banking and
Finance
Hutchison Whampoa Hong Kong 3.7
Conglomerate
Hong Kong Electric
Holdings Hong Kong 3.7
Utilities
New World
Development Hong Kong 3.5
Real Estate
HKR International
Ltd. Hong Kong 3.4
Real Estate
Asia Satellite
Telecommunications Hong Kong 3.4
Telecommunications
Dah Sing Financial Hong Kong 3.3
Banking and
Finance
Hindustan Lever,
Ltd. India 3.3
Consumer Products
</TABLE>
OUTLOOK
We are generally positive on the long-term outlook of the Asian markets.
However, we remain cautious over the near term as the volatility of these
markets will be higher due to uncertainties resulting from the delinking of a
number of currencies from the U.S. dollar. Select Asian equities remain
attractively valued on a historical basis and are expected to benefit from a
pickup in export growth, improved inflation and a modest economic recovery
throughout the region subsequent to the currency devaluations. We will manage
our exposure in a conservative manner as we remain committed to our long-term
investment style.
We intend to focus our investments in those countries with strong domestic
growth. We expect to maintain the fund's overweighting in Hong Kong, as we
anticipate most companies will continue to perform well under its new China-
appointed government. Hong Kong's political situation is currently marked by
concerns that China might implement drastic changes that could jeopardize the
existing laissez-faire environment that Hong Kong has thrived on, as well as
rumors that the SAR government may introduce measures to cool the property
sector. However, we believe the Hong Kong equity market will benefit from
strong earnings momentum and increased exposure to the recovering Chinese
economy. We also favor some of the smaller Asian markets where we expect
macroeconomic conditions to improve. In particular, subsequent to their
currency devaluations, both the Philippines and Indonesia should enjoy better
economic climates amongst the Asian countries, and should continue to record
improved export growth and healthy corporate profits.
In contrast, we intend to limit our exposure to Thailand, which continues to
experience structural problems. To rebuild the Thai economy, Thailand will need
to implement a series of fiscal tightenings and a comprehensive restructuring
in the months and years ahead to correct the past misallocation of resources.
We will also remain underweighted in Malaysia, where economic overheating
remains a concern.
In general, we expect Asian markets will benefit over time as foreign
investment in the region increases. Therefore, we urge investors to be prepared
to withstand periods of volatility and to view the fund as a long-term
investment opportunity.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
August 29, 1997
51
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
July 31, 1997
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--89.4%
HONG KONG DOLLAR--40.6%
3,049,000 Asia Satellite Telephone (Telecommunications) $ 9,155,861
17,231,000 Beijing Datang Power Gen-H
(Utility) 8,735,121
1,420,600 Dah Sing Financial
(Banking) 9,063,951
1,660,000 Dao Heng Bank Group
(Banking) 10,119,729
6,103,440 HKR International Ltd. (Real Estate) 9,183,736
2,447,500 Hong Kong Electric Holdings (Utility) 9,989,151
95,283 HSBC Holdings (Banking) 3,322,752
1,028,000 Hutchison Whampoa (Diversified) 10,024,411
1,309,000 New World Development Co.
(Real Estate) 9,425,476
670,000 Sun Hung Kai Properties Co.
(Real Estate) 8,415,563
916,000 Swire Pacific Ltd. "A" (Diversified) 8,695,641
1,877,000 Wing Hang Bank Ltd.
(Banking) 11,224,424
11,000,000 Zhejiang Expressway (Construction) 3,267,678
- -------------------------------------------------------------------------------
110,623,494
- -------------------------------------------------------------------------------
INDIAN RUPEE--6.2%
190,000 Colgate Palmolive (Consumer Goods and Services) 1,716,627
227,600 Hindustan Lever Ltd.
(Consumer Goods and Services) 9,047,889
427,000 ITC Ltd. (Consumer Goods and Services) 6,160,667
644 Larsen & Toubro Ltd. (Heavy Industry) 4,858
350 Mahindra & Mahindra Ltd.
(Automotive) 4,309
400 Niit Limited (Technology) 5,065
- -------------------------------------------------------------------------------
16,939,415
- -------------------------------------------------------------------------------
INDONESIAN RUPIAH--6.0%
2,374,750 Indofoods Sukses Makmur--Foreign (Consumer Goods and
Services) 4,949,288
464,300 Peregrine Indo Food ADR (Food) 1,420,758
2,346,000 PT Bank of Bali--Foreign (Banking) 6,504,207
2,613,000 PT Jaya Real Property--Foreign
(Real Estate) 3,497,323
- -------------------------------------------------------------------------------
16,371,576
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MALAYSIAN RINGGIT--11.9%
1,703,800 Commerce Asset Holdings
(Banking) $ 4,263,537
1,919,000 Road Builder Malaysia Holdings
(Construction & Infrastructure) 8,003,412
1,695,000 Tenaga National Berhad (Utility) 6,812,133
1,470,000 UMW Holdings Berhad
(Automotive) 5,796,398
1,081,000 United Engineers Malaysia (Construction
and Infrastructure) 7,541,384
- -----------------------------------------------------------------------------
32,416,864
- -----------------------------------------------------------------------------
NEW TAIWAN DOLLAR--6.1%
2,673,750 Kindom Construction Co. Ltd.
(Real Estate) 5,869,207
2,791,677 Taiwan-Sogo Shinkong (Consumer Goods and Services) 10,894,349
- -----------------------------------------------------------------------------
16,763,556
- -----------------------------------------------------------------------------
PHILIPPINE PESO--5.3%
7,971,000 Ayala Land Inc. "B" (Real Estate) 5,809,373
1,169,570 Manila Electric Co., Class B
(Utility) 4,995,452
23,028,400 Metro Pacific Corp., Class A
(Diversified) 3,629,900
- -----------------------------------------------------------------------------
14,434,725
- -----------------------------------------------------------------------------
SINGAPORE DOLLAR--10.5%
858,000 City Developments (Real Estate) 7,290,463
356,750 Keppel Land Warrants (Real Estate) 329,808
949,800 Overseas Union Bank--Foreign (Banking) 6,165,855
1,860,000 Parkway Holdings (Consumer
Goods and Services) 8,534,430
337,000 Singapore Press Holdings--Foreign (Media) 6,391,340
- -----------------------------------------------------------------------------
28,711,896
- -----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SOUTH KOREAN WON--2.7%
7,132 Samsung Fire & Marine Insurance
(Financial Services) $ 2,931,332
4,758 SK Telecom (Telecommunications) 3,536,424
86,920 SK Telecom ADR (Telecommunications) 999,579
- ---------------------------------------------------------------------
7,467,335
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $211,826,215) $243,728,861
- ---------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.2%
MALAYSIAN RINGITT--0.2%
MYR1,024,000 United Engineers Malaysia (Construction)
4.00%, 05/22/99 $ 628,954
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $521,580) $ 628,954
- ---------------------------------------------------------------------
STRUCTURED NOTES--4.4%
$ 1,000,000 SK Telecom $ 981,300
783,987 Taiwan Index Linked Note 10,928,779
- ---------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(COST $10,935,000) $ 11,910,079
- ---------------------------------------------------------------------
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
EQUITY LINKED NOTE--0.2%
$ 1,308 SK Telecom (Telecommunications) $ 690,716
- ---------------------------------------------------------------------
TOTAL EQUITY LINKED NOTE
(COST $667,627) $ 690,716
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM OBLIGATIONS--6.0%
$16,284,594 State Street Bank & Trust Euro-Time Deposit
5.687%, 08/01/97 $ 16,284,594
- ------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $16,284,594) $ 16,284,594
- ------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $240,235,016)(A) $273,243,209
- ------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 42,057,404
Gross unrealized loss for investments in which cost
exceeds value (13,554,092)
- ------------------------------------------------------------------------
Net unrealized gain $ 28,503,312
- ------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $243,331,769.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
<TABLE>
- ----------------------------
<S> <C> <C>
COMMON STOCKS INDUSTRY
CONCENTRATIONS
- ----------------------------
Automotive 2.1%
Banking 18.5%
Construction and
Infrastructure 6.9%
Consumer Goods and
Services 15.1%
Diversified 8.2%
Engineering + Others 0.2%
Financial Services 1.1%
Food 0.5%
Heavy Industry 0.0%
Media 2.3%
Real Estate 18.3%
Technology 0.0%
Telecommunications 5.0%
Utility 11.2%
- ----------------------------
TOTAL COMMON STOCKS 89.6%
- ----------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
53
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
-------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(identified cost $127,753,734, $377,598,149,
$28,826,861, $826,462,978, $142,278,430,
$673,679,471, $283,819,858 and $240,235,016,
respectively) $145,647,765 $542,098,398
Cash, at value 24,774 93,046
Receivables:
Investment securities sold 3,238,030 --
Forward foreign currency exchange contracts -- --
Fund shares sold 879,535 5,489,136
Dividends and interest 651,887 496,369
Variation margin 9,657 20,000
Deferred organization expenses, net 29,512 --
Other assets 70,779 11,347
- ------------------------------------------------------------------------------
TOTAL ASSETS 150,551,939 548,208,296
- ------------------------------------------------------------------------------
LIABILITIES:
Options Written, at value (premium received,
$528,963) -- --
Payables:
Investment securities purchased 16,714,962 --
Forward foreign currency exchange contracts 11,101 --
Fund shares repurchased 80,696 123,745
Capital gains tax -- --
Amounts owed to affiliates 184,578 780,165
Variation margin -- --
Accrued expenses and other liabilities 39,439 128,711
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 17,030,776 1,032,621
- ------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 108,955,474 354,693,448
Accumulated undistributed (distributions in
excess of) net investment income (loss) 339,584 2,043,010
Accumulated undistributed (distributions in
excess of) net realized gain (loss) on
investment, option and futures transactions 6,207,098 25,574,291
Accumulated net realized foreign currency
loss (2,148) --
Net unrealized gain on investments, options
and futures 18,014,255 164,864,926
Net unrealized gain (loss) on translation of
assets and liabilities denominated in
foreign currencies 6,900 --
- ------------------------------------------------------------------------------
NET ASSETS $133,521,163 $547,175,675
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class A Class B
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Total shares of beneficial
interest outstanding, $.001 par
value
(100,000,000 and 25,000,000
shares authorized for each
Class A and B, respectively) 5,812,234 434,759 11,508,646 1,352,331
Net asset and Class A redemption
value per share(a) $21.38 $21.30 $28.47 $28.23
Maximum public offering price
per share (Class A
NAV X 1.0582) $22.62 $21.30 $30.13 $28.23
<CAPTION>
Institutional Service Institutional Service
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Total shares of beneficial
interest outstanding, $.001 par
value
(50,000,000 shares per each
class authorized) -- -- 6,121,100 197,898
Net asset value, offering and
redemption price per share -- -- $28.71 $28.43
- -------------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B shares are subject to a contingent deferred sales
charge assessed on the amount equal to the lesser of the current net asset
value or the original purchase price of the shares.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP CAPITAL GROWTH MID CAP INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
GROWTH FUND FUND EQUITY FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$32,639,495 $1,180,290,404 $187,426,440 $838,942,326 $309,300,579 $273,243,209
10,398 54,166 43,278 160,110 210,038 2,861,814
-- -- 819,883 457,596 1,947,290 --
-- -- -- 7,725,121 -- --
1,001,965 4,256,988 1,044,197 5,090,337 3,836,809 350,379
21,085 897,205 152,413 468,788 69,615 422,050
-- -- -- -- -- --
47,479 -- 51,544 7,346 6,789 61,377
47,701 9,494 66,516 524,549 750 24,844
- ------------------------------------------------------------------------------------------------
33,768,123 1,185,508,257 189,604,271 853,376,173 315,371,870 276,963,673
- ------------------------------------------------------------------------------------------------
-- -- -- -- 627,500 --
407,378 8,221,644 359,116 15,473,640 4,112,414 783,887
-- -- -- 707,762 -- --
612 311,158 -- 4,371,624 343,333 482,630
-- -- -- -- -- 1,408,129
42,652 1,795,928 107,071 1,646,456 543,850 596,421
-- -- -- -- -- 779,796
90,508 60,368 44,441 464,249 4,781 225,073
- ------------------------------------------------------------------------------------------------
541,150 10,389,098 510,628 22,663,731 5,631,878 4,275,936
- ------------------------------------------------------------------------------------------------
29,040,278 691,258,887 120,969,622 614,334,694 256,493,400 256,752,469
24,537 609,537 580,925 1,036,836 (620,559) (792,684)
349,524 129,423,309 22,395,086 45,368,038 28,484,967 (12,411,607)
-- -- -- (1,890,238) -- (2,433,287)
3,812,634 353,827,426 45,148,010 211,562,708 25,382,184 39,610,602
-- -- -- (39,699,596) -- (8,037,756)
- ------------------------------------------------------------------------------------------------
$33,226,973 $1,175,119,159 $189,093,643 $830,712,442 $309,739,992 $272,687,737
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class A
- ------------- ------- ------------- ------- ------------- ------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2,468,215 312,763 56,181,750 818,966 -- -- 30,913,314 2,125,041 11,816,017 783,168 15,499,590
$11.95 $11.94 $20.62 $20.46 -- -- $23.34 $23.18 $24.63 $24.42 $16.52
$12.65 $11.94 $21.82 $20.46 -- -- $24.70 $23.18 $26.06 $24.42 $17.48
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service Institutional
- ------------- ------- ------------- ------- ------------- ------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
155 150 -- -- 7,989,163 87 2,461,067 89,276 -- -- 685,661
$11.95 $11.94 -- -- $23.67 $23.67 $23.51 $23.38 -- -- $16.59
<CAPTION>
Class B
- -------
<S> <C>
319,335
$16.40
$16.40
Service
- -------
<S> <C>
--
--
</TABLE>
55
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends(a) (including $65,234 received from
affiliated issuers for Small Cap Equity) $ 486,754 $ 4,172,206
Interest(b) 1,633,213 283,272
- ---------------------------------------------------------------------------------
TOTAL INCOME 2,119,967 4,455,478
- ---------------------------------------------------------------------------------
EXPENSES:
Management fees 332,006 1,669,777
Distribution fees 139,549 413,921
Authorized dealer service fees 127,694 352,253
Custodian fees 50,207 62,893
Transfer agent fees 99,878 240,104
Professional fees 35,455 29,552
Registration fees 15,137 54,862
Amortization of deferred organization expenses 6,661 --
Trustee fees 1,202 3,091
Other 10,294 48,453
- ---------------------------------------------------------------------------------
TOTAL EXPENSES 818,083 2,874,906
Less--expenses reimbursed and fees waived by
Goldman Sachs (289,609) (462,438)
- ---------------------------------------------------------------------------------
NET EXPENSES 528,474 2,412,468
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,591,493 2,043,010
- ---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions (including realized
gains of $2,634,349 on sales of investments in
affiliated issuers for Small Cap Equity) 5,165,557 20,056,208
Futures transactions 64,054 1,115,559
Foreign currency related transactions (14,723) --
Net change in unrealized gain (loss) on:
Investments 9,359,807 73,407,077
Futures 42,885 272,877
Translation of assets and liabilities
denominated in foreign currencies 19,468 --
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT,
OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS 14,637,048 94,851,721
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $16,228,541 $96,894,731
- ---------------------------------------------------------------------------------
</TABLE>
(a) For the Balanced, CORE U.S. Equity, CORE Large Cap Growth, Capital Growth,
Mid Cap Equity, International Equity and Asia Growth Funds, taxes withheld
on dividends were $744, $20,389, $408, $42,487, $4,487, $909,357 and
$201,084, respectively.
(b) For the Balanced Fund, taxes withheld on interest were $2,724.
(c) CORE Large Cap Growth Fund commenced operations on May 1, 1997.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND(C) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 69,444 $ 6,813,967 $ 1,183,533 $ 5,932,214 $ 722,690 $ 2,369,480
9,091 868,702 94,041 858,131 595,147 473,203
- --------------------------------------------------------------------------------------------------------
78,535 7,682,669 1,277,574 6,790,345 1,317,837 2,842,683
- --------------------------------------------------------------------------------------------------------
43,779 4,891,228 592,506 3,437,442 1,226,018 1,360,100
15,564 1,241,280 -- 868,168 326,906 335,767
14,589 1,222,807 -- 790,939 306,505 325,580
22,154 63,364 18,791 474,368 36,394 232,094
12,099 450,925 31,600 420,003 265,468 214,033
18,627 32,460 31,072 36,142 32,119 37,005
17,155 32,147 13,894 83,971 20,320 45,375
2,521 -- 8,512 7,227 6,678 15,736
126 7,847 1,278 5,544 1,706 2,373
4,577 69,092 12,670 68,155 12,586 20,217
- --------------------------------------------------------------------------------------------------------
151,191 8,011,150 710,323 6,191,959 2,234,700 2,588,280
(97,193) (1,213,570) (38,816) (464,116) (296,304) (269,236)
- --------------------------------------------------------------------------------------------------------
53,998 6,797,580 671,507 5,727,843 1,938,396 2,319,044
- --------------------------------------------------------------------------------------------------------
24,537 885,089 606,067 1,062,502 (620,559) 523,639
- --------------------------------------------------------------------------------------------------------
349,524 115,156,585 14,892,426 42,837,306 21,099,362 4,610,560
-- -- -- -- -- (994,498)
-- -- -- (972,391) -- (2,021,368)
3,812,634 101,151,901 23,232,147 99,071,315 20,776,667 6,596,227
-- -- -- -- -- --
-- -- -- (7,290,060) -- (6,042,525)
- --------------------------------------------------------------------------------------------------------
4,162,158 216,308,486 38,124,573 133,646,170 41,876,029 2,148,396
- --------------------------------------------------------------------------------------------------------
$4,186,695 $217,193,575 $38,730,640 $134,708,672 $41,255,470 $ 2,672,035
- --------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
-------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 1,591,493 $ 2,043,010
Net realized gain on investment, option and
futures transactions 5,229,611 21,171,767
Net realized loss on foreign currency
related transactions (14,723) --
Net change in unrealized gain on
investments, options and futures 9,402,692 73,679,954
Net change in unrealized gain (loss) on
translation of assets and liabilities
denominated in foreign currencies 19,468 --
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 16,228,541 96,894,731
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (1,375,790) --
Class B shares (56,323) --
Institutional shares -- --
Service shares -- --
- ----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,432,113) --
- ----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 40,396,833 99,586,343
Reinvestment of dividends and distributions 1,224,846 --
Cost of shares repurchased (6,417,071) (45,139,094)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 35,204,608 54,447,249
- ----------------------------------------------------------------------------
Total increase (decrease) 50,001,036 151,341,980
NET ASSETS:
Beginning of period 83,520,127 395,833,695
- ----------------------------------------------------------------------------
End of period $133,521,163 $547,175,675
- ----------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income (loss) $ 339,584 $ 2,043,010
- ----------------------------------------------------------------------------
</TABLE>
(a) CORE Large Cap Growth Fund commenced operations on May 1, 1997.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND(A) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 24,537 $ 885,089 $ 606,067 $ 1,062,502 $ (620,559) $ 523,639
349,524 115,156,585 14,892,426 42,837,306 21,099,362 3,616,062
-- -- -- (972,391) -- (2,021,368)
3,812,634 101,151,901 23,232,147 99,071,315 20,776,667 6,596,227
-- -- -- (7,290,060) -- (6,042,525)
- --------------------------------------------------------------------------------------------------------------
4,186,695 217,193,575 38,730,640 134,708,672 41,255,470 2,672,035
- --------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
29,901,684 95,800,041 6,949,969 191,045,207 73,020,425 46,386,178
-- -- -- -- -- --
(861,406) (61,741,484) (1,840,296) (119,570,466) (20,270,709) (56,060,080)
- --------------------------------------------------------------------------------------------------------------
29,040,278 34,058,557 5,109,673 71,474,741 52,749,716 (9,673,902)
- --------------------------------------------------------------------------------------------------------------
33,226,973 251,252,132 43,840,313 206,183,413 94,005,186 (7,001,867)
-- 923,867,027 145,253,330 624,529,029 215,734,806 279,689,604
- --------------------------------------------------------------------------------------------------------------
$33,226,973 $1,175,119,159 $189,093,643 $ 830,712,442 $309,739,992 $272,687,737
- --------------------------------------------------------------------------------------------------------------
$ 24,537 $ 609,537 $ 580,925 $ 1,036,836 $ (620,559) $ (792,684)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment,
option and futures transactions 3,956,460 15,032,718
Net realized gain on options written -- --
Net realized gain (loss) on foreign currency
related transactions 12,575 --
Net change in unrealized gain (loss) on
investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation
of assets and liabilities denominated in
foreign currencies (12,568) --
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 11,302,273 67,658,142
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option
and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- ----------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
- ----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 27,303,030 149,961,461
- ----------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
NET ASSETS:
Beginning of year 50,928,007 193,874,478
- ----------------------------------------------------------------------------
End of year $83,520,127 $395,833,695
- ----------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income $ 180,204 $ --
- ----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,337,292 $ 1,726,659 $ (242,737) $ (1,551,590) $ 538,846
53,687,297 13,627,039 16,714,697 28,767,853 (7,436,150)
-- 40,466 -- -- --
-- -- 146,694 -- (1,099,538)
145,350,120 14,749,074 60,236,901 22,913,571 5,823,115
-- -- (28,245,657) -- (599,549)
- ------------------------------------------------------------------------------------
204,374,709 30,143,238 48,609,898 50,129,834 (2,773,276)
- ------------------------------------------------------------------------------------
(5,948,617) -- -- -- (206,784)
-- -- -- -- --
-- (1,837,675) (106,712) -- --
-- -- -- -- --
(258,749) -- -- -- --
(12,838) -- -- -- (5,064)
-- (25,142) -- -- (83,075)
-- -- -- -- --
(91,862,169) -- (5,358,559) (10,210,264) --
(179,327) -- (159,717) (149,626) --
-- (6,629,058) (689,171) -- --
-- -- (3,947) -- --
- ------------------------------------------------------------------------------------
(98,261,700) (8,491,875) (6,318,106) (10,359,890) (294,923)
- ------------------------------------------------------------------------------------
76,008,897 3,933,239 321,475,961 56,119,213 144,448,826
90,088,874 8,489,760 5,481,492 9,876,571 221,279
(229,399,817) (24,491,993) (75,580,037) (95,024,895) (67,451,011)
- ------------------------------------------------------------------------------------
(63,302,046) (12,068,994) 251,377,416 (29,029,111) 77,219,094
- ------------------------------------------------------------------------------------
42,810,963 9,582,369 293,669,208 10,740,833 74,150,895
881,056,064 135,670,961 330,859,821 204,993,973 205,538,709
- ------------------------------------------------------------------------------------
$ 923,867,027 $145,253,330 $624,529,029 $215,734,806 $279,689,604
- ------------------------------------------------------------------------------------
$ (275,552) $ (25,142) $ (25,666) $ -- $ (1,316,323)
- ------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
1. ORGANIZATION
Effective May 1, 1997, the Goldman Sachs Equity Portfolios, Inc. was
reorganized from a Maryland corporation to a Delaware business trust named the
Goldman Sachs Trust (the "Trust"). The Trust includes the Equity Portfolios,
collectively the "Funds" or individually a "Fund". The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. Included in this report are the
financial statements for the Goldman Sachs Balanced Fund ("Balanced Fund"),
Goldman Sachs CORE U.S. Equity Fund ("CORE U.S. Equity Fund"), Goldman Sachs
CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
Capital Growth Fund ("Capital Growth Fund"), Goldman Sachs Mid Cap Equity Fund
("Mid Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap
Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth Fund"). At July
31, 1997, the CORE U.S. Equity, CORE Large Cap Growth, International Equity and
Asia Growth Funds offer four classes of shares--Class A, Class B, Institutional
and Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares--Class A and Class B. The Mid Cap Equity Fund offers two
classes of shares--Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
Investments in securities traded on a U.S. or foreign securities exchange or
the NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked price, and securities traded on a foreign exchange
will be valued at the official bid price. Unlisted equity and debt securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices. Debt securities are valued at prices supplied
by an independent pricing service, which reflect broker/dealer-supplied
valuations and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued at
fair value using methods approved by the Board of Trustees of the Trust.
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value of the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums
on U.S. Government and Corporate bonds. In addition, it is the Funds' policy to
accrue for estimated capital gains taxes on foreign securities held by the
Funds subject to such taxes.
C. Mortgage Dollar Rolls
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities in the current month for delivery and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date. For
financial reporting and tax reporting purposes, the Fund treats mortgage dollar
rolls
62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale.
D. Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
on currency exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
E. Forward Foreign Currency Exchange Contracts
Certain of the Funds are authorized to enter into forward foreign currency
exchange contracts for the purchase of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The Balanced, International Equity and
Asia Growth Funds may enter into such contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable
translation rates and any resulting unrealized gains or losses are recorded in
the funds' financial statements. The Funds record realized gains or losses at
the time the forward contract is offset by entry into a closing transaction or
extinguished by delivery of the currency. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
F. Short Securities Positions
The Funds (other than the CORE U.S. Equity and CORE Large Cap Growth Funds) may
enter into covered short sales. Short securities positions are accounted for at
cost and subsequently marked to market to reflect the current market value of
the position. The market value of the short position is recorded as a liability
on the fund's records and any difference between this market value and cash
received is reported as unrealized gain or loss. Gains and losses are realized
when a short position is closed out by delivering securities back to the
broker.
G. Federal Taxes
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their investment company taxable income and capital gains
to their shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
63
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
I. Expenses
Expenses incurred by the Funds which do not specifically relate to an
individual Fund are allocated to the Funds based on each Fund's relative
average net assets for the period.
Class A and Class B shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses
which are directly attributable to such shares. Each class of Shares separately
bears their respective class-specific transfer agency fees. Service shares
separately bear a service fee.
J. Option Accounting Principles
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When a written call option is exercised, the funds
realize a gain or loss from the sale of the underlying security, and the
proceeds of the sale are increased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the funds purchase upon exercise.
There is a risk of loss from a change in value of such options which may exceed
the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds
the premium paid is recorded as an investment and subsequently marked-to-market
to reflect the current market value of the option. If an option which the Funds
have purchased expires on the stipulated expiration date, the funds will
realize a loss in the amount of the cost of the option. If the funds enter into
a closing sale transaction, the funds will realize a gain or loss, depending on
whether the sale proceeds from the closing sale transaction are greater or less
than the cost of the option. If the Funds exercise a purchased put option, the
funds will realize a gain or loss from the sale of the underlying security, and
the proceeds from such sale will be decreased by the premium originally paid.
If the Funds exercise a purchased call option, the cost of the security which
the funds purchase upon exercise will be increased by the premium originally
paid.
K. Futures Contracts
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The CORE U.S. Equity and CORE Large Cap Growth Funds may
enter into such transactions only with respect to the S&P 500 Index or a
representative index, respectively. A Fund will engage in futures transactions
only for bona fide hedging purposes as defined in regulations of the CFTC or to
seek to increase total return to the extent permitted by such regulations. The
use of futures contracts involve, to varying degrees, elements of market risk
which may exceed the amounts recognized in the Statements of Assets and
Liabilities.
Upon entering into a futures contract, the Funds are required to deposit with
a broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Funds each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss
equal to the difference between the value of the futures contract to sell and
the futures contract to buy. Futures contracts are valued at the most recent
price, unless such price does not reflect the fair market value of the
contract, in which case the position will be valued using methods approved by
the Board of Trustees of the Trust.
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Certain risks may arise upon entering into futures contracts. The predominant
risk is that the changes in the value of the futures contract may not directly
correlate with changes in the value of the underlying securities. This risk may
decrease the effectiveness of the Funds' hedging strategies and may also result
in a loss to the Funds.
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration Agreements
were combined into an Investment Management Agreement (the "Agreement")
encompassing the same services and fee structure. Goldman Sachs Asset
Management ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser to the Balanced, CORE Large Cap
Growth, Mid Cap Equity and Small Cap Equity Funds; Goldman Sachs Funds
Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, acts as investment
adviser to the CORE U.S. Equity and Capital Growth Funds; and Goldman Sachs
Asset Management International ("GSAM International") acts as investment
adviser to the International Equity and Asia Growth Funds. Under the
Agreements, GSAM, GSFM and GSAM International (the "Investment Advisors"),
subject to the general supervision of the Trust's Board of Trustees, manage the
Fund's portfolios. As compensation for the services rendered under the
Agreements, the assumption of the expenses related thereto and administering
the Funds' business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .65%,
..75%, .75% and 1.00% of the average daily net assets of the Balanced, CORE
Large Cap Growth, Mid Cap Equity and Small Cap Equity Funds, respectively. GSFM
is entitled to a fee of .75% and 1.00% of the average daily net assets of the
CORE U.S. Equity and Capital Growth Funds, respectively. GSAM International is
entitled to a fee for the International Equity and Asia Growth Funds of 1.00%
and 1.00% of the average daily net assets for those funds, respectively.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, CORE U.S. Equity, CORE Large Cap Growth, Mid Cap
Equity, International Equity and Asia Growth Funds (excluding management,
service, distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced and CORE Large Cap Growth
Funds, transfer agent fees) until further notice to the extent such expenses
exceed .10%, .06%, .05%, .06%, .20% and .24% of the average daily net assets of
the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B contingent deferred sales charge imposed and has advised
the Trust that it retained approximately $126,000, $318,000, $34,000, $420,000,
$840,000, $212,000, $546,000 during the six months ended July 31, 1997 for the
Balanced, CORE U.S. Equity, CORE Large Cap Growth, Capital Growth,
International Equity, Small Cap Equity and Asia Growth Funds, respectively.
The Trust, on behalf of each Fund, other than the Mid Cap Equity Fund, has
adopted a Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1.
Under the Distribution Plan, Goldman Sachs is entitled to a quarterly fee from
each Fund for distribution services equal, on an annual basis, to .25% and .75%
of a Fund's average daily net assets attributable to Class A and Class B
shares, respectively.
The Trust, on behalf of each Fund, other than the Mid Cap Equity Fund, has
adopted an Authorized Dealer Service Plan (the "Service Plan") pursuant to
which Goldman Sachs and Authorized Dealers are compensated for providing
personal and account maintenance services. Each Fund pays a fee under its
Service Plan equal, on an annual basis, to .25% of its average daily net assets
attributable to Class A and Class B shares. Goldman Sachs also serves as the
Transfer Agent of the funds for a fee.
65
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
For the six months ended July 31, 1997, the Manager and Distributor have
voluntarily agreed to waive certain fees and reimburse other expenses as
follows (in thousands):
<TABLE>
<CAPTION>
Waivers
------------------ Reimburse-
Class A Reimburse- ment
Fund Management 12b-1 ment Outstanding
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced $ -- $ 122 $168 $52
CORE U.S. Equity 356 51 55 10
CORE Large Cap Growth 9 14 74 48
Capital Growth -- 1,214 -- --
Mid Cap Equity -- -- 39 9
International Equity 344 120 -- --
Small Cap Equity -- 296 -- --
Asia Growth 190 51 28 17
</TABLE>
The Investment Manager and Distributor may discontinue or modify such waivers
and limitations in the future at their discretion.
At July 31, 1997, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Authorized
Distri- Dealer Transfer
Fund Management butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ 69 $ 12 $ 71 $ 33 $ 185
CORE U.S. Equity 259 139 260 122 780
CORE Large Cap Growth 15 1 15 12 43
Capital Growth 955 20 646 175 1,796
Mid Cap Equity 107 -- -- -- 107
International Equity 617 420 427 182 1,646
Small Cap Equity 250 22 168 104 544
Asia Growth 198 143 156 99 596
</TABLE>
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options) for the six months ended July 31, 1997,
were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- ---- ------------ ------------
<S> <C> <C>
Balanced $129,509,183 $ 94,675,496
CORE U.S. Equity 167,742,702 121,365,630
CORE Large Cap Growth 32,152,475 4,475,138
Capital Growth 455,703,046 432,962,894
Mid Cap Equity 59,312,478 55,776,587
International Equity 237,116,150 148,697,747
Small Cap Equity 118,941,639 104,800,391
Asia Growth 134,170,651 151,973,563
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$77,260,237 and $68,674,762, respectively.
For the six months ended July 31, 1997, written put option transactions in
the Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- --------------- --------- --------
<S> <C> <C>
Balance outstanding at beginning of period 0 $ 0
Options written 1,800 528,963
- --------------------------------------------------------------
Balance outstanding, end of period 1,800 $528,963
- --------------------------------------------------------------
</TABLE>
Certain risks arise related to call and put options from the possible inability
of counterparties to meet the terms of their contracts.
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
At July 31, 1997, the International Equity Fund had the following outstanding
forward foreign currency exchange contracts:
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT UNREALIZED
SALE CONTRACTS DATE CURRENT VALUE GAIN (LOSS)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR
expiring 9/18/97 $ 22,928,352 $ 22,877,160 $ 51,192
DEUTSCHE MARK expiring 8/21/97 23,195,818 21,660,471 1,535,347
expiring 9/11/97 15,822,424 15,344,454 477,970
FRENCH FRANC expiring 10/23/97 40,939,929 40,045,646 894,283
HONG KONG DOLLAR
expiring 8/8/97 18,484,541 18,491,623 (7,082)
expiring 8/8/97 5,803,189 5,802,003 1,186
JAPANESE YEN expiring 9/22/97 74,555,000 71,008,671 3,546,329
expiring 10/22/97 9,761,324 9,593,392 167,932
- -----------------------------------------------------------------------------
Total Foreign Currency Sale Contracts $211,490,577 $204,823,420 $6,667,157
- -----------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. At July 31, 1997, the
International Equity Fund had sufficient cash and securities to cover any
commitments under these contracts.
The Balanced and International Equity Funds have recorded a "Receivable for
forward foreign currency exchange contracts" and "Payable for forward foreign
currency exchange contracts" resulting from open and closed but not settled
forward foreign currency exchange contracts of $0 and $11,101 and $7,725,121
and $707,762, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$1,050,882 and $700,680 respectively, and a payable of $11,101 for the Balanced
Fund related to forward contracts closed but not settled as of July 31, 1997.
For the six months ended July 31, 1997, Goldman Sachs earned approximately
$12,000, $162,000, $14,000, $14,000, and $71,000 of brokerage commissions from
portfolio transactions executed on behalf of the Balanced, Capital Growth, Mid
Cap Equity, Small Cap Equity and Asia Growth Funds.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
67
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfer uninvested cash balances into
joint accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At July 31, 1997, the Balanced, CORE
U.S. Equity, CORE Large Cap Growth, Capital Growth, Mid Cap Equity and Small
Cap Equity Funds had undivided interests in the repurchase agreements in the
following joint account which equaled $16,200,000, $12,900,000, $800,000,
$27,500,000, $5,600,000 and $49,800,000, respectively, in principal amount. At
July 31, 1997, the repurchase agreements held in this joint account, along with
the corresponding underlying securities (including the type of security, market
value, interest rate and maturity date) were as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns Securities, Inc., dated 07/31/97, repurchase price $100,016,250
(FNMA: $48,113,651, 5.50%-7.50%, 02/01/01-06/01/10; FHLMC: $55,056,251,
7.00%, 03/01/12)
$100,000,000 5.85% 08/01/97 $100,000,000
JP Morgan Securities, Inc., dated 07/31/97, repurchase price $80,013,000
(FNMA: $81,948,067, 6.76%-6.99%, 07/09/07-07/16/07)
80,000,000 5.85% 08/01/97 80,000,000
Lehman Government Securities, dated 07/31/97, repurchase price $28,004,480
(U.S. Treasury Note: $28,554,949, 6.75%, 04/30/00)
28,000,000 5.76% 08/01/97 28,000,000
Nomura Securities, Inc., dated 07/31/97, repurchase price $50,008,125 (GNMA:
$51,000,001, 7.00%-7.50%, 01/01/00-10/15/26)
50,000,000 5.85% 08/01/97 50,000,000
- ---------------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $258,000,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Funds, except the CORE U.S. Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the six months ended July 31,
1997, the Funds did not have any borrowings under these facilities.
8. TRANSACTIONS WITH AFFILIATED COMPANIES
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the six months ended July 31, 1997 which are considered to
be affiliates of Small Cap Equity and which are still held as of period end are
as follows (dollar amounts in thousands):
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alpine Lace Brands, Inc. $ -- $ -- $ -- $-- $ 3,044
APS Holding Corp. 759 -- -- -- 6,395
J. Baker, Inc. -- 970 (802) 30 8,744
Brookstone, Inc. -- -- -- -- 6,488
Congoleum Corp. -- 336 96 -- 2,198
International Post Ltd. -- -- -- -- 1,297
Loehmann's Inc. 6,413 -- -- -- 5,309
Mortons Restaurant Group, Inc. -- 764 392 -- 7,602
Movado Group, Inc. -- 5,361 2,948 35 13,284
Opinion Research Corp. -- -- -- -- 2,089
Pegasus Communications Corp. 1,153 -- -- -- 4,905
Platinum Entertainment Corp. 265 -- -- -- 2,158
Seibels Bruce Group 890 -- -- -- 1,076
- -------------------------------------------------------------------------------
</TABLE>
9. OTHER MATTERS
As of July 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 13% and 96% of
the outstanding shares of the CORE US Equity and Mid Cap Equity Funds,
respectively.
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the six months ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund CORE U.S. Equity CORE Large Cap Growth Capital Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,737,618 $33,943,369 2,647,977 $ 65,826,339 2,541,195 $26,311,995 4,685,824 $ 84,105,240
Reinvestment of
dividends and
distributions 59,887 1,173,108 -- -- -- -- -- --
Shares repurchased (321,372) (6,246,538) (828,137) (20,340,078) (72,980) (857,534) (3,525,798) (61,466,440)
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,476,133 28,869,939 1,819,840 45,486,261 2,468,215 25,454,461 1,160,026 22,638,800
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 328,037 6,453,464 667,031 16,620,871 313,111 3,587,107 641,628 11,694,801
Reinvestment of
dividends and
distributions 2,626 51,738 -- -- -- -- -- --
Shares repurchased (8,564) (170,533) (58,922) (1,454,365) (348) (3,872) (15,902) (275,044)
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
322,099 6,334,669 608,109 15,166,506 312,763 3,583,235 625,726 11,419,757
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold -- -- 648,136 15,939,242 155 1,550 -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (878,994) (23,136,379) -- -- -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- (230,858) (7,197,137) 155 1,550 -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 49,244 1,199,891 150 1,032 -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (8,810) (208,272) -- -- -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 40,434 991,619 150 1,032 -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase (decrease)
in shares 1,798,232 $35,204,608 2,237,525 $ 54,447,249 2,781,283 $29,040,278 1,785,752 $ 34,058,557
<CAPTION>
=================================================================================================
</TABLE>
69
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the six months ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
Mid Cap Equity Fund International Equity Fund Small Cap Equity Fund Asia Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold -- -- 7,064,902 $ 150,626,998 2,575,972 $ 58,437,359 2,679,332 $ 43,080,940
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (3,917,168) (83,252,386) (900,448) (19,664,773) (3,301,864) (52,529,142)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 3,147,734 67,374,612 1,675,524 38,772,586 (622,532) (9,448,202)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold -- -- 1,152,179 24,332,741 634,966 14,583,066 145,477 2,305,142
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (24,945) (522,072) (28,342) (605,936) (32,529) (515,087)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 1,127,234 23,810,669 606,624 13,977,130 112,948 1,790,055
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold 328,465 $ 6,947,969 732,981 14,842,655 -- -- 64,282 1,000,096
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased (95,076) (1,840,296) (1,796,083) (35,721,797) -- -- (194,120) (3,015,851)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
233,389 5,107,673 (1,063,102) (20,879,142) -- -- (129,838) (2,015,755)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold 87 2,000 57,954 1,242,813 -- -- -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (3,508) (74,211) -- -- -- --
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
87 2,000 54,446 1,168,602 -- -- -- --
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase
(decrease) in shares 233,476 $ 5,109,673 3,266,312 $ 71,474,741 2,282,148 $ 52,749,716 (639,422) $ (9,673,902)
<CAPTION>
===================================================================================================
</TABLE>
70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Mid-Cap Equity Fund Capital Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,529,469 $27,172,279 3,862,697 $ 81,642,386 -- $ -- 4,677,047 $ 73,029,007
Reinvestment of
dividends and
distributions 310,437 5,598,883 370,586 8,175,333 -- -- 5,870,272 89,898,521
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) -- -- (14,635,348) (229,277,586)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,393,371 25,237,890 3,124,081 65,994,573 -- -- (4,088,029) (66,350,058)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 109,171 2,001,768 733,802 15,946,016 -- -- 188,331 2,979,890
Reinvestment of
dividends and
distributions 5,284 95,768 24,314 535,407 -- -- 12,408 190,353
Shares repurchased (1,795) (32,396) (13,894) (310,118) -- -- (7,499) (122,231)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
112,660 2,065,140 744,222 16,171,305 -- -- 193,240 3,048,012
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
SHARES
Shares sold -- -- 3,151,881 66,277,175 227,071 3,933,239 -- --
Reinvestment of
dividends and
distributions -- -- 275,197 6,102,331 483,747 8,489,760 -- --
Shares repurchased -- -- (363,536) (7,991,198) (1,480,859) (24,491,993) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 3,063,542 64,388,308 (770,041) (12,068,994) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 154,590 3,344,141 -- -- -- --
Reinvestment of
dividends and
distributions -- -- 4,126 91,166 -- -- -- --
Shares repurchased -- -- (1,252) (28,032) -- -- -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 157,464 3,407,275 -- -- -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase
(decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 (770,041) $(12,068,994) (3,894,789) $ (63,302,046)
<CAPTION>
======================================================================================================
</TABLE>
71
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- --------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 2,508,268 $ 52,353,524 12,103,239 $ 230,847,197 7,588,351 $124,281,405
Reinvestment of
dividends and
distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of
dividends and
distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of
dividends and
distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- 3,524,169 68,046,277 815,499 13,114,475
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of
dividends and
distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- 34,830 676,729 -- --
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net increase (decrease)
in shares (1,537,835) $(29,029,111) 13,081,265 $ 251,377,416 4,676,292 $ 77,219,094
<CAPTION>
==============================================================================
</TABLE>
72
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From gain on In excess Net asset
value, Net investments, net investment of net Net increase value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $18.78 $0.29 $2.58 $(0.27) $ -- $ -- $2.60 $21.38 15.42%(c)
1997--Class B
Shares
(unaudited)..... 18.73 0.27 2.52 (0.22) -- -- 2.57 21.30 15.01(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) (1.00) -- 1.47 18.78 18.59
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(g) (in 000s) assets assets net assets net assets
-------------------------------------------------------------------------------------------------
BALANCED FUND
-------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 95.62%(c)(f) $0.0595 $124,260 1.00%(e) 3.15%(e) 1.59%(e) 2.56%(e)
1997--Class B
Shares
(unaudited)..... 95.62(c)(f) 0.0595 9,261 1.75(e) 2.37(e) 2.09(e) 2.03(e)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
1997--Class A
Shares.......... 208.11(f) .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
From
Net realized net realized
and unrealized gain on
Net asset gain (loss) on From investments, In excess Net increase Net asset
value, Net investments, net options of net (decrease) value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
CORE U.S. EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $23.32 $0.08 $ 5.07 $ -- $ -- $ -- $ 5.15 $28.47 22.08%(b)
1997--Class B
Shares
(unaudited)..... 23.18 0.09 4.96 -- -- -- 5.05 28.23 21.74(b)
1997--
Institutional
Shares
(unaudited)..... 23.44 0.18 5.09 -- -- -- 5.27 28.71 22.48(b)
1997--Service
Shares
(unaudited)..... 23.27 0.12 5.04 -- -- -- 5.16 28.43 22.17(b)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--
Institutional
Shares.......... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--
Institutional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses in income
turnover commission period average net average net average to average
rate rate(g) (in 000s) assets assets net assets net assets
--------------------------------------------------------------------------------------
CORE U.S. EQUITY FUND
--------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 27.62%(b) $0.0406 $327,636 1.28%(c) 0.72%(c) 1.50%(c) 0.50%(c)
1997--Class B
Shares
(unaudited)..... 27.62(b) 0.0406 38,170 1.82(c) 0.14(c) 2.00(c) (0.04)(c)
1997--
Institutional
Shares
(unaudited)..... 27.62(b) 0.0406 175,744 0.65(c) 1.37(c) 0.83(c) 1.19(c)
1997--Service
Shares
(unaudited)..... 27.62(b) 0.0406 5,626 1.15(c) 0.84(c) 1.33(c) 0.66(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 37.28 $ .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--
Institutional
Shares.......... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--
Institutional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(e) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From gain on In excess Net asset
value, Net investments, net investment of net Net increase value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
CORE LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JULY 31,(C)
1997--Class A
Shares
(unaudited)..... $10.00 $0.01 $1.94 -- -- -- $1.95 $11.95 19.50%(f)
1997--Class B
Shares
(unaudited)..... 10.00 -- 1.94 -- -- -- 1.94 11.94 19.40(f)
1997--
Institutional
Shares
(unaudited)..... 10.00 0.03 1.92 -- -- -- 1.95 11.95 19.50(f)
1997--Service
Shares
(unaudited)..... 10.00 0.02 1.92 -- -- -- 1.94 11.94 19.40(f)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
---------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(b) (in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------------------
CORE LARGE CAP GROWTH FUND
-----------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(C)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 18.14%(f) $0.0292 $29,491 0.90%(d) 0.45%(d) 2.96%(d) (1.61)%(d)
1997--Class B
Shares
(unaudited)..... 18.14(f) 0.0292 3,734 1.65(d) (0.35)(d) 3.46(d) (1.90)(d)
1997--
Institutional
Shares
(unaudited)..... 18.14(f) 0.0292 2 0.65(d) 0.94 (d) 2.46(d) (0.87)(d)
1997--Service
Shares
(unaudited)..... 18.14(f) 0.0292 2 1.15(d) 0.30 (d) 2.96(d) (1.51)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(c) For the period from May 1, 1997 (commencement of operations) to July 31,
1997.
(d) Annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
--------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess Net increase Net asset
value, Net investments, net investments, of net (decrease) value,
beginning investment options and investment options and investment in net end of Total
of period income futures income futures income asset value period return(a)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $16.73 $0.02(h) $ 3.87(h) $ -- $ -- $ -- $ 3.89 $20.62 23.25%(d)
1997--Class B
Shares
(unaudited)..... 16.67 (0.06)(h) 3.85(h) -- -- -- 3.79 20.46 22.74(d)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (1.72) (0.02) 1.82 16.73 25.97
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
---------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income (loss) to expenses to income (loss)
turnover commission period average net average average to average
rate rate(f) (in 000s) assets net assets net assets net assets
---------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
---------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 44.92%(d) $0.0620 $1,158,360 1.38%(e) 0.19%(e) 1.63%(e) (0.06)%(e)
1997--Class B
Shares
(unaudited)..... 44.92(d) 0.0620 16,759 2.13(e) (0.66)(e) 2.13(e) (0.66)(e)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From In excess gain on Net asset
value, Net investments, net of net investment Net increase value,
beginning investment options and investment investment and futures in net end of Total
of period income futures income income transactions asset value period return(b)
- -----------------------------------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--
Institutional
Shares
(unaudited)..... $18.73 $0.08 $4.86 $ -- $ -- $ -- $4.94 $23.67 26.37%(f)
1997--Service
Shares(a)
(unaudited)..... 23.01 -- 0.66 -- -- -- 0.66 23.67 2.87(f)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--
Institutional
Shares.......... 15.91 0.24 3.77 (0.24) (0.02) (0.93) 2.82 18.73 25.63
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1996--Individual
Shares(d)....... 15.00 0.13 0.90 (0.12) -- -- 0.91 15.91 6.89(d)(f)
- -----------
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income (loss) to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(c) (in 000s) assets assets net assets net assets
-------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
-------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--
Institutional
Shares
(unaudited)..... 35.77%(f) $0.0540 $189,092 0.85%(e) 0.77%(e) 0.90%(e) 0.72%(e)
1997--Service
Shares(a)
(unaudited)..... 35.77(f) 0.0540 2 1.35(e) (0.06)(e) 1.40(e) (0.11)(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--
Institutional
Shares.......... 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1996--Individual
Shares(d)....... 58.77(f) -- 135,671 0.85(e) 1.67(e) 0.98(e) 1.54(e)
</TABLE>
- ----
(a) For the period from July 18, 1997 (commencement of operations) to July 31,
1997.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(d) For the period from August 1, 1995 (commencement of operations) to
January 31, 1996.
(e) Annualized.
(f) Not annualized.
(g) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment operations(g)
-------------------------------------------------
Net realized
and unrealized
Net realized gain (loss)
Net asset and unrealized on foreign
value, Net gain (loss) on currency
beginning investment investments, options related
of period income (loss) and futures transactions
---------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $19.32 $0.03(h) $4.20(h) $(0.24)
1997--Class B
Shares
(unaudited)..... 19.24 (0.02)(h) 4.17(h) (0.24)
1997--
Institutional
Shares
(unaudited)..... 19.40 0.08(h) 4.26(h) (0.24)
1997--Service
Shares
(unaudited)..... 19.34 0.04(h) 4.24(h) (0.24)
FOR THE YEAR ENDED JANUARY 31,
- -------------
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28)
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34)
1997--
Institutional
Shares(e)....... 17.45 0.04 3.39 (1.24)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38)
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11)
<CAPTION>
Distributions to
shareholders
-----------------------
From
net realized
gain on Net
From investment, increase Net asset
net option and (decrease) value,
investment futures in net asset end of Total
income transactions value period return(a)
-----------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- ------------
<S> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $ -- $ -- $ 4.02 $23.34 20.81%(c)
1997--Class B
Shares
(unaudited)..... -- -- 3.94 23.18 20.48(c)
1997--
Institutional
Shares
(unaudited)..... -- -- 4.11 23.51 21.19(c)
1997--Service
Shares
(unaudited)..... -- -- 4.04 23.38 20.89(c)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... -- (0.21) 2.12 19.32 13.48
1997--Class B
Shares(e)....... -- (0.21) 0.33 19.24 2.83(c)
1997--
Institutional
Shares(e)....... (0.03) (0.21) 1.95 19.40 12.53(c)
1997--Service
Shares(e)....... -- (0.21) 1.64 19.34 10.42(c)
1996--Class A
Shares.......... (0.58) (0.87) 2.68 17.20 28.68
1995--Class A
Shares.......... -- (0.59) (3.58) 14.52 (16.65)
1994--Class A
Shares.......... -- -- 3.75 18.10 26.13
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... -- -- 0.17 14.35 1.23(c)
<CAPTION>
Ratio of net
Portfolio Average Net assets expenses to
turnover commission at end of average net
rate rate (f) period (in 000's) assets
---------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
---------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 22.30%(c) $0.0230 $721,502 1.69%(d)
1997--Class B
Shares
(unaudited)..... 22.30(c) 0.0230 49,263 2.23(d)
1997--
Institutional
Shares
(unaudited)..... 22.30(c) 0.0230 57,860 1.10(d)
1997--Service
Shares
(unaudited)..... 22.30(c) 0.0230 2,087 1.60(d)
- -------------
FOR THE YEAR ENDED JANUARY 31,
- -------------
1997--Class A
Shares.......... 38.01 .0318 536,283 1.69
1997--Class B
Shares(e)....... 38.01 .0318 19,198 2.23(d)
1997--
Institutional
Shares(e)....... 38.01 .0318 68,374 1.10(d)
1997--Service
Shares(e)....... 38.01 .0318 674 1.60(d)
1996--Class A
Shares.......... 68.48 -- 330,860 1.52
1995--Class A
Shares.......... 84.54 -- 275,086 1.73
1994--Class A
Shares.......... 60.04 -- 269,091 1.76
- ------------
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... 0.00 -- 66,063 1.80(d)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of net
investment Ratio of
income Ratio of net investment
(loss) to expenses income (loss)
average net to average to average
assets net assets net assets
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 0.30%(d) 1.83%(d) 0.16%(d)
1997--Class B
Shares
(unaudited)..... 0.22)(d) 2.33(d) (0.32)(d)
1997--
Institutional
Shares
(unaudited)..... 0.78(d) 1.20(d) 0.68(d)
1997--Service
Shares
(unaudited)..... 0.35(d) 1.70(d) 0.25(d)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... (0.07) 1.88 (0.26)
1997--Class B
Shares(e)....... (0.97)(d) 2.38(d) (1.12)(d)
1997--
Institutional
Shares(e)....... 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 0.26 1.77 0.01
1995--Class A
Shares.......... 0.40 1.98 0.15
1994--Class A
Shares.......... 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
---------------------------------- ------------------------------------
From In excess
net realized of realized
Net realized gain on gain on
Net asset Net and unrealized From investment, investment,
value, investment gain (loss) on net option and option and
beginning income investments, options investment futures futures
of period (loss) and futures income transactions transactions
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... $20.91 $(.0.05)(h) $ 3.77(h) $ -- $ -- $ --
1997--Class B
Shares
(unaudited)..... 20.80 (0.12)(h) 3.74(h) -- -- --
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) --
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) --
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) --
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) --
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- --
<CAPTION>
Net increase Net asset Ratio of net
(decrease) value, Portfolio Average Net assets at expenses to
in net end of Total turnover commission end of period average net
asset value period return(a) rate rate(g) (in 000's) assets
-------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... $ 3.72 $24.63 17.65%(d) 46.02%(d) $0.0506 $290,615 1.56%(e)
1997--Class B
Shares
(unaudited)..... 3.62 24.42 17.26(d) 46.02(d) 0.0506 19,125 2.31(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 3.62 20.91 27.28 99.46 .0461 212,061 1.60
1997--Class B
Shares(b)....... 0.01 20.80 5.39(d) 99.46 .0461 3,674 2.35(e)
1996--Class A
Shares.......... 1.15 17.29 7.20 57.58 -- 204,994 1.41
1995--Class A
Shares.......... (4.53) 16.14 (17.53) 43.67 -- 319,487 1.53
1994--Class A
Shares.......... 3.99 20.67 30.13 56.81 -- 261,074 1.60
FOR THE PERIOD ENDED JANUARY 31,
- ------------
Shares(c)....... 2.50 16.68 17.86(d) 7.12(e) -- 59,339 1.65(e)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
---------------------------
Ratio of net Ratio of net
investment Ratio of investment
income (loss) to expenses to loss
average net average to average
assets net assets net assets
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... (0.49)%(e) 1.81%(e) (0.74)%(e)
1997--Class B
Shares
(unaudited)..... (1.06)(e) 2.31(e) (1.06)(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... (0.59) 1.66 (0.84)
1995--Class A
Shares.......... (0.53) 1.78 (0.78)
1994--Class A
Shares.......... (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(c)....... 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
-------------------------------------------- ---------------------
Net realized
Net asset Net Net realized and unrealized From In excess Net increase Net asset
value, investment and unrealized gain on foreign net of net (decrease) value,
beginning income gain (loss) on currency related investment investment in net end of Total
of period (loss) investments transactions income income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------------
ASIA GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $16.31 $ 0.03(h) $ 0.86(h) $(0.68) $ -- $ -- $ 0.21 $16.52 1.29%(c)
1997--Class B
Shares
(unaudited)..... 16.24 (0.02)(h) 0.71(h) (0.56) -- -- 0.16 16.40 0.99(c)
1997--
Institutional
Shares
(unaudited)..... 16.33 0.07(h) 0.90(h) (0.71) -- -- 0.26 16.59 1.59(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 16.49 0.06 (0.11) (0.12) (0.01) -- (0.18) 16.31 (1.01)
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--
Institutional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of net Ratio of net
Ratio of net investment Ratio of investment
Portfolio Average Net assets at expenses to income (loss) expenses income (loss)
turnover commission end of period average net to average net to average to average
rate rate(f) (000's) assets assets net assets net assets
------------------------------------------------------------------------------------------
ASIA GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- ------------
1997--Class A
Shares
(unaudited)..... 51.72%(c) $0.0068 $256,078 1.72%(d) 0.37%(d) 1.92%(d) 0.17%(d)
1997--Class B
Shares
(unaudited)..... 51.72(c) 0.0068 5,237 2.27(d) (0.21)(d) 2.43(d) (0.37)(d)
1997--
Institutional
Shares
(unaudited)..... 51.72(c) 0.0068 11,372 1.10(d) 0.91(d) 1.26(d) 0.75(d)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(c) (0.56)(d) 2.37(d) (0.72)(d)
1997--
Institutional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- ---------------
* The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not necessarily
represent ratings which will be given to these securities on the date of the
Fund's fiscal year end.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
1-A
<PAGE>
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and C the
highest. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
D: Bonds rated D are in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
2-A
<PAGE>
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
3-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November
29, 1996.
. With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
. The number one underwriter of all international equity issuers from
(1993-1996).
. A research budget of $200 million for 1997.
. Premier lead manager of negotiated municipal bond offerings over the
past six years (1990-1996).
. The number one lead manager of U.S. common stock offerings for the
past eight years (1989-1996).*
. The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1996).
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
====================================
Investment Trusts and Rights.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (longest-standing client
relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest
equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
1996 Dow Jones Industrial Average breaks 6000
Goldman Sachs takes Deutsche Telecom public
1997 Dow Jones Industrial Average breaks 7000
3-B
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
SERVICE SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CORE U.S. EQUITY FUND
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
GOLDMAN SACHS CORE SMALL CAP EQUITY FUND
GOLDMAN SACHS CORE INTERNATIONAL EQUITY FUND
GOLDMAN SAHCS CAPITAL GROWTH FUND
GOLDMAN SACHS MID CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS SMALL CAP VALUE FUND
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
GOLDMAN SACHS REAL ESTATE SECURITIES FUND
(EQUITY PORTFOLIOS OF GOLDMAN SACHS TRUST) One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectus for the Institutional Shares of Goldman Sachs Balanced Fund,
Goldman Sachs Growth and Income Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE Small Cap Equity
Fund, Goldman Sachs CORE International Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Mid Cap Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Small Cap Value Fund, Goldman Sachs Emerging Markets Equity
Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs Real Estate Securities
Fund dated October 1, 1997, as amended and/or supplemented from time to time
(the "Prospectus"), which may be obtained without charge from Goldman, Sachs &
Co. at the telephone number, or writing to one of the addresses, listed below.
TABLE OF CONTENTS
Page
====
Introduction.......................... B-3
Investment Policies................... B-4
Investment Restrictions............... B-33
Management............................ B-36
Portfolio Transactions and Brokerage.. B-49
Net Asset Value....................... B-55
Performance Information............... B-57
Shares of the Trust................... B-63
Taxation.............................. B-67
Financial Statements.................. B-73
Other Information..................... B-73
Service Plans......................... B-75
Appendix A:........................... 1-A
Appendix B:........................... 1-B
<PAGE>
GOLDMAN, SACHS & CO. GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
Distributor Investment Adviser to:
85 Broad Street Goldman Sachs CORE U.S. Equity Fund and
New York, New York 10004 Goldman Sachs Capital Growth Fund
One New York Plaza
New York, New York 10004
GOLDMAN, SACHS & CO.
Transfer Agent GOLDMAN SACHS ASSET MANAGEMENT
4900 Sears Tower Investment Adviser to:
Chicago, Illinois 60606 Goldman Sachs Balanced Fund,
Goldman Sachs CORE Large Cap Growth Fund,
Goldman Sachs CORE Small Cap Equity Fund,
GOLDMAN SACHS ASSET Goldman Sachs CORE International Equity
MANAGEMENT INTERNATIONAL Fund,
Investment Adviser to: Goldman Sachs Growth and Income Fund,
Goldman Sachs International Goldman Sachs Mid Cap Equity Fund,
Equity Fund, Goldman Sachs Goldman Sachs Small Cap Value Fund, and
Asia Growth Fund, and Goldman Goldman Sachs Real Estate
Sachs Emerging Markets Equity One New York Plaza
Fund New York, New York 10004
Securities Fund
133 Peterborough Court
London, England EC4A 2BB
Toll free (in U.S.).......800-621-2550
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INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The following series of the Trust are described in this Additional
Statement: Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), CORE U.S. Equity Fund ("CORE U.S.
Equity Fund")(formerly known as "Goldman Sachs Select Equity Fund"), Goldman
Sachs CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
CORE Small Cap Equity Fund ("CORE Small Cap Equity Fund"), Goldman Sachs CORE
International Equity Fund ("CORE International Equity Fund"), Goldman Sachs Mid
Cap Equity Fund ("Mid Cap Equity Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Value Fund ("Small Cap
Value Fund"), Goldman Sachs Emerging Markets Equity Fund ("Emerging Markets
Equity Fund"), Goldman Sachs Asia Growth Fund ("Asia Growth Fund") and Goldman
Sachs Real Estate Securities Fund ("Real Estate Securities Fund") (collectively
referred to herein as the "Funds").
The Funds were initially organized as a series of a corporation formed
under the laws of the State of Maryland on September 27, 1989 and were
reorganized as a Delaware business trust as of April 30, 1997. The Trustees
have authority under the Trust's charter to create and classify shares into
separate series and to classify and reclassify any series or portfolio of shares
into one or more classes without further action by shareholders. Pursuant
thereto, the Trustees have created the Funds and other series. Additional
series may be added in the future from time to time. The Balanced, Growth and
Income, CORE U.S. Equity, CORE Large Cap Growth, Mid Cap Equity, CORE Small Cap
Equity Fund, CORE International Equity Fund, Capital Growth Fund, International
Equity, Small Cap Value, Emerging Markets Equity, Asia Growth and Real Estate
Securities Funds currently offer five classes of shares: Class A Shares, Class B
Shares, Class C Shares, Institutional Shares and Service Shares. See "Shares of
the Trust."
Goldman Sachs Asset Management, ("GSAM") a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Balanced, Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. Goldman Sachs Fund Management, L.P., ("GSFM") an affiliate of
Goldman Sachs, serves as investment adviser to the CORE U.S. Equity and Capital
Growth Funds. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as investment adviser to the International
Equity, Emerging Markets Equity and Asia Growth Funds. GSAM, GSFM and GSAMI
are sometimes referred to collectively herein as the "Advisers." Goldman Sachs
serves as each Fund's distributor and transfer agent. Each Fund's custodian is
State Street Bank and Trust Company ("State Street").
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectus. See the Prospectus
for a fuller description of the Funds' investment objectives and policies.
There is no assurance that each Fund will achieve its objective.
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INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
BALANCED FUND
=============
The investment objective of the Balanced Fund is to provide shareholders
with long-term capital growth and current income. The Balanced Fund seeks to
achieve its investment objective by investing in a balanced portfolio
diversified among both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about the
volatility typically associated with a fund that invests solely in stocks and
other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio seeks to provide high returns relative to a market benchmark, the
Lehman Brothers Aggregate Bond Index, while also seeking to provide high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-dollar bonds,
emerging market debt) versus another; (2) individual security selection based on
identifying relative value (fixed income securities inexpensive relative to
others in their sector); and (3) to a lesser extent, strategies based on GSAM's
expectation of the direction of interest rates or the spread between short-term
and long-term interest rates such as yield curve strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways.
These include diversifying the fixed income portion of the Balanced Fund's
portfolio among various types of fixed income securities and utilizing
sophisticated quantitative models to understand how the fixed income portion of
the portfolio will perform under a variety of market and economic scenarios.
In addition, GSAM uses extensive credit analysis to select and to monitor any
investment-grade or non-investment grade bonds that may be included in the
Balanced Fund's portfolio. In employing this and other investment strategies,
the GSAM team has access to extensive fundamental research and analysis
available through Goldman Sachs and a broad range of other sources.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Adviser de-emphasizes interest rate anticipation by monitoring the duration of
the portfolio within a narrow range of the Adviser's target duration, and
instead focuses on seeking to add value through sector selection, security
selection and yield curve strategies.
MARKET SECTOR SELECTION. Market sector selection is the underweighting or
overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities,
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mortgage-backed securities and asset-backed securities). GSAM may decide to
overweight or underweight a given market sector or subsector (e.g., within the
corporate sector, industrials, financial issuers and utilities) based on, among
other things, expectations of future yield spreads between different sectors or
subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of corporate
securities based on a corporation's current and expected credit standing (within
the constraints imposed by Balanced Fund's minimum credit quality requirements).
This strategy focuses on four types of investment-grade corporate issuers.
Selection of securities from the first type of issuers - those with low but
stable credit - is intended to enhance total returns by providing incremental
yield. Selecting securities from the second type of issuers - those with low
and intermediate but improving credit quality - is intended to enhance total
returns in two stages. Initially, these securities are expected to provide
incremental yield. Eventually, price appreciation should occur relative to
alternative securities as credit quality improves, the nationally recognized
statistical rating organizations upgrade credit ratings, and credit spreads
narrow. Securities from the third type of issuers - issuers with deteriorating
credit quality - will be avoided, since total returns are typically enhanced by
avoiding the widening of credit spreads and the consequent relative price
depreciation. Finally, total returns can be enhanced by focusing on securities
that are rated differently by different rating organizations. If the securities
are trading in line with the higher published quality rating while GSAM concurs
with the lower published quality rating, the securities would generally be sold
and any potential price deterioration avoided. On the other hand, if the
securities are trading in line with the lower published quality rating while the
higher published quality rating is considered more realistic, the securities may
be purchased in anticipation of the expected market reevaluation and relative
price appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long maturity
sectors are overweighted while intermediate maturity sectors are underweighted;
a "bullet" strategy in which, conversely, short-and long-maturity sectors are
underweighted while intermediate-maturity sectors are overweighted; and a
"neutral yield curve" strategy in which the maturity distribution mirrors that
of a benchmark.
CORE U.S. EQUITY, CORE LARGE CAP GROWTH, CORE SMALL CAP EQUITY AND CORE
=======================================================================
INTERNATIONAL EQUITY FUNDS
===========================
Under normal circumstances, the Funds will invest at least 90% of their
total assets in equity securities.
The investment strategy of the CORE U.S. Equity, CORE Large Cap Growth,
CORE Small Cap Equity and CORE International Equity Funds will be implemented to
the extent it is consistent with maintaining a Fund's qualification as a
regulated investment company under the Internal Revenue Code. A Fund's strategy
may be limited, in particular, by the requirement for such qualification that
less than 30% of the Fund's gross income for its taxable year be derived from
the sale or other disposition of stocks or securities or certain other
investments (generally including options and futures contracts) held for less
than three months.
Since normal settlement for equity securities is three trading days (for
certain international markets settlement may be longer), the Funds will need to
hold cash balances to satisfy shareholder redemption requests. Such cash
balances will normally range from 2% to 5% of a Fund's net assets. The Funds
may purchase futures contracts only with respect to the S&P 500 Index (in the
case of CORE U.S. Equity Fund) and a representative index (in the case of CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) in
order to keep a Fund's effective equity exposure close to 100%. For exam-
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ple, if cash balances are equal to 10% of the net assets, the Fund may enter
into long futures contracts covering an amount equal to 10% of the Fund's net
assets. As cash balances fluctuate based on new contributions or withdrawals, a
Fund may enter into additional contracts or close out existing positions.
THE MULTIFACTOR MODEL. The Multifactor Model is a rigorous computerized
=====================
rating system for evaluating equity securities according to a variety of
investment characteristics (or factors). The factors used by the Multifactor
Model incorporate many variables studied by traditional fundamental analysts and
cover measures of value, growth, momentum, risk (e.g. price/earnings ratio,
book/price ratio, growth forecasts, earning estimate revisions, price momentum,
volatility and earnings stability). All of these factors have been shown to
significantly impact the performance of equity securities.
Because it includes many disparate factors, the Adviser believes that the
Multifactor Model is broader in scope and provides a more thorough evaluation
than most conventional, value-oriented quantitative models. As a result, the
securities ranked highest by the Multifactor Model do not have one dominant
investment characteristic (such as a low price/earnings ratio); rather, such
securities possess many different investment characteristics. By using a
variety of relevant factors to select securities, the Adviser believes that the
Fund will be better balanced and have more consistent performance than an
investment portfolio that uses only one or two factors to select securities.
The Adviser will monitor, and may occasionally suggest and make changes to,
the method by which securities are selected for or weighted in the Fund. Such
changes (which may be the result of changes in the Multifactor Model or the
method of applying the Multifactor Model) may include: (i) evolutionary changes
to the structure of the Multifactor Model (e.g., the addition of new factors or
a new means of weighting the factors); (ii) changes in trading procedures (e.g.,
trading frequency or the manner in which the Fund uses futures); or (iii)
changes in the method by which securities are weighted in the Fund. Any such
changes will preserve the Fund's basic investment philosophy of combining
qualitative and quantitative methods of selecting securities using a disciplined
investment process.
INTERNATIONAL EQUITY FUND
=========================
International Equity Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of investors.
GSAMI believes that the high historical returns and less efficient pricing of
foreign markets create favorable conditions for International Equity Fund's
highly focused investment approach. For a description of the risks of the
International Equity Fund's investments in Asia, see "Investing in Emerging
Markets, including Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAMI's equity team in London, Singapore and Tokyo seeks to
identify companies that may achieve superior long-term returns. Stocks are
carefully selected for International Equity Fund's portfolio through a three-
stage investment process. Because International Equity Fund is a long-term
holder of stocks, the portfolio managers adjust International Equity Fund's
portfolio only when expected returns fall below acceptable levels or when the
portfolio managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the Adviser seeks to
identify attractive industries around the world. Such industries are expected
to have favorable underlying economics and allow companies to generate
sustainable and predictable high returns. As a rule, they are less economically
sensitive, relatively free of regulation and favor strong franchises.
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Within these industries the Adviser seeks to identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry. This stage includes analyzing the current
and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment to
both maintaining the high returns of the existing business and reinvesting the
capital generated at high rates of return. Management should act in the
interests of the owners and seek to maximize returns to all stockholders.
GSAMI's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized to
protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign exchange
fluctuations.
The members of GSAMI's international equity team bring together years of
experience in analyzing and investing in companies in Europe and the Asia-
Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. GSAM's worldwide staff of over 300 professionals includes portfolio
managers based in London, Singapore and Tokyo who bring firsthand knowledge of
their local markets and companies to every investment decision.
CORPORATE DEBT OBLIGATIONS
==========================
Each Fund may, under normal market conditions, invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
CORE U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE
International Equity Funds may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on the market
value of junk bonds will have an adverse effect on a Fund's net asset value to
the extent it invests in such securities. In addition, a Fund may incur
additional expenses to the extent it is required to seek recovery upon a default
in payment of principal or interest on its portfolio holdings.
The secondary market for junk bonds, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Balanced, Growth and Income, Capital Growth, Mid Cap Equity, Small
Cap Value, Emerging Markets Equity, Asia Growth and Real Estate Securities Funds
to dispose of a particular security when necessary to meet their redemption
requests or other liquidity needs. Under adverse market or economic conditions,
the secondary market for junk bonds could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisers could find it difficult to sell these securities or may be able to
sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated
securities, under such circumstances, may be less than the prices used in
calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Balanced, Growth
and Income, Capital Growth, Mid Cap Equity, Small Cap Value, Emerging Markets
Equity, Asia Growth and Real Estate Securities Funds may invest, the yields and
prices of such securities may tend to fluctuate more than those for higher rated
securities. In the
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lower quality segments of the fixed-income securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the fixed-
income securities market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Advisers will attempt to
reduce these risks through portfolio diversification and by analysis of each
issuer and its ability to make timely payments of income and principal, as well
as broad economic trends and corporate developments.
ZERO COUPON BONDS
=================
A Fund's investments in fixed income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the period until maturity. Zero
coupon bonds do not require the periodic payment of interest. Such investments
benefit the issuer by mitigating its need for cash to meet debt service but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which provide for regular payments of
interest. In addition, if an issuer of zero coupon bonds held by a Fund
defaults, the Fund may obtain no return at all on its investment. Each Fund
will accrue income on such investments for each taxable year which (net of
deductible expenses, if any) is distributable to shareholders and which, because
no cash is generally received at the time of accrual, may require the
liquidation of other portfolio securities to obtain sufficient cash to satisfy
the Fund's distribution obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
=====================================
The interest rates payable on certain fixed income securities in which a
Fund may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
CUSTODIAL RECEIPTS
==================
Each Fund may invest up to 5% of its net assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by
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various names, including "Treasury Receipts," "Treasury Investors Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATs"). For certain securities law purposes, custodial receipts are not
considered U.S. Government securities.
MUNICIPAL SECURITIES
====================
Balanced Fund may invest up to 5% of its net assets in municipal
securities. Municipal securities consist of bonds, notes and other instruments
issued by or on behalf of states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal payments
are to be made or the assets collateralizing such obligations. Revenue bonds,
including private activity bonds, are backed only by specific assets or revenue
sources and not by the full faith and credit of the governmental issuer.
MORTGAGE-BACKED SECURITIES
==========================
GENERAL CHARACTERISTICS. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth, CORE Small Cap Equity and CORE International Equity Funds) may
invest in mortgage-backed securities. Each mortgage pool underlying mortgage-
backed securities consists of mortgage loans evidenced by promissory notes
secured by first mortgages or first deeds of trust or other similar security
instruments creating a first lien on owner occupied and non-owner occupied one-
unit to four-unit residential properties, multifamily (i.e., five or more)
properties, agriculture properties, commercial properties and mixed use
properties (the "Mortgaged Properties"). The Mortgaged Properties may consist
of detached individual dwelling units, multifamily dwelling units, individual
condominiums, townhouses, duplexes, triplexes, fourplexes, row houses,
individual units in planned unit developments and other attached dwelling units.
The Mortgaged Properties may also include residential investment properties and
second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if a Fund purchases mortgage-
backed securities at a discount, faster than expected prepayments will increase,
while slower
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than expected prepayments will reduce yield to maturity and market values. To
the extent that a Fund invests in mortgage-backed securities, the Advisers may
seek to manage these potential risks by investing in a variety of mortgage-
backed securities and by using certain hedging techniques.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is autho rized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conven tional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to distrib
ute to holders of Certificates an amount equal to the full principal balance of
any foreclosed Mortgage Loan, whether or not such principal balance is actually
recovered. The obligations of Fannie Mae under its guaranty of the Fannie Mae
Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection
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of all principal of the related mortgage loans, without any offset or deduction,
but does not, generally, guarantee the timely payment of scheduled principal.
The obligations of Freddie Mac under its guaranty of Freddie Mac Certificates
are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than CORE U.S. Equity
, CORE Large Cap Growth, CORE Small Cap Equity and CORE International Equity
Funds) may invest in both government guaranteed and privately issued mortgage
pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or adjustable
rate mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one
or more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--------
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--------
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related mortgage
loan and will be distributed pro rata to certificate-holders as principal of
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such mortgage loan when paid by the mortgagor in subsequent monthly payments or
at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage Pass-
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-
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holders under the agreements pursuant to which such certificates are issued. A
rating organization's ratings take into consideration the credit quality of the
related mortgage pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which the
payment stream on such mortgage pool is adequate to make payments required by
such certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior certificate-
holders on certain distribution dates, as payment of principal, a specified
percentage (which generally declines over time) of all principal payments
received during the preceding prepayment period ("shifting interest credit
enhancement"). This will have the effect of accelerating the amortization of
the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due them and will
protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event the Reserve Fund is depleted before the
subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
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certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
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all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments
on the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees
to make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally 5-
10%) of the aggregate outstanding principal balance of the mortgage loans as of
the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations of
a legal entity that are collateralized by, and multiple class mortgage-backed
securities represent direct ownership interests in, a pool of mortgage loans or
mortgage-backed securities the payments on which are used to make payments on
the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mort gage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participation therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual
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interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the
"Mortgage Assets"). The obligations of Fannie Mae or Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae or Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Balanced and Real Estate
Securities Funds may invest in stripped mortgage-backed securities ("SMBS"),
which are derivative multiclass mortgage securities. Although the market for
such securities is increasingly liquid, certain SMBS may not be readily
marketable and will be considered illiquid for purposes of the Fund's limitation
on investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from Mortgage Assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
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INVERSE FLOATING RATE SECURITIES
================================
Balanced Fund may invest up to 5% of its net assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed . An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
ASSET-BACKED SECURITIES
=======================
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
A Fund's ability to maintain positions in such securities will be affected by
reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
==================================================
Each Fund may purchase and sell futures contracts and may also purchase and
write options on futures contracts. CORE U.S. Equity, CORE Large Cap Growth and
CORE Small Cap Equity Funds may only enter into such transactions with respect
to the S&P 500 Index, for the CORE U.S. Equity Fund and a representative index
in the case of the CORE Large Cap Growth and CORE Small Cap Equity Funds. The
other Funds may purchase and sell futures contracts based on various securities
(such as U.S.
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<PAGE>
Government securities), securities indices, foreign currencies and other
financial instruments and indices. Each Fund will engage in futures and related
options transactions, only for bona fide hedging purposes as defined below or
for purposes of seeking to increase total return to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC"). All futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the CFTC or on foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek through the sale of futures contracts to offset a decline in the value of
its current portfolio securities. When rates are falling or prices are rising,
a Fund, through the purchase of futures contracts, can attempt to secure better
rates or prices than might later be available in the market when it effects
anticipated purchases. Similarly, each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) can sell futures contracts on
a specified currency to protect against a decline in the value of such currency
and its portfolio securities which are quoted or denominated in such currency.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap
Equity Funds) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While each Fund will usually liquidate futures contracts on
securities or currency in this manner, a Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for the Fund to do so. A clearing corporation associated with the
exchange on which futures are traded guarantees that, if still open, the sale or
purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty than would otherwise be possible the effective
price, rate of return or currency exchange rate on portfolio securities or
securities that a Fund owns or proposes to acquire. A Fund may, for example,
take a "short" position in the futures market by selling futures contracts to
seek to hedge against an anticipated rise in interest rates or a decline in
market prices or (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) foreign currency rates that would adversely affect the
dollar value of such Fund's portfolio securities. Similarly, each Fund (other
than CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds)
may sell futures contracts on a currency in which its portfolio securities are
quoted or denominated or in one currency to seek to hedge against fluctuations
in the value of securities quoted or denominated in a different currency if
there is an established historical pattern of correlation between the two
currencies. If, in the opinion of the applicable Adviser, there is a sufficient
degree of correlation between price trends for a Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, a Fund may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having a Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting a
Fund's securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
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unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices or rates that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation), for a
specified price, to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium, to
sell a futures contract if the option is exercised, which may have a value
higher than the exercise price. Conversely, the writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, a Fund
becomes obligated to purchase a futures contract if the option is exercised,
which may have a value lower than the exercise price. Thus, the loss incurred
by a Fund in writing options on futures is potentially unlimited and may exceed
the amount of the premium received. A Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures transactions and
will engage in related options transactions only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are quoted or denominated) that the
Fund owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase. As evidence of this hedging intent, each
Fund expects that on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets quoted or denominated in the related
currency) in the cash market at the time when the futures or options position is
closed out. However, in particular cases, when it is economically advantageous
for a Fund to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits a Fund to elect to comply with a different
test. Under this test the aggregate initial margin and premiums required to
establish positions in futures contracts and options on futures to seek to
increase total return may not exceed 5% of the net asset value of such Fund's
portfolio, after taking into account
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unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase. A Fund will
engage in transactions in currency forward contracts futures contracts and, for
a Fund permitted to do so, related options transactions only to the extent such
transactions are consistent with the requirements of the Code for maintaining
its qualification as a regulated investment company for federal income tax
purposes (see "Taxation").
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian cash or liquid assets in an amount equal to the
underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and a
Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts available to hedge a Fund's portfolio are various
futures on U.S. Government securities, securities indices and foreign
currencies. In addition, it is not possible for a Fund to hedge fully or
perfectly against currency fluctuations affecting the value of securities quoted
or denominated in foreign currencies because the value of such securities is
likely to fluctuate as a result of independent factors not related to currency
fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
============================================
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options on any securities in which it may invest (other than CORE U.S. Equity
and CORE Large Cap Growth Funds). A call option written by a Fund obligates
such Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund are covered, which means that such
Fund will own the securities subject to the option as long as the option is
outstanding or such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
forego the opportunity to profit from an increase in the market price of the
underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that such Fund would have deposited with
its custodian cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Fund. However, in return for the option premium, each
Fund accepts the risk that it may be required to purchase the underlying
securities at a price in excess of the securities' market value at the time of
purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund.
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<PAGE>
In addition, a written call option or put option may be covered by
maintaining cash or liquid assets (either of which may be quoted or denominated
in any currency) in a segregated account, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces a Fund's net exposure on its written option
position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid assets with a value equal to the
exercise price in a segregated account with its custodian.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund (other than the CORE U.S. Equity and CORE
Large Cap Growth Funds) may purchase put and call options on any securities in
which it may invest or options on any securities index composed of securities in
which it may invest. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise such a Fund would realize either no gain or a loss
on the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. A Fund would ordinarily realize a gain if, during the option period,
the value of the underlying securities decreased below the exercise price
sufficiently to more than cover the premium and transaction costs; otherwise
such a Fund would realize either no gain or a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend
to be offset by countervailing changes in the value of the underlying portfolio
securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
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YIELD CURVE OPTIONS. Balanced Fund, with respect to up to 5% of its net
assets, 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.
Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, Balanced Fund may
purchase a call option on the yield spread between two securities if it owns one
of the securities and anticipates purchasing the other security and wants to
hedge against an adverse change in the yield spread between the two securities.
Balanced Fund may also purchase or write yield curve options in an effort to
increase its current income if, in the judgment of the Adviser, Balanced Fund
will be able to profit from movements in the spread between the yields of the
underlying securities. The trading of yield curve options is subject to all of
the risks associated with the trading of other types of options. In addition,
however, such options present risk of loss even if the yield of one of the
underlying securities remains constant, if the spread moves in a direction or to
an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A call
(or put) option is covered if the Balanced Fund holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid assets sufficient to cover
the Balanced Fund's net liability under the two options. Therefore, the
Balanced Fund's liability for such a covered option is generally limited to the
difference between the amount of the Balanced Fund's liability under the option
written by the Balanced Fund less the value of the option held by the Balanced
Fund. Yield curve options may also be covered in such other manner as may be in
accordance with the requirements of the counterparty with which the option is
traded and applicable laws and regulations. Yield curve options are traded
over-the-counter, and because they have been only recently introduced, estab
lished trading markets for these options have not yet developed.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it will have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
B-20
<PAGE>
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the Securities and Exchange
Commission ("SEC") changes its position, each Fund will treat purchased over-
the-counter options and all assets used to cover written over-the-counter
options as illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement requiring
a closing purchase transaction at a formula price, the amount of illiquid
securities may be calculated with reference to the formula.
Transactions by each Fund in options on securities and indices will be
subject to limitations established by each of the exchanges, boards of trade or
other trading facilities governing the maximum number of options in each class
which may be written or purchased by a single investor or group of investors
acting in concert. Thus, the number of options which a Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Advisers. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
=============================
Each Fund may invest in shares of REITs. The Real Estate Securities Fund
expects that a substantial portion of its total assets will be invested in
REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Funds, REITs are not
taxed on income distributed to shareholders provided they comply with certain
requirements under the Code. A Fund will indirectly bear its proportionate
share of any expenses paid by REITs in which it invests in addition to the
expenses paid by a Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
WARRANTS AND STOCK PURCHASE RIGHTS
==================================
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in warrants or rights (other than those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a
specific price for a specific period of time. A Fund will invest in warrants
and rights only if such equity securities are deemed appropriate by the Adviser
for investment by the Fund. CORE
B-21
<PAGE>
U.S. Equity, CORE Large Cap Growth, CORE Small Cap Equity and CORE International
Equity Funds have no present intention of acquiring warrants or rights. Warrants
and rights have no voting rights, receive no dividends and have no rights with
respect to the assets of the issuer.
B-22
<PAGE>
FOREIGN SECURITIES
==================
Investments in foreign securities may offer potential benefits not
available from investments solely in U.S. dollar-denominated or quoted
securities of domestic issuers. Such benefits may include the opportunity to
invest in foreign issuers that appear, in the opinion of the applicable Adviser,
to offer better opportunity for long-term growth of capital and income than
investments in U.S. securities, the opportunity to invest in foreign countries
with economic policies or business cycles different from those of the United
States and the opportunity to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not necessarily move in a manner
parallel to U.S. markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in U.S. dollar-denominated or quoted securities of U.S. issuers.
Investments in foreign securities usually involve currencies of foreign
countries. Accordingly, any Fund that invests in foreign securities may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations and may incur costs in connection with conversions between
various currencies. Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may be subject to currency
exposure independent of their securities positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Each Fund may invest in foreign securities which take the form of sponsored
and unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs") and (except for CORE
B-23
<PAGE>
U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may also
invest in European Depository Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited
in a domestic bank or a correspondent bank. ADRs are traded on domestic
exchanges or in the U.S. over-the-counter market and, generally, are in
registered form. EDRs and GDRs are receipts evidencing an arrangement with a
non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S.
securities markets. EDRs and GDRs are not necessarily quoted in the same
currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository Receipts
(unsponsored), there may be an increased possibility that the Fund would not
become aware of and be able to respond to corporate actions such as stock splits
or rights offerings involving the foreign issuer in a timely manner. In
addition, the lack of information may result in inefficiencies in the valuation
of such instruments.
Each Fund (except CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. See "Investing in Emerging Markets, including Asia," below.
A Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE Small
Cap Equity Funds) may invest in securities of issuers domiciled in a country
other than the country in whose currency the instrument is denominated or
quoted. The Funds may also invest in securities quoted or denominated in the
European Currency Unit ("ECU"), which is a "basket" consisting of specified
amounts of the currencies of certain of the member states of the European
Community. The specific amounts of currencies comprising the ECU may be
adjusted by the Council of Ministers of the European Community from time to time
to reflect changes in relative values of the underlying currencies. In
addition, the Funds may invest in securities quoted or denominated in other
currency "baskets."
INVESTING IN EMERGING MARKETS , INCLUDING ASIA. CORE International
Equity, International Equity, Asia Growth and Emerging Markets Equity Funds are
intended for long-term investors who can accept the risks associated with
investing primarily in equity and equity-related securities of foreign issuers,
including Emerging Countries issuers (in the case of Emerging Markets Equity and
International Equity Funds) and Asian Companies (as defined in the Prospectus)
(in the case of Asia Growth Fund), as well as the risks associated with
investments quoted or denominated in foreign currencies. Balanced, Growth and
Income, CORE International Equity, Small Cap Value, Mid Cap Equity and Capital
Growth Funds may invest, to a lesser extent, in equity and equity-related
securities of foreign issuers; including Emerging Countries issuers. In
addition, certain of Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Fund's potential investment and
management techniques entail special risks. Asia Growth Fund concentrates on
companies that the Advisers believe are taking full advantage of the region's
growth and that have the potential for long-term capital appreciation. The
Advisers believe that Asia offers an attractive investment environment and that
new opportunities will continue to emerge in the years ahead.
B-24
<PAGE>
The pace of change in many Emerging Countries, and in particular those in
Asia, over the last 10 years has been rapid. Accelerating economic growth in
the region has combined with capital market development, high government
expenditure, increasing consumer wealth and taxation policies favoring company
expansion. As a result, stock market returns in many Emerging Countries have
been relatively attractive. See "Risk Factors" in the Prospectus.
Each of the securities markets of the Emerging Countries is less liquid
and subject to greater price volatility and has a smaller market capitalization
than the U.S. securities markets. Issuers and securities markets in such
countries are not subject to as extensive and frequent accounting, financial and
other reporting requirements or as comprehensive government regulations as are
issuers and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of Emerging Country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about Emerging Country issuers than is available about
issuers in the United States.
Certain of the Emerging Country securities markets are marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain Emerging Countries are in the earliest
stages of their development. Even the markets for relatively widely traded
securities in Emerging Countries may not be able to absorb, without price
disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. The limited liquidity of
Emerging Country markets may also affect a Fund's ability to accurately value
its portfolio securities or to acquire or dispose of securities at the price and
time it wishes to do so or in order to meet redemption requests.
Transaction costs, including brokerage commissions or dealer mark-ups, in
Emerging Countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in Emerging Countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees. These restrictions
may limit a Fund's investment in certain of the Asian countries and may increase
the expenses of the Fund. Certain Emerging Countries require governmental
approval prior to investments by foreign persons or limit investment by foreign
persons to only a specified percentage of an issuer's outstanding securities or
a specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. In
addition, the repatriation of both investment income and capital from several of
the Emerging Countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds. A Fund may
be required to establish special custodial or other arrangements before
investing in certain emerging countries.
Each of the Emerging Countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring
B-25
<PAGE>
countries; and (v) ethnic, religious and racial disaffection or conflict. Such
economic, political and social instability could disrupt the principal financial
markets in which the Funds may invest and adversely affect the value of the
Funds' assets.
The economies of Emerging Countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
Emerging Countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many Emerging Countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some Emerging Countries are vulnerable to weakness in
world prices for their commodity exports.
A Fund's income and, in some cases, capital gains from foreign stocks and
securities will be subject to applicable taxation in certain of the countries in
which it invests, and treaties between the U.S. and such countries may not be
available in some cases to reduce the otherwise applicable tax rates. See
"Taxation."
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned on such assets. The inability of a Fund to make intended security
purchases or sales due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio securities or, if
the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Growth and Income, Mid Cap
Equity, Capital Growth and Small Cap Value Funds may enter into forward foreign
currency exchange contracts for hedging purposes. Balanced, CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds may
enter into forward foreign currency exchange contracts for hedging purposes and
to seek to increase total return. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are generally charged
at any stage for trades.
At the maturity of a forward contract a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a Fund anticipates the receipt in a foreign currency of dividend or
interest payments on such a security which it holds, the Fund may desire to
"lock in" the U.S. dollar price of the security or the U.S. dollar equivalent of
such dividend or interest payment, as the case may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, the Fund
will attempt to protect itself against an
B-26
<PAGE>
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of such Fund's
portfolio securities quoted or denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may engage in cross-hedging by using forward
contracts in one currency to hedge against fluctuations in the value of
securities quoted or denominated in a different currency if GSAM or GSAMI
determines that there is a pattern of correlation between the two currencies.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may also purchase and sell forward contracts to
seek to increase total return when GSAM or GSAMI anticipates that the foreign
currency will appreciate or depreciate in value, but securities quoted or
denominated in that currency do not present attractive investment opportunities
and are not held in the Fund's portfolio.
A Fund's custodian will place cash or liquid assets into a segregated
account of such Fund in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies or, in the case of Balanced,
CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds forward contracts entered into to seek to increase total
return. If the value of the securities placed in the segregated account
declines, additional cash or liquid assets will be placed in the account on a
daily basis so that the value of the account will equal the amount of a Fund's
commitments with respect to such contracts. The segregated account will be
marked-to-market on a daily basis. Although the contracts are not presently
regulated by the CFTC, the CFTC may in the future assert authority to regulate
these contracts. In such event, a Fund's ability to utilize forward foreign
currency exchange contracts may be restricted.
While a Fund will enter into forward contracts to reduce currency exchange
rate risks, transactions in such contracts involve certain other risks. Thus,
while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for the Fund than if
it had not engaged in any such transactions. Moreover, there may be imperfect
correlation between a Fund's portfolio holdings of securities quoted or
denominated in a particular currency and forward contracts entered into by such
Fund. Such imperfect correlation may cause a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Since a forward foreign currency exchange contract
is not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive a Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
B-27
<PAGE>
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Each Fund (except
CORE U.S. Equity, CORE Large Cap Growth and CORE Small Cap Equity Funds) may
write covered put and call options and purchase put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of portfolio securities and against increases in the U.S. dollar cost of
securities to be acquired. As with other kinds of option transactions, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received. If and when a Fund seeks to
close out an option, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies to
be written or purchased by a Fund will be traded on U.S. and foreign exchanges
or over-the-counter.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to cross-hedge, which
involves writing or purchasing options on one currency to hedge against changes
in exchange rates for a different currency with a pattern of correlation. In
addition, Balanced, International Equity, Emerging Markets Equity and Asia
Growth Funds may purchase call options on currency to seek to increase total
return when the Adviser anticipates that the currency will appreciate in value,
but the securities quoted or denominated in that currency do not present
attractive investment opportunities and are not included in the Fund's
portfolio.
A call option written by a Fund obligates a Fund to sell specified currency
to the holder of the option at a specified price if the option is exercised at
any time before the expiration date. A put option written by a Fund would
obligate a Fund to purchase specified currency from the option holder at a
specified price if the option is exercised at any time before the expiration
date. The writing of currency options involves a risk that a Fund will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
For a description of how to cover written put and call options, see "Written
Covered Options" above.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Fund.
A Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the U.S. dollar value of currency in which securities in its portfolio are
quoted or denominated ("protective puts"). The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell specified currency at
a specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A Fund
would ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs; otherwise the Fund would realize either
no gain or a loss on the purchase of the put option. Gains
B-28
<PAGE>
and losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of underlying currency or portfolio
securities.
In addition to using options for the hedging purposes described above,
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds may use options on currency to seek to increase
total return. Balanced, CORE International Equity, International Equity,
Emerging Markets Equity and Asia Growth Funds may write (sell) covered put and
call options on any currency in order to realize greater income than would be
realized on portfolio securities transactions alone. However, in writing
covered call options for additional income, Balanced, CORE International Equity,
International Equity, Emerging Markets Equity and Asia Growth Funds may forego
the opportunity to profit from an increase in the market value of the
underlying currency. Also, when writing put options, Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds accept, in return for the option premium, the risk that they may be
required to purchase the underlying currency at a price in excess of the
currency's market value at the time of purchase.
Balanced, CORE International Equity, International Equity, Emerging Markets
Equity and Asia Growth Funds would normally purchase call options to seek to
increase total return in anticipation of an increase in the market value of a
currency. Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise Balanced, CORE
International Equity, International Equity, Emerging Markets Equity and Asia
Growth Funds would realize either no gain or a loss on the purchase of the call
option. Put options may be purchased by a Fund for the purpose of benefiting
from a decline in the value of currencies which it does not own. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs. Otherwise the Fund would realize
either no gain or a loss on the purchase of the put option.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although a Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time.
For some options no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Fund would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options. If a Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying currency (or security quoted
or denominated in that currency) until the option expires or it delivers the
underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
A Fund may purchase and write over-the-counter options to the extent
consistent with its limitation on investments in illiquid securities. Trading
in over-the-counter options is subject to the risk that the other party will be
unable or unwilling to close out options purchased or written by a Fund.
B-29
<PAGE>
The amount of the premiums which a Fund may pay or receive may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option purchasing and writing activities.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
==========================================================================
FLOORS AND COLLARS
==================
The Balanced, CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds may, with respect to up to 5% of their net
assets, enter into currency swaps for both hedging purposes and to seek to
increase total return. In addition, the Balanced and Real Estate Securities
Funds may, with respect to 5% of its net assets, enter into mortgage, index and
interest rate swaps and other interest rate swap arrangements such as rate caps,
floors and collars, for hedging purposes or to seek to increase total return.
Currency swaps involve the exchange by a Fund with another party of their
respective rights to make or receive payments in specified currencies. Interest
rate swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed rate
payments for floating rate payments. Mortgage swaps are similar to interest
rate swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. Index swaps involve the exchange by a Fund with another party of the
respective amounts payable with respect to a notional principal amount at
interest rates equal to two specified indices. The purchase of an interest rate
cap entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payment of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive payments of interest
on a notional principal amount from the party selling the interest rate floor.
An interest rate collar is the combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a
net basis, which means that the two payment streams are netted out, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that the
Fund is contractually entitled to receive. In contrast, currency swaps usually
involve the delivery of a gross payment stream in one designated currency in
exchange for the gross payment stream in another designated currency.
Therefore, the entire payment stream under a currency swap is subject to the
risk that the other party to the swap will default on its contractual delivery
obligations. To the extent that the net amount payable under an interest rate,
index or mortgage swap and the entire amount of the payment stream payable by a
Fund under a currency swap or an interest rate floor, cap or collar is held in a
segregated account consisting of cash or liquid assets the Funds and the
Advisers believe that swaps do not constitute senior securities under the Act
and, accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
A Fund will not enter into swap transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party
thereto is considered to be investment grade by the Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Adviser is incorrect in its
forecasts of market values, interest rates and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used. The staff of the SEC currently take
the position that swaps, caps, floors and collars are illiquid and thus subject
to a Fund's 15% limitation on investments in illiquid securities.
B-30
<PAGE>
LENDING OF PORTFOLIO SECURITIES
===============================
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund
would be required to have the right to call a loan and obtain the securities
loaned at any time on five days' notice. For the duration of a loan, a Fund
would continue to receive the equivalent of the interest or dividends paid by
the issuer on the securities loaned and would also receive compensation from
investment of the collateral. A Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Advisers to be of good standing,
and when, in the judgment of the Advisers, the consideration which can be
earned currently from securities loans of this type justifies the attendant
risk. If the Advisers determine to make securities loans, it is intended that
the value of the securities loaned would not exceed one-third of the value of
the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
==============================================
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually purchasing or selling the securities. If deemed advisable as a matter
of investment strategy, however, a Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to the settlement date,
cash and liquid assets in an amount sufficient to meet the purchase price.
Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns. Securities purchased or sold on a when-issued
or forward commitment basis involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
INVESTMENT IN UNSEASONED COMPANIES
==================================
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities which
have been rated investment grade or better by at least one nationally recognized
statistical rating organization. The securities of such companies may have
limited liquidity, which can result in their being priced higher or lower than
might otherwise be the case. In addition, investments in unseasoned companies
are more speculative and entail greater risk than do investments in companies
with an established operating record.
B-31
<PAGE>
OTHER INVESTMENT COMPANIES
==========================
A Fund reserves the right to invest up to 5% of its net assets in the
securities of other investment companies but may not acquire more than 3% of the
voting securities of any other investment company. Pursuant to an exemptive
order obtained from the SEC, the Funds may invest in money market funds for
which an Adviser or any of its affiliates serves as investment adviser. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that
the Fund invests in a money market fund for which an Adviser or any of its
affiliates acts as adviser, the advisory and administration fees payable by the
Fund to an Adviser will be reduced by an amount equal to the Fund's
proportionate share of the advisory and administration fees paid by such money
market fund to the Adviser.
Each Fund may also invest in SPDRs. SPDRs are interests in a unit
investment trust ("UIT") that may be obtained from the UIT or purchased in the
secondary market (SPDRs are listed on the American Stock Exchange).
The UIT will issue SPDRs in aggregations known as "Creation Units" in
exchange for a "Portfolio Deposit" consisting of (a) a portfolio of securities
substantially similar to the component securities ("Index Securities") of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
Portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs. Trading
in SPDRs involves risks similar to those risks, described under "Risk Associated
with Options Transactions," involved in the writing of options on securities.
Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds." Country
funds have portfolios consisting primarily of securities of issuers located in
one foreign country or region. Each Fund (other than CORE U.S. Equity, CORE
Large Cap Growth and CORE Small Cap Equity Funds) may invest in World Equity
Benchmark Shares ("WEBS") and similar securities that invest in securities
included in foreign securities indices.
REPURCHASE AGREEMENTS
=====================
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities
B-32
<PAGE>
and the seller agrees to repurchase the securities within a particular time and
at a specified price. Custody of the securities is maintained by a Fund's
custodian. The repurchase price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase prices may be
the same, with interest at a stated rate due to a Fund together with the
repurchase price on repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the security subject to the repurchase
agreement.
For purposes of the Act and generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not clear whether a court would consider the security
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the security before repurchase of the security under a repurchase agreement,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, a Fund may be required to
return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the Advisers
seek to minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the security. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security. However, if the market
value of the security subject to the repurchase agreement becomes less than the
repurchase price (including accrued interest), a Fund will direct the seller of
the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement equals or exceeds the repurchase
price. Certain repurchase agreements which provide for settlement in more than
seven days can be liquidated before the nominal fixed term on seven days or less
notice. Such repurchase agreements will be regarded as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Advisers or their affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Fund. The investment objective of each Fund and all
other investment policies or practices of each Fund are considered by the Trust
not to be fundamental and accordingly may be changed without shareholder
approval. See "Investment Objectives and Policies" in the Prospectus. For
purposes of the Act, "majority" means the lesser of (a) 67% or more of the
shares of the Trust or a Fund present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust or a Fund are present or represented
by proxy, or (b) more than 50% of the shares of the Trust or a Fund. For
purposes of the following limitations, any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Funds'
fundamental investment restriction no. 3, asset coverage of at least 300% (as
defined in the Act), inclusive of any amounts borrowed, must be maintained at
all times.
B-33
<PAGE>
A Fund may not:
(1) make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act of
1940, as amended (the "Act"). This restriction does not, however,
apply to any Fund classified as a non-diversified company under
the Act.
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (other than the Goldman Sachs Real Estate
Securities Fund, which will invest at least 25% or more of its
total assets in the real estate industry) (excluding the U.S.
Government or any of its agencies or instrumentalities).
(3) borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total assets
for temporary purposes, (c) the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase
securities on margin to the extent permitted by applicable law
and (e) the Fund may engage transactions in mortgage dollar rolls
which are accounted for as financings.
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers and other
financial institutions, and (c) loans of securities as permitted
by applicable law.
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
(6) purchase, hold or deal in real estate, although a Fund may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities.
(7) invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts.
(8) issue senior securities to the extent such issuance would violate
applicable law.
Each Fund may, notwithstanding any other fundamental investment restriction
or policy, invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same investment objective,
restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
B-34
<PAGE>
A Fund may not:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets.
(d) Make short sales of securities, except short sales against the box.
B-35
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
Ashok N. Bakhru, 53 Chairman Executive Vice President -- Finance and
1325 Ave. of Americas & Trustee Administration and Chief Financial Officer, Coty
New York, NY 10019 Inc. (since April 1996); President, ABN
Associates (June 1994 through March
1996); Senior Vice President of Scott Paper
Company until June 1994; Director of
Arkwright Mutual Insurance Company; Trustee
of International House of Philadelphia;
Member of Cornell University
Council; Trustee of the Walnut Street
Theater.
*David B. Ford, 51 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner, Goldman Sachs (1986-1996);
New York, NY 10004 Co-Head of Goldman Sachs Asset Management
(since December 1994).
*Douglas C. Grip, 35 Trustee Vice President, Goldman Sachs (since May 1996);
One New York Plaza & President President, MFS Retirement Services Inc., of
New York, NY 10004 Massachusetts Financial Services (prior thereto).
*John P. McNulty, 44 Trustee Managing Director, Goldman Sachs (since 1996);
One New York Plaza General Partner of Goldman Sachs (1990-1994
New York, NY 10004 and 1995-1996); Co-Head of Goldman Sachs Asset
Management (since November 1995); Limited Partner
of Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 60 Trustee President of Bryn Mawr College (since 1978);
Taylor Hall Director of Josiah Macy, Jr, Foundation (since
Bryn Mawr, PA 19010 1977); Director of the Philadelphia
Contributionship (since 1985); Director of Amherst College
(since 1986); Director of Dayton Hudson
Corporation (since 1988); Director of the
Spencer Foundation (since 1993); and member
of PNC Advisory Board (since 1993).
</TABLE>
B-36
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -----------------------
<S> <C> <C>
*Alan A. Shuch, 48 Trustee Limited Partner, Goldman Sachs (since 1994);
One New York Plaza Director and Vice President of Goldman Sachs
New York, NY 10004 Funds Management Inc. (from April 1990 to
November 1994); President and Chief Operating
Officer, GSAM (from September 1988 to November 1994).
Jackson W. Smart, 66 Trustee Chairman, Executive Committee, First
One Northfield Plaza # 218 Commonwealth, Inc. (a managed dental care
Northfield, IL 60093 company, since January 1996); Chairman and
Chief Executive Officer, MSP Communications Inc.
(a company engaged in radio broadcasting) (since
November 1988), Director, Federal Express Corpo-
ration (since 1976), Evanston Hospital Corporation
(since 1980), First Commonwealth, Inc. (since
1988) and North American Private Equity Group
(a venture capital fund).
William H. Springer, 67 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer, (February 1987 to June
Lake Forest, IL 60045 1991) of Ameritech (a telecommunications holding
company; Director,Walgreen Co. (a retail drug
store business); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management invest-
ment company) (April 1992 to present).
Richard P. Strubel, 57 Trustee Managing Director, Tandem Partners, Inc. (since
70 West Madison St. Ste 1400 1990); President and Chief Executive Officer,
Chicago, IL 60602 Microdot, Inc. (a diversified manufacturer of
fastening systems and connectors)(January 1984
to October 1994).
*Scott M. Gilman, 37 Treasurer Director, Mutual Funds Administration, Goldman
One New York Plaza Sachs Asset Management (since April 1994);
New York, NY 10004 Assistant Treasurer, Goldman Sachs Funds
Management, Inc. (since March 1993); Vice President,
Goldman Sachs (since March 1990).
*John M. Perlowski, 32 Assistant Vice President, Goldman Sachs (since July
One New York Plaza Treasurer 1995); Director, Investors Bank and Trust,
New York, NY 10004 November 1993 to July 1995); Audit Manager
of Arthur Andersen LLP (prior thereto).
</TABLE>
B-37
<PAGE>
<TABLE>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
*John W. Mosior, 58 Vice Vice President, Goldman Sachs and Manager
4900 Sears Tower President of Shareholder Servicing of GSAM (since
Chicago, IL 60606 November 1989).
*Nancy L. Mucker, 47 Vice Vice President, Goldman Sachs (since April
4900 Sears Tower President 1985); Manager of Shareholder Servicing of
Chicago, IL 60606 GSAM since November 1989).
*Michael J. Richman, 36 Secretary Associate General Counsel of
85 Broad Street Goldman Sachs Asset Manage-
New York, NY 10004 ment (since February 1994);
Vice President and Assistant General Counsel
of Goldman Sachs (since June 1992); Counsel
to the Funds Group, GSAM (since June 1992);
Partner, Hale and Dorr (September 1991 to
June 1992).
*Howard B. Surloff, 31 Assistant Assistant General Counsel and Vice President,
85 Broad Street Secretary Goldman Sachs (since November 1993 and May
New York, NY 10004 1994 respectively); Counsel to the Funds Group,
Goldman Sachs Asset Management (since
November 1993); Associate of Shereff Friedman,
Hoffman & Goodman (prior thereto).
*Valerie A. Zondorak, 31 Assistant Vice President, Goldman Sachs (since March
85 Broad Street Secretary 1997); Counsel to the Funds Group, Goldman
New York, New York 10004 Sachs Asset Management (since >March 1997);
Associate of Shereff Friedman, Hoffman &
Goodman (prior thereto).
*Steven E. Hartstein, 33 Assistant Legal Products Analyst, Goldman Sachs (June
85 Broad Street Secretary 1993 to present); Funds Compliance Officer,
New York, NY 10004 Citibank Global Asset Management (August 1991
to June 1993).
*Deborah Farrell, 25 Assistant Administrative Assistant, Goldman Sachs since
85 Broad Street Secretary January 1994. Formerly at Cleary Gottlieb, Steen
New York, NY 10004 and Hamilton.
*Kaysie P. Uniacke, 36 Assistant Vice President and Senior Portfolio Manager,
One New York Plaza Secretary Goldman Sachs Asset Management (since
New York, NY 10004 1988).
</TABLE>
B-38
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- ----------- ---------- -------------------
<S> <C> <C>
*Elizabeth D. Assistant Portfolio Manager, GSAM (since April 1996);
Anderson, 27 Secretary Junior Portfolio Manager, Goldman Sachs Asset
One New York Plaza Management (since 1993); Funds Trading
New York, NY 10004 Assistant, GSAM (1993-1995); Compliance
Analyst, Prudential Insurance (1991-1993).
</TABLE>
As of July 24, 1997, the Trustees and officers of the Trust as a group
owned less than 1% of the outstanding shares of beneficial interest of each
Fund.
The Trust pays each Trustee, other than those who are "interested persons"
of Goldman Sachs, a fee for each Trustee meeting attended and an annual fee.
Such Trustees are also reimbursed for travel expenses incurred in connection
with attending such meetings.
B-39
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust (or its predecessors) for the one-year
period ended January 31, 1997:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Goldman Sachs
Aggregate Accrued as Mutual Funds
Compensation Part of (including the
Name of Trustee from the Funds*** Funds' Expenses Funds)*
- --------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Paul C. Nagel, Jr.** $3,775 $0 $62,450
Ashok N. Bakhru 3,969 0 69,299
Marcia L. Beck 0 0 0
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
Alan A. Shuch 0 0 0
Jackson W. Smart 3,388 0 58,954
William H. Springer 3,388 0 58,954
Richard P. Strubel 3,388 0 58,954
</TABLE>
______________
* The Goldman Sachs Funds consisted of 29 mutual funds on January 31,
1997.
** Retired as of June 30, 1996.
*** Effective May 1, 1997, the Funds were reorganized from series of
Goldman Sachs Equity Portfolios, Inc. (the "Corporation") into the
Trust. The amounts shown in the column reflect compensation paid to
the Trustees by the Corporation.
B-40
<PAGE>
MANAGEMENT SERVICES
===================
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York, New
York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85 Broad
Street, New York, New York, serves as investment adviser to CORE U.S. Equity and
Capital Growth Funds. GSAM, One New York Plaza, New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to Balanced,
Growth and Income, CORE Large Cap Growth, CORE Small Cap Equity, CORE
International Equity, Real Estate Securities, Mid Cap Equity and Small Cap
Equity Funds. GSAMI, 133 Peterborough Court, London, England, EC4A 2BB serves
as investment adviser to International Equity, Emerging Markets Equity and Asia
Growth Funds. See "Management" in the Funds' Prospectus for a description of the
applicable Adviser's duties to the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in Beijing,
Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan, Montreal,
Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo,
Toronto, Vancouver and Zurich. It has trading professionals throughout the
United States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Advisers are able to draw on the substantial research and market
expertise of Goldman Sachs whose investment research effort is one of the
largest in the industry. With an annual equity research budget approaching $200
million, the Goldman Sachs Global Investment Research Department covers
approximately 1,700 companies, including approximately 2,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Funds, the Advisers have access to Goldman Sachs' economics
research. The Economics Research Department conducts economic, financial and
currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and Currency
Forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Economies 1986, 1988-1995; and
Currency Movements 1986-1993.
In allocating assets among foreign countries and currencies for the Funds
which can invest in foreign securities (in particular, the CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds),
the Advisers will have access to the Global Asset Allocation Model. The
B-41
<PAGE>
model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
Advisers will estimate the total returns from each currency sector which are
consistent with the average investor holding a portfolio equal to the market
capitalization of the financial assets among those currency sectors. These
estimated equilibrium returns are then combined with the expectations of Goldman
Sachs' research professionals to produce an optimal currency and asset
allocation for the level of risk suitable for a Fund given its investment
objectives and criteria.
Each Fund's management agreement provides that the Advisers may render
similar services to others as long as the services provided by the Advisers
thereunder are not impaired thereby.
The CORE Small Cap Equity, CORE International Equity and Real Estate
Securities Funds management agreements were initially approved by the Trustees,
including a majority of the non-interested Trustees (as defined below) who are
not parties to the management agreement, on July 22, 1997. The CORE Large Cap
Growth and Emerging Markets Equity Funds management agreements were initially
approved by the Trustees, including a majority of the non-interested Trustees
(as defined below) who are not parties to the management agreement, on April 23,
1997. The other Funds' management agreements were most recently approved by the
Trustees, including a majority of the Trustees who are not parties to the
management agreement or "interested persons" (as such term is defined in the
Act) of any party thereto (the "non-interested Trustees"), on April 23, 1997.
These arrangements were most recently approved by the shareholders of each Fund
(other than CORE Large Cap Growth, CORE Small Cap Equity, CORE International
Equity, Real Estate Securities and Emerging Markets Equity Funds) on April 21,
1997. The sole shareholder of the CORE Large Cap Growth Fund approved these
arrangements on April 30, 1997. The sole shareholders of the CORE Small Cap
Equity and CORE International Equity Funds approved these arrangements on August
13, 1997. Each management agreement will remain in effect until June 30, 1998
from year to year thereafter provided such continuance is specifically approved
at least annually by (a) the vote of a majority of the outstanding voting
securities of such Fund or a majority of the Trustees, and (b) the vote of a
majority of the non-interested Trustees, cast in person at a meeting called for
the purpose of voting on such approval. Each management agreement will
terminate automatically if assigned (as defined in the Act) and is terminable at
any time without penalty by the Trustees or by vote of a majority of the
outstanding voting securities of the affected Fund on 60 days' written notice to
the Adviser and by the Adviser on 60 days' written notice to the Trust.
Pursuant to the management agreements the Advisers are entitled to receive
the fees listed below, payable monthly of such Fund's average daily net assets.
In addition, the Advisers voluntarily agreed to limit its management fee to an
annual rate also listed below:
<TABLE>
<CAPTION>
Management Management
With Fee Without Fee
Fund Limitations Limitations
- ---- ----------- -----------
<S> <C> <C>
GSAM
Balanced Fund 0.65% 0.65%
Growth and Income Fund 0.70% 0.70%
CORE Large Cap Growth Fund 0.60% 0.75%
CORE Small Cap Equity Fund 0.75% 0.85%
CORE International Equity Fund 0.75% 0.85%
Mid Cap Equity Fund 0.75% 0.75%
Small Cap Value Fund 1.00% 1.00%
Real Estate Securities Fund N/A N/A
</TABLE>
B-42
<PAGE>
<TABLE>
<S> <C> <C>
GSFM
CORE U.S. Equity Fund 0.59% 0.75%
Capital Growth Fund 1.00% 1.00%
GSAMI
International Equity Fund 0.89% 1.00%
Emerging Markets Equity Fund 1.10% 1.20%
Asia Growth Fund 0.86% 1.00%
</TABLE>
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in the
future at their discretion, although they have no current intention to do so.
Prior to May 1, 1997, the Funds then in operation had separate investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration agreements. Effective May 1, 1997, the services under such
agreements were combined in the management agreement. The services required to
be performed for the Funds and the combined advisory (and subadvisory, in the
case of the International Equity Fund) and administration fees payable by the
Funds under the former advisory (and subadvisory, in the case of the
International Equity Fund) and administration agreements are identical to the
services and fees under the management agreement.
For the last three fiscal years the amounts of the combined investment
advisory (and subadvisory, in the case of the International Equity Fund) and
administration fees incurred by each Fund then in existence were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
============= ============= =============
<S> <C> <C> <C>
Balanced Fund $ 402,183 $ 193,041 $ 8,858
Growth and Income Fund 3,541,318 2,225,553 790,893
CORE U.S. Equity Fund 1,667,381/3/ 817,563/3/ 693,383/2/
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 8,697,265 9,335,745 8,724,828
Mid Cap Equity Fund/4/ 964,945 489,043 N/A
International Equity Fund 4,124,076/3/ 2,794,872/2/ 3,186,509/2/
Small Cap Value Fund 2,130,703 2,908,839 3,385,899
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 2,221,857/3/ 1,563,641/2/ 553,084/2/
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
- ---------------
1 Not Operational.
2 Does not give effect to the agreement (which was not in effect during such
fiscal years) by GSFM, GSAM and GSAMI to limit management fees to 0.59%,
0.89% and 0.86%, respectively of CORE U.S. Equity, International Equity and
Asia Growth Fund's average daily net assets.
3 Gives effect to the agreement (which was in effect as of June 15, 1995) by
GSFM to limit management fees to 0.59%, 0.89% and 0.86%, respectively, of
the CORE U.S. Equity, International Equity and Asia Growth Fund's average
daily net assets. For the fiscal year ended January 31, 1996, had
limitations not been in effect, CORE U.S. Equity Fund would have paid
$1,019,639 in investment management fees. For the fiscal year ended
January 31, 1997, had
B-43
<PAGE>
limitations not been in effect, CORE U.S. Equity, International Equity and
Asia Growth Funds would have paid $2,119,552, $4,638,203 and $2,583,555,
respectively, in investment management fees.
4 Commenced operations on August 1, 1995.
Under the Management Agreement, each Adviser also: (i) supervises all non-
advisory operations of each Fund that it advisers; (ii) provides personnel to
perform such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of each Fund; (iii) arranges for
at each Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Fund's records; and (v) provides office space
and all necessary office equipment and services.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs and their
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Funds and/or which engage in transactions in
the same types of securities, currencies and instruments as the Funds. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies and instruments
in which the Funds will invest, which could have an adverse impact on each
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Advisers' and
their advisory affiliates' asset management activities, will be executed
independently of the Funds' transactions and thus at prices or rates that may be
more or less favorable. When the Advisers and their advisory affiliates seek
to purchase or sell the same assets for their managed accounts, including the
Funds, the assets actually purchased or sold may be allocated among the accounts
on a basis determined in its good faith discretion to be equitable. In some
cases, this system may adversely affect the size or the price of the assets
purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Advisers and/or their affiliates
will not initiate or recommend certain types of transactions in certain
securities or instruments with respect to which the Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be under
any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the
B-44
<PAGE>
management of the Funds and it is not anticipated that the Advisers will have
access to such information for the purpose of managing the Funds. The
proprietary activities or portfolio strategies of Goldman Sachs and its
affiliates or the activities or strategies used for accounts managed by them or
other customer accounts could conflict with the transactions and strategies
employed by the Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities
and investments similar to those in which the Fund invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
Each Adviser may enter into transactions and invest in currencies or
instruments on behalf of a Fund in which customers of Goldman Sachs serve as the
counterparty, principal or issuer. In such cases, such party's interests in the
transaction will be adverse to the interests of a Fund, and such party may have
no incentive to assure that the Funds obtain the best possible prices or terms
in connection with the transactions. Goldman Sachs and its affiliates may also
create, write or issue derivative instruments for customers of Goldman Sachs or
its affiliates, the underlying securities or instruments of which may be those
in which a Fund invests or which may be based on the performance of a Fund. The
Funds may, subject to applicable law, purchase investments which are the subject
of an underwriting or other distribution by Goldman Sachs or its affiliates and
may also enter transactions with other clients of Goldman Sachs or its
affiliates where such other clients have interests adverse to those of the
Funds. At times, these activities may cause departments of the Firm to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
B-45
<PAGE>
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce the
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
==============================
Goldman Sachs serves as the exclusive distributor of shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution agreement
with the Trust on behalf of each Fund. Pursuant to the distribution agreement,
after the Prospectus and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs may enter into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of the Funds.
Goldman Sachs receives a portion of the sales charge imposed on the sale, in the
case of Class A Shares, or redemption in the case of Class B and Class C Shares,
of such Fund shares. No Class B Shares were outstanding during the fiscal years
ended January 31, 1995 and 1996. No Class C Shares were outstanding during the
fiscal years ended January 31, 1995, 1996 and 1997.
Goldman Sachs retained the following commissions on sales of Class A and
Class B Shares during the following periods:
<TABLE>
<CAPTION>
1997 1996 1995
========== ======== ========
<S> <C> <C> <C>
Balanced Fund $ 94,000 $ 28,000 $ 14,000
Growth and Income Fund 555,000 771,000 361,000
CORE U.S. Equity Fund 380,000 108,000 58,000
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 323,000 523,000 815,000
International Equity Fund 1,563,000 211,000 660,000
Small Cap Value Fund 219,000 202,000 868,000
Emerging Market Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 1,397,000 507,000 829,000
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
- ---------------
B-46
<PAGE>
1 Not operational.
Goldman Sachs serves as the Trust's transfer agent. Under its transfer
agency agreement with the Trust, Goldman Sachs has undertaken with the Trust to
(i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Trust's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Trust by Goldman Sachs as transfer agent and the assumption by Goldman Sachs of
the expenses related thereto. For the last three fiscal years the amounts paid
to Goldman Sachs by each Fund then in existence for transfer agency services
performed were as follows:
<TABLE>
<CAPTION>
Class A & B Class A Class A
1997 1996 1995
============== ==================== ========
<S> <C> <C> <C>
Balanced Fund $148,576 $ 72,067 $ 20,000
Growth and Income Fund 870,527 542,671 262,158
CORE U.S. Equity Fund 319,246 103,682 151,230
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund 908,310 549,844 694,014
International Equity Fund 586,243 129,313 481,169
Small Cap Value Fund 511,883 254,292 600,618
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 385,114 192,097 120,000
Real Estate Securities Fund/1/ N/A N/A N/A
<CAPTION>
Institutional Service Institutional
Shares Shares Shares
1997 1997 1996
======== ======== ========
<S> <C> <C> <C>
Balanced Fund/1/ $ N/A $ N/A $ N/A
Growth and Income Fund 15 488 N/A
CORE U.S. Equity Fund/2/ N/A N/A 11,571
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund/1/ N/A N/A N/A
Mid Cap Equity Fund/3/ 51,464 N/A 26,082
International Equity Fund/2/ N/A N/A N/A
Small Cap Value Fund/1/ N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund/2/ N/A N/A N/A
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
B-47
<PAGE>
1 Not operational.
2 Contractually set to 0.
3 Commenced operations on August 1, 1995.
The Trust's distribution and transfer agency agreements each provide
that Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Trust will indemnify Goldman Sachs against certain
liabilities.
EXPENSES
========
Except as set forth in the Prospectus under "Management," the Trust is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the Advisers, the fees and expenses payable to
the Trust's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Trust's
shares under federal or state securities laws, expenses of the organization of
the Trust, fees and expenses incurred by the Trust in connection with membership
in investment company organizations, taxes, interest, costs of liability
insurance, fidelity bonds or indemnification, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Trust for violation of any law, legal and auditing fees and
expenses (including the cost of legal and certain accounting services rendered
by employees of GSAM, GSAMI and Goldman Sachs with respect to the Trust),
expenses of preparing and setting in type prospectuses, statements of additional
information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Fund pursuant to its distribution, authorized dealer,
service and administration plans, compensation and expenses of its "non-
interested" Trustees and extraordinary expenses, if any, incurred by the Trust.
Except for fees under any distribution, authorized dealer, service,
administration or service plans applicable to a particular class and transfer
agency fees, all Fund expenses are borne on a non-class specific basis.
The Investment Advisers voluntarily have agreed to reduce or limit
certain "Other Expenses" (excluding management, distribution and authorized
dealer service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees in
the case of each Fund other than Balanced, CORE Large Cap Growth, CORE Small Cap
Equity, CORE International Equity and Mid Cap Equity Funds) for the following
funds to the extent such expenses exceed the following percentage of average
daily net assets:
Other
Expenses
--------
Balanced Fund 0.10%
Growth and Income Fund 0.11%
CORE U.S. Equity Fund 0.06%
CORE Large Cap Growth Fund 0.05%
CORE Small Cap Equity Fund 0.20%
CORE International Equity Fund 0.25%
Mid Cap Equity Fund 0.10%
International Equity Fund 0.20%
Emerging Markets Equity Fund 0.16%
Asia Growth Fund 0.24%
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the applicable Adviser in its
discretion at any time.
B-48
<PAGE>
Fees and expenses of legal counsel, registering shares of a Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. Each Fund
may also bear an allocable portion of the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's Custodian.
For the last three fiscal years the amounts of certain "Other Expenses" of
each Fund then in existence that were reduced or otherwise limited were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
======== ======== ========
<S> <C> <C> <C>
Balanced Fund $319,552 $192,405 $ 95,906
Growth and Income Fund 0 0 106,725
CORE U.S. Equity Fund 104,833 110,581 N/A
CORE Large Cap Growth Fund/1/ N/A N/A N/A
CORE Small Cap Equity Fund/1/ N/A N/A N/A
CORE International Equity Fund/1/ N/A N/A N/A
Capital Growth Fund N/A N/A N/A
Mid Cap Equity Fund/2/ 72,441 85,515 N/A
International Equity Fund 144,265 N/A N/A
Small Cap Value Fund N/A N/A N/A
Emerging Markets Equity Fund/1/ N/A N/A N/A
Asia Growth Fund 50,407 0 35,905
Real Estate Securities Fund/1/ N/A N/A N/A
</TABLE>
________________________________
1 Not operational.
2 Commenced operations on August 1, 1995.
CUSTODIAN AND SUB-CUSTODIANS
============================
State Street, P.O. Box 1713, Boston, Massachusetts 02105, is the custodian
of the Trust's portfolio securities and cash. State Street also maintains the
Trust's accounting records. State Street may appoint sub-custodians from time
to time to hold certain securities purchased by the Trust and to hold cash for
the Trust.
INDEPENDENT PUBLIC ACCOUNTANTS
==============================
Arthur Andersen LLP, independent public accountants, 225 Franklin Street,
Boston, Massachusetts 02110, have been selected as auditors of the Trust. In
addition to audit services, Arthur Andersen LLP prepares the Trust's federal and
state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are responsible for decisions to buy and sell securities for
the Funds, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
B-49
<PAGE>
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Advisers are
generally required to give primary consideration to obtaining the most favorable
price and efficient execution under the circumstances. This means that an
Adviser will seek to execute each transaction at a price and commission, if any,
which provides the most favorable total cost or proceeds reasonably attainable
in the circumstances. As permitted by Section 28(e) of the Securities Exchange
Act of 1934, the Fund may pay a broker which provides brokerage and research
services to the Fund an amount of disclosed commission in excess of the
commission which another broker would have charged for effecting that
transaction. Such practice is subject to a good faith determination by the
Trustees that such commission is reasonable in light of the services provided
and to such policies as the Trustees may adopt from time to time. While the
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include research
reports on particular industries and companies, economic surveys and analyses,
recommendations as to specific securities and other products or services (e.g.,
quotation equipment and computer related costs and expenses), advice concerning
the value of securities, the advisability of investing in, purchasing or selling
securities, the availability of securities or the purchasers or sellers of
securities, furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and performance of
accounts, effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement) and providing lawful and appropriate
assistance to the Advisers in the performance of their decision-making
responsibilities. Such services are used by the Advisers in connection with all
of their investment activities, and some of such services obtained in connection
with the execution of transactions for a Fund may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of a Fund, and the services furnished
by such brokers may be used by the Advisers in providing management services for
the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Advisers. This policy does not imply a commitment to
execute all portfolio transactions through all broker-dealers that sell shares
of the Fund.
On occasions when an Adviser deems the purchase or sale of a security to be
in the best interest of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which such
Adviser acts as investment adviser or subadviser), the Adviser, to the extent
permitted by applicable laws and regulations, may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for such other
customers in order to obtain the best net price and most favorable execution
under the circumstances. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the applicable Adviser in the manner it considers to be equitable and
consistent with its fiduciary obligations to such Fund
B-50
<PAGE>
and such other customers. In some instances, this procedure may adversely
affect the price and size of the position obtainable for a Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Advisers may use Goldman Sachs as
a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each Fund, the commissions, fees or other remuneration received
by Goldman Sachs must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees, including a majority of the Trustees who
are not "interested" Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to
Goldman Sachs are consistent with the foregoing standard. Brokerage transactions
with Goldman Sachs are also subject to such fiduciary standards as may be
imposed upon Goldman Sachs by applicable law.
B-51
<PAGE>
For the past three fiscal years, each Fund in existence paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================== =================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1997:
Balanced Fund $ 62,072 $ 5,112 (8%)/1/ $ 1,057,742(15%)/2/ $ 0
Growth and Income Fund 779,396 77,587(10%)/1/ 13,310,208(9%)/2/ 0
CORE U.S. Equity Fund 279,620 0(0%)/1/ 6,706,824(0%)/2/ 0
CORE Large Cap Growth Fund/ 3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,460,140 304,052(21%)/1/ 29,920,578(1%)/2/ 42,039
Mid Cap Equity Fund 364,294 22,134(6%)/1/ 6,655,100(7%)/2/ 0
International Equity Fund 1,529,436 0(0%) 48,059,958(0%)/2/ 0
Small Cap Value Fund 758,205 36,087(5%)/1/ 16,439,842(1%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,554,313 50,624(3%)/1/ 102,609,295(4%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ====================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1996:
Balanced Fund $ 56,860 $ 7,391(13%)/1/ $ 29,697,202(13%)/2/ $0
Growth and Income Fund 841,605 71,218(8%)/1/ 425,040,430(9%)/2/ 0
CORE U.S. Equity Fund 121,424 0(0%)/1/ 148,427,497(0%)/2/ 0
CORE Large Cap Growth Fund/3 / N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,979,949 284,660(14%)/1/ 1,034,755,196(11%)/2/ 0
Mid Cap Equity Fund 315,212 40,935(13%)/1/ 142,547,552(11%)/2/ 0
International Equity Fund 1,260,992 13,629(1%)/1/ 359,700,166(1%)/2/ 0
Small Cap Value Fund 690,234 72,980(11%)/1/ 170,616,044(6%)/2/ 0
Emerging Markets Equity Fund/3 / N/A N/A N/A N/A
Asia Growth Fund 1,676,525 3,778(0%)/1/ 247,662,049(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Research
=========== ================ ==================== ===========
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995:
Balanced Fund $ 9,652 $ 1,522(16%)/1/ $ 7,216,224(10%)/2/ $0
Growth and Income Fund 637,080 77,404(12%)/1/ 468,165,610(7%)/2/ 0
CORE U.S. Equity Fund 119,192 0(0%)/1/ 99,616,396(0%)/2/ 0
CORE Large Cap Growth Fund/3/ N/A N/A N/A N/A
CORE Small Cap Equity Fund/ 3/ N/A N/A N/A N/A
CORE International Equity Fund/ 3/ N/A N/A N/A N/A
Capital Growth Fund 1,427,413 273,076(19%)/1/ 786,135,073(13%)/2/ 0
Mid Cap Equity Fund N/A N/A N/A N/A
International Fund 1,799,525 0(0%)/1/ 546,364,113(0%)/2/ 0
Small Cap Value Fund 555,667 23,137(4%)/1/ 392,235,715(2%)/2/ 0
Emerging Markets Equity Fund/3/ N/A N/A N/A N/A
Asia Growth Fund 1,002,148 67,754(7%)/1/ 171,880,775(2%)/2/ 0
Real Estate Securities Fund/ 3/ N/A N/A N/A N/A
</TABLE>
- ----------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Not operational.
B-54
<PAGE>
During the fiscal year ended January 31, 1997, the Trust acquired and sold
securities of its regular broker-dealers: all brokers below and JP Morgan. As
of January 31, 1997, the Trust held the following amounts of securities of its
regular broker/dealers, as defined in Rule 10b-1 under the Act, or their parents
($ in thousands):
<TABLE>
<CAPTION>
Fund Broker/Dealer Amount
- ------------------------ ---------------- -------
<S> <C> <C>
Balanced Fund Bear Stearns $ 6,679
Lehman Brothers 2,098
Chase Securities 490
Growth and Income Fund Chase Securities $ 6,003
Lehman Brothers 11,099
Bear Stearns 19,457
Core US Equity Fund Chase Securities 1,193
Smith Barney 6,439
Merrill Lynch 4,423
Morgan Stanley 2,188
Salomon Brothers 4,249
Bear Stearns 2,614
Lehman Brothers 659
Capital Growth Fund Bear Stearns 13,286
Lehman Brothers 3,349
Mid Cap Equity Fund Lehman Brothers 2,151
Bear Stearns 2,977
Small Cap Value Fund Bear Stearns 12,052
Lehman Brothers 3,038
</TABLE>
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good
faith the fair value of securities of each Fund. In accordance with procedures
adopted by the Trustees, the net value per share of each class of each Fund is
calculated by determining the value of the net assets attributable to each class
of that Fund and dividing by the number of outstanding shares of that class.
All securities are valued as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. New York time) on each Business Day (as
defined in the Prospectus).
In the event that the New York Stock Exchange or the national
securities exchange on which stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Trustees will reconsider the
time at which net asset value is computed. In addition, each Fund may compute
its net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations
are available are valued as follows: (a) securities listed on any U.S. or
foreign stock exchange or on the National Association of
B-55
<PAGE>
Securities Dealers Automated Quotations System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the mean
between the closing bid and asked prices; and (ii) on a foreign exchange will be
valued at the last sale price (also referred to as the close price). The last
sale price for securities traded principally on a foreign exchange will be
determined as of the close of the London Stock Exchange or, for securities
traded on exchanges located in the Asia Pacific region, noon London time; (b)
debt securities will be valued using a pricing service approved by the Trustees
if such prices are believed by the investment adviser to accurately represent
market value; (c) overnight repurchase agreements will be valued by the
investment adviser at cost; (d) term repurchase agreements (i.e., those whose
maturity exceeds seven days) and interest rate swaps, caps, collars and floors
will be valued at the average of the bid quotations obtained daily from at least
two dealers or, for term repurchase agreements, recognized counterparties; (e)
debt securities with a remaining maturity of 60 days or less are valued by the
investment adviser at amortized cost, which the Trustees have determined to
approximate fair value; (e) spot and forward foreign currency exchange contracts
will be valued using a pricing service such as Reuters then calculating the mean
between the last bid and asked quotations supplied by certain independent
dealers in such contracts; (g) exchange-traded options and futures contracts
will be valued by the custodian bank at the last sale price on the exchange
where such contracts and options are principally traded; and (h) over-the-
counter options will be valued by an independent unaffiliated broker identified
by the portfolio manager/trader and contacted by the custodian bank; and (i) all
other securities, including those for which a pricing service supplies no
exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate; will be valued at fair value as stated in the
valuation procedures which were approved by the Board of Trustees. For all
brokers used in this process, the custodian bank will send a letter to the
broker furnishing the quotation. If accurate quotations are not readily
available, such contracts will be valued by an independent unaffiliated broker
identified by the portfolio manager/trader and contacted by the custodian bank.
If broker quotes are used, the portfolio manager/trader will identify one
independent unaffiliated broker from whom the custodian bank will obtain prices
daily and another independent unaffiliated broker from whom the custodian bank
will obtain quotes at least weekly. The custodian bank will promptly notify the
portfolio manager/trader and a member of the GSAM Valuation Committee or a
designee thereof of any deviations equal to or greater than 3% between the
weekly quote and the daily quotes for the date that the weekly quotes were
obtained. The investment adviser will promptly provide instructions to the
custodian bank. For all brokers used in this process, the custodian bank will
send a letter to the broker furnishing the quotation.
Generally, trading in securities on European and Far Eastern
securities exchanges and on over-the-counter markets is substantially completed
at various times prior to the close of business on each Business Day in New York
(i.e., a day on which the New York Stock Exchange is open for trading). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all Business Days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not Business Days in New York and days on which the Funds' net asset values
are not calculated. Such calculation does not take place contemporaneously with
the determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of regular
trading on the New York Stock Exchange will not be reflected in a Fund's
calculation of net asset values unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Trust
from the issue or sale of its shares, and all net investment income, realized
and unrealized gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Fund and constitute the
underlying assets of that Fund or series. The underlying assets of each Fund
will be segregated on the books of account, and will be charged with the
liabilities in respect of such Fund and with a share of the general
B-56
<PAGE>
liabilities of the Trust. Expenses of the Trust with respect to the Funds and
the other series of the Trust are generally allocated in proportion to the net
asset values of the respective Funds or series except where allocations of
direct expenses can otherwise be fairly made.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return,
yield and/or distribution rate information in advertisements, shareholder
reports or sales literature. Average annual total return and yield are computed
pursuant to formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a
recent thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by
annualizing distributions of net investment income for such period and dividing
this amount by the net asset value per share or maximum public offering price on
the last day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Occasionally statistics may be used to specify Fund volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's net
asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
From time to time the Trust may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also
B-57
<PAGE>
advertise information which has been provided to the NASD for publication in
regional and local newspapers. In addition, the Trust may from time to time
advertise a Fund's performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or
its component indices; (g) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. Government bonds); (h) the
J.P. Morgan Global Government Bond Index; (i) other taxable investments
including certificates of deposit (CDs), money market deposit accounts (MMDAs),
checking accounts, savings accounts, money market mutual funds and repurchase
agreements; (j) Donoghues' Money Fund Report (which provides industry averages
for 7-day annualized and compounded yields of taxable, tax-free and U.S.
Government money funds); (k) the Hambrecht & Quist Growth Stock Index; (l) the
NASDAQ OTC Composite Prime Return; (m) the Russell Midcap Index; (n) the Russell
2000 Index - Total Return; (o) Russell 1000 Growth Index-Total Return; (p) the
Value-Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the FT-
Actuaries Europe and Pacific Index, and (s) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley including (EAFE), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, the Morgan Stanley Capital
International Emerging Markets Free Index, Salomon Brothers, Merrill Lynch,
Donaldson Lufkin and Jenrette or other providers of such data; (t) the FT-
Actuaries Europe and Pacific Index; (u) CDA/Wiesenberger Investment Companies
Services or Wiesenberger Investment Companies Service; (v) The Goldman Sachs
Commodities Index; and (w) information produced by Micropal, Inc.. The
composition of the investments in such indices and the characteristics of such
benchmark investments are not identical to, and in some cases are very different
from, those of the Fund's portfolio. These indices and averages are generally
unmanaged and the items included in the calculations of such indices and
averages may not be identical to the formulas used by a Fund to calculate its
performance figures.
Information used in advertisements and materials furnished to present
and prospective investors may include statements or illustrations relating to
the appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits, the
tax treatment of such benefits and statistics and other information
relating to maintaining a particular standard of living and outliving
existing assets);
. asset allocation strategies and the benefits of diversifying among asset
classes;
B-58
<PAGE>
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks, small
company stocks, long-term government bonds, treasury bills and
certificates of deposit) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices (i.e.,
Morgan Stanley Capital International EAFE Index, FT-Actuaries Europe &
Pacific Index and the Standard & Poor's Index of 500 Common Stocks) over
varying periods of time;
. total stock market capitalizations of specific countries and regions on a
global basis;
. performance of securities markets of specific countries and regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
The CORE Large Cap Growth Fund was organized on May 1, 1997 and has no
operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, the Fund has adopted
the adjusted performance record of a separate account managed by the Advisers
for periods prior to the Funds' commencement of operations which converted into
Class A Shares as of the commencement date. Any quotation of performance data of
this Fund relating to this period will include the adjusted performance record
of the applicable separate account. The performance record of the separate
account quoted by the Fund have been adjusted downward based on the expenses
applicable to Class A Shares (the class into which the separate account
transferred) to reflect the expenses expected to be incurred by the Fund as
stated in the expense table in the Prospectus. These expenses include any sales
charges and asset-based charges (i.e., fees under Distribution and Authorized
Dealer Service Plans) imposed and other operating expenses. Total return
quotations will be calculated pursuant to SEC approved methodology. Prior to May
1, 1997, the separate account was a separate investment advisory account under
discretionary management by the Adviser and had substantially similar investment
objectives, policies and strategies as the Fund. Unlike the Fund, the separate
account was not registered as an investment company under the Act and therefore
was not subject to certain investment restrictions and operational requirements
that are imposed on investment companies by the Act. If the separate account had
been registered as an investment company under the Act, the separate account's
performance may have been adversely affected by such restrictions and
requirements. On May 1, 1997, the separate account transferred a portion of its
assets to the Fund in exchange for Fund shares. The performance record of each
other class has been linked to the performance of the separate account
B-59
<PAGE>
(based on Class A expenses) and the Class A performance for any periods prior to
commencement of operations of a class of shares.
B-60
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming no
voluntary waiver
of fees and no
expense reimburse-
ments
--------------------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ------------------------- ------------- ---------------------------------- ----- ----- ----- -------
Balanced Fund A 10/12/94-1/31/97 - Since inception 17.41% 20.32% 15.50% 18.27%
Balanced Fund A 2/1/96-1/31/97 - One year 12.07% 18.59% 11.22% 17.69%
Balanced Fund B 5/1/96-1/31/97 - Since inception* N/A 16.22% N/A 15.79%
Growth and Income A 2/5/93-1/31/97 - Since inception 17.31% 18.98% 16.50% 18.17%
Growth and Income A 2/1/96-1/31/97 - One year 21.39% 28.42% 21.13% 28.14%
Growth and Income B 5/1/96-1/31/97 - Since inception* N/A 22.23% N/A 22.23%
Growth and Income Institutional 6/3/96-1/31/97 - Since inception* N/A 20.77% N/A 20.77%
Growth and Income Service 3/6/96-1/31/97 - Since inception* N/A 23.87% N/A 23.87%
CORE U.S. Equity A 5/24/91-1/31/97 - Since inception 13.54% 14.67% 13.25% 14.38%
CORE U.S. Equity A 2/1/92-1/31/97 - Five year 13.99% 15.29% 13.70% 15.00%
CORE U.S. Equity A 2/1/96-1/31/97 - One year 16.98% 23.75% 16.69% 23.44%
CORE U.S. Equity B 5/1/96-1/31/97 - Since inception* N/A 18.59% N/A 18.47%
CORE U.S. Equity Institutional 6/15/95-1/31/97 - Since inception N/A 28.04% N/A 27.74%
CORE U.S. Equity Institutional 2/1/96-1/31/97 - One year N/A 24.63% N/A 24.39%
CORE U.S. Equity Service 6/7/96-1/31/97 - Since inception* N/A 15.92% N/A 15.71%
CORE Large Cap Growth A 11/1/91-7/31/97 - Since inception 21.00% 22.23% N/A N/A
CORE Large Cap Growth A 6/1/92-7/31/97 - Five year 23.44% 24.74% N/A N/A
CORE Large Cap Growth A 6/1/96-7/31/97 - One year 46.72% 55.50% N/A N/A
CORE Large Cap Growth B 5/1/97-7/31/97 - Since inception* N/A 19.40% N/A N/A
CORE Large Cap Growth Institutional 11/1/91-7/31/97 - Since inception N/A 22.23% N/A N/A
Institutional 6/1/92-7/31/97 - Five year N/A 24.74% N/A N/A
Institutional 6/31/96-7/31/97 - One Year N/A 55.50% N/A N/A
CORE Large Cap Growth Service 5/1/97-7/31/97 - Since inception* N/A 19.40% N/A N/A
Capital Growth A 4/20/90-1/31/97 - Since inception 15.57% 16.54% 15.24% 16.21%
Capital Growth A 2/1/92-1/31/97 - Five year 15.42% 16.73% 15.14% 16.44%
</TABLE>
B-61
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assuming no voluntary
waiver of fees and no
expense reimbursements
-------------------------------------
Assumes Assumes Assumes Assumes
5.5% sales no sales 5.5% sales no sales
Fund Class Time Period charge charge charge charge
- ------------------------- ------------- ---------------------------------- ----- ----- ----- -------
Capital Growth A 2/1/96-1/31/97 - One year 19.04% 25.97% 18.75% 25.66%
Capital Growth B 5/1/96-1/31/97 - Since inception* N/A 19.39% N/A 19.39%
Mid Cap Equity Institutional 8/1/95-1/31/97 - Since inception N/A 21.65% N/A 21.55%
Mid Cap Equity Institutional 2/1/96-1/31/97 - One year N/A 25.63% N/A 25.55%
International Equity A 12/1/92-1/31/97 - Since inception 9.66% 11.15% 9.40% 10.90%
International Equity A 2/1/96-1/31/97 - One year 7.26% 13.48% 7.05% 13.26%
International Equity B 5/1/96-1/31/97 - Since inception* N/A 2.83% N/A 2.75%
International Equity Institutional 2/7/96-1/31/97 - Since inception* N/A 12.53% N/A 12.38%
International Equity Service 3/6/96-1/31/97 - Since inception* N/A 10.42% N/A 10.28%
Small Cap Value A 10/22/92-1/31/97- Since inception 12.12% 13.61% 11.79% 13.28%
Small Cap Value A 2/1/96-1/31/97 - One year 20.27% 27.28% 19.98% 26.97%
Small Cap Value B 5/1/96-1/31/97 - Since inception* N/A 5.39% N/A 5.39%
Asia Growth A 7/8/94-1/31/97 - Since inception 4.46% 6.78% 4.15% 6.47%
Asia Growth A 2/1/96-1/31/97 - One year -6.44% -1.01% -6.59% -1.17%
Asia Growth B 5/1/96-1/31/97 - Since inception * N/A -6.02% N/A -6.06%
Asia Growth Institutional 2/2/96-1/31/97 - Since inception * N/A -1.09% N/A -1.24%
- --------------------------
</TABLE>
All returns are average annual total returns.
* Represents an aggregate total return (not annualized) since this class has
not completed a full twelve months of operations.
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From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the adviser's
views as to markets, the rationale for a Fund's investments and discussions of a
Fund's current asset allocation.
In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed by GSAM and/or its
affiliates, certain attributes or benefits to be derived from asset allocation
strategies and the Goldman Sachs mutual funds that may be offered as investment
options for the strategic asset allocations. Such advertisements and
information may also include GSAM's current economic outlook and domestic and
international market views to suggest periodic tactical modifications to current
asset allocation strategies. Such advertisements and information may include
other materials which highlight or summarize the services provided in support of
an asset allocation program.
A Fund's performance data will be based on historical results and will
not be intended to indicate future performance. A Fund's total return and yield
will vary based on market conditions, portfolio expenses, portfolio investments
and other factors. The value of a Fund's shares will fluctuate and an
investor's shares may be worth more or less than their original cost upon
redemption. The Trust may also, at its discretion, from time to time make a
list of a Fund's holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return with respect to each class of shares of a Fund will differ.
SHARES OF THE TRUST
The Funds were reorganized from series of a Maryland corporation as
part of Goldman Sachs Trust, a Delaware business trust, by a Declaration of
Trust dated January 28, 1997, on April 30, 1997.
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect of assets specifically allocated to such class or series. The
Trustees also have authority to classify and reclassify any series of shares
into one or more classes of shares. As of the date of this Additional
Statement, the Trustees have classified the shares of the Funds into five
classes: Institutional Shares, Service Shares, Class A Shares, Class B Shares
and Class C Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under Service Plans
are borne exclusively by Service Shares, fees under Distribution and Authorized
Dealer Service Plans are borne exclusively by Class A, Class B or Class C Shares
and transfer agency fees are borne at different rates by Class A, Class B or
Class C Shares than Institutional and Service Shares. The Trustees may
determine in the future that it is appropriate to allocate other expenses
differently between classes of shares and may do so to the extent consistent
with the rules of the SEC and positions of the Internal Revenue Service. Each
class of shares may have different minimum investment requirements and be
entitled to different shareholder services. Currently, shares of a class may
only be exchanged for shares of the same or an equivalent class of another fund.
See "Exchange Privilege" in the Prospectus.
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<PAGE>
Institutional Shares may be purchased at net asset value without a
sales charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of account administration fees at the annual rate of up to
0.50% of the average daily net assets of the Fund attributable to Service
Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. Class A Shares also bear the
cost of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of
the average daily net assets attributable to Class A Shares.
Class B Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 5.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class B Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class B Shares. Class B
Shares also bear the cost of an Authorized Dealer Service Plan at an annual rate
of up to 0.25% of the average daily net assets attributable to Class B Shares.
Class C Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 1.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class C Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class C Shares. Class C
Shares also bear the cost of an Authorized Dealer Service Plan at an annual rate
of up to 0.25% of the average daily net assets attributable to Class C Shares.
It is possible that an institution or its affiliate may offer
different classes of shares (i.e., Institutional, Service, Class A Shares, Class
B Shares and Class C Shares) to its customers and thus receive different
compensation with respect to different classes of shares of each Fund.
Dividends paid by each Fund, if any with respect to each class of shares will be
calculated in the same manner, at the same time on the same day and will be the
same amount, except for differences caused by the differences in expenses
discussed above. Similarly, the net asset value per share may differ depending
upon the class of shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event
of liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Fund available for distribution to such
shareholders. All shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
As of July 24, 1997, State Street Bank & Trust Company as Trustee (GS
Profit Sharing Master Trust), Attn. Louis Pereira, P.O. Box 1992, Boston, MA
02105-1992, was recordholder of 95.80% of Mid
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Cap Equity Fund's outstanding shares; Fluor Corporation, Master Retirement
Trust, Bankers Trust as Trustee, 3353 Michelson Drive, Irvine, CA 92698-0010 was
recordholder of 64.71% and GS & Co. FBO William C. Strutt IRA, 455 Coconut Palm
Road, Vero Beach, FL 32963-3710 was recordholder of 5.36% of CORE Large Cap
Growth Fund's outstanding shares; State Street Bank and Trust Company as Trustee
for Goldman Sachs Profit Sharing Master Trust, Attention: Louis Pereira, P.O.
Box 1992, Boston, MA 02105-1992 was recordholder of 12.27% and Marine Midland
Bank as Trustee for Mark IV Ind. & Subs Employees Retirement Income Fund, P.O.
Box 1329, Attention: Mutual Fund Processing, Buffalo, NY 14240-1329 was
recordholder of 7.30% of CORE U.S. Equity Fund's outstanding shares; Frontier
Trust Co., FBO Dade County Public Schools, Attention: Agnes R. McMurray; 1720 S.
Gadsden Street, Tallahassee, FL 32301-5547 was recordholder of 5.22% and Trukan
and Co., Attention: K. Ufford, P.O. Box 3699, Wichita, KS 67201-3699 was
recordholder of 5.15% of Balanced Fund's outstanding shares; The Goldman Sachs
Group LP, Attention: Elaine King, 85 Broad Street, New York, New York 10004, was
recordholder of 63.63% of CORE Small Cap Equity Fund and 85.42% of CORE
International Equity Fund's outstanding shares.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise, to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of directors from the separate voting
requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees, either to one vote for each share or to one vote for each dollar
of net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The shareholders of the Trust will
have voting rights only with respect to the limited number of matters specified
in the Declaration of Trust and such other matters as the Trustees may determine
or may be required by law.
The Declaration of Trust provides for indemnification of Trustees,
officers and agents of the Trust unless the recipient is adjudicated (i) to be
liable by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such person's office or (ii)
not to have acted in good faith in the reasonable belief that such person's
actions were in the best interest of the Trust. The Declaration of Trust
provides that, if any shareholder or former shareholder of any series is held
personally liable solely by reason of being or having been a shareholder and not
because of the shareholder's acts or omissions or for some other reason, the
shareholder or former shareholder (or heirs, executors, administrators, legal
representatives or general successors) shall be held harmless from and
indemnified against all loss and expense arising form such liability. The Trust,
acting on behalf of any affected series, must, upon request by such shareholder,
assume the defense of any claim made against such shareholder for any act or
obligation of the series and satisfy any judgment thereon from the assets of the
series.
The Declaration of Trust permits the termination of the Trust or of
any series or class of the Trust (i) by a majority of the affected shareholders
at a meeting of shareholders of the Trust, series or class;
B-65
<PAGE>
or (ii) by a majority of the Trustees without shareholder approval if the
Trustees determine that such action is in the best interest of the Trust or its
shareholders. The factors and events that the Trustees may take into account in
making such determination include (i) the inability of the Trust or any
successor series or class to maintain its assets at an appropriate size; (ii)
changes in laws or regulations governing the Trust, series or class or affecting
assets of the type in which it invests; or (iii) economic developments or trends
having a significant adverse impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or their organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholder, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Delaware Law, the shareholders of the Funds are not generally
subject to liability for the debts or obligations of the Trust. Similarly,
Delaware law provides that a series of the Trust will not be liable for the
debts or obligations of any other series of the Trust. However, no similar
statutory or other authority limiting business trust shareholder liability
exists in other states. As a result, to the extent that a Delaware business
trust or a shareholder is subject to the jurisdiction of courts of such other
states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard against this risk,
the Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of a Fund. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification
by the relevant Fund for all loss suffered by a shareholder as a result of an
obligation of the series. The Declaration of Trust also provides that a series
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders
of a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of
Trust provides that shareholders of a series may bring a derivative action on
behalf of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the series for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
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<PAGE>
The Declaration of Trust further provides that the Trustees will not
be liable for error of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Trust. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
GENERAL
=======
Each Fund is a separate taxable entity. CORE Large Cap Growth, CORE
Small Cap Equity, CORE International Equity, Real Estate Securities and Emerging
Markets Equity Funds each intend to elect and each other Fund has elected to be
treated and intends to qualify for each taxable year as a regulated investment
company under Subchapter M of the Code.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its gross
income for its taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stocks or
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "90% gross
income test"); and (b) such Fund diversify its holdings so that, at the close of
each quarter of its taxable year, (i) at least 50% of the market value of such
Fund's total (gross) assets is comprised of cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the value of such Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of its total (gross) assets is invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies) or two or more issuers controlled by the Fund
and engaged in the same, similar or related trades or businesses. For purposes
of the 90% gross income test, income that a Fund earns from equity interests in
certain entities that are not treated as corporations (e.g., partnerships or
trusts) for U.S. tax purposes will generally have the same character for such
Fund as in the hands of such an entity; consequently, a Fund may be required to
limit its equity investments in
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<PAGE>
such entities that earn fee income, rental income, or other nonqualifying
income. In addition, future Treasury regulations could provide that qualifying
income under the 90% gross income test will not include gains from foreign
currency transactions that are not directly related to a Fund's principal
business of investing in stock or securities or options and futures with respect
to stock or securities. Using foreign currency positions or entering into
foreign currency options, futures and forward or swap contracts for purposes
other than hedging currency risk with respect to securities in a Fund's
portfolio or anticipated to be acquired may not qualify as "directly-related"
under these tests.
If a Fund complies with such provisions, then in any taxable year in
which such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute for each
taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, Emerging Markets Equity or Asia Growth Funds and may therefore make it
more difficult for such a Fund to satisfy the distribution requirements
described above, as well as the excise tax distribution requirements described
below. However, each Fund generally expects to be able to obtain sufficient
cash to satisfy such requirements from new investors, the sale of securities or
other sources. If for any taxable year a Fund does not qualify as a regulated
investment company, it will be taxed on all of its investment company taxable
income and net capital gain at corporate rates, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current
and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute
(or be deemed to have distributed) by December 31 of each calendar year at least
98% of its taxable ordinary income for such year, at least 98% of the excess of
its capital gains over its capital losses (generally computed on the basis of
the one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss. Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31,
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<PAGE>
1997 of capital loss carry forwards expiring in 2002, 2003, and 2004,
respectively, for federal tax purposes. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Code and applicable tax regulations.
Gains and losses on the sale, lapse, or other termination of options
and futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and instruments that may affect the
amount, timing and character of income, gain or loss recognized by a Fund.
Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign currency-
denominated debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed a Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foregoing currency transactions or
instruments could exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of a Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark to market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
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Each Fund (other than CORE U.S. Equity, CORE Large Cap Growth and CORE
Small Cap Equity Funds) anticipates that it will be subject to foreign taxes on
its income (possibly including, in some cases, capital gains) from foreign
securities. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. If, as may occur for CORE International
Equity, International Equity, Emerging Markets Equity and Asia Growth Funds,
more than 50% of a Fund's total assets at the close of any taxable year consists
of stock or securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders of the Fund
would be required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of foreign income
taxes paid by the Fund that are treated as income taxes under U.S. tax
regulations (which excludes, for example, stamp taxes, securities transaction
taxes, and similar taxes) even though not actually received by such
shareholders, and (ii) treat such respective pro rata portions as foreign income
taxes paid by them.
If the CORE International Equity, International Equity, Emerging
Markets Equity and Asia Growth Funds make this election, its respective
shareholders may then deduct such pro rata portions of qualified foreign taxes
in computing their taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their U.S. federal income
taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of foreign
taxes paid by a Fund, although such shareholders will be required to include
their shares of such taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed
paid by such shareholder as a result of any such election by CORE International
Equity, International Equity, Emerging Markets Equity or Asia Growth Funds, the
amount of the credit that may be claimed in any year may not exceed the same
proportion of the U.S. tax against which such credit is taken which the
shareholder's taxable income from foreign sources (but not in excess of the
shareholder's entire taxable income) bears to his entire taxable income. For
this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by a Fund will generally not be treated as income from
foreign sources. This foreign tax credit limitation may also be applied
separately to certain specific categories of foreign-source income and the
related foreign taxes. As a result of these rules, which have different effects
depending upon each shareholder's particular tax situation, certain shareholders
of CORE International Equity, International Equity, Emerging Markets Equity and
Asia Growth Funds may not be able to claim a credit for the full amount of their
proportionate share of the foreign taxes paid by such Fund even if the election
is made by such a Fund.
Shareholders who are not liable for U.S. federal income taxes,
including tax-exempt shareholders, will ordinarily not benefit from this
election. Each year, if any, that the CORE International Equity, International
Equity, Emerging Markets Equity or Asia Growth Funds files the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes paid by a Fund and (ii)
the portion of Fund dividends which represents income from each foreign country.
The other Funds will not be entitled to elect to pass foreign taxes and
associated credits or deductions through to their shareholders because they will
not satisfy the 50% requirement described above. If a Fund cannot or does not
make this election, it may deduct such taxes in computing the amount it is
required to distribute.
If a Fund acquires stock (including, under proposed regulations, an
option to acquire stock such as is inherent in a convertible bond) in certain
foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents, royalties or capital gain)
or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), the Fund could be subject to
federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not
B-70
<PAGE>
be able to pass through to its shareholders any credit or deduction for such a
tax. In some cases, elections may be available that would ameliorate these
adverse tax consequences, but such elections would require the Fund to include
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. Each Fund may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues
for a Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
=========================================
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from a
Fund's dividend income, if any, that would be eligible for the dividends
received deduction if such Fund were not a regulated investment company may be
eligible, for the dividends received deduction for corporations. The dividends-
received deduction, if available, is reduced to the extent the shares with
respect to which the dividends are received are treated as debt-financed under
federal income tax law and is eliminated if the shares are deemed to have been
held for less than a minimum period, generally 46 days. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by CORE
International Equity, International Equity, Asia Growth and Emerging Markets
Equity Funds will qualify for the dividends-received deduction. The entire
dividend, including the deducted amount, is considered in determining the
excess, if any, of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Fund. Capital gain dividends (i.e., dividends from net capital
gain) if designated as such in a written notice to shareholders mailed not later
than 60 days after a Fund's taxable year closes, will be taxed to shareholders
as long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends received deduction for
corporations. Distributions, if any, that are in excess of a Fund's current and
accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will generally constitute
capital gains to a shareholder who holds his shares as capital assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
B-71
<PAGE>
TAXABLE U.S. SHAREHOLDERS - SALE OF SHARES
==========================================
When a shareholder's shares are sold, redeemed or otherwise disposed
of in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term, subject to the rules
described below. Shareholders should consult their own tax advisers with
reference to their particular circumstances to determine whether a redemption
(including an exchange) or other disposition of Fund shares is properly treated
as a sale for tax purposes, as is assumed in this discussion. If a shareholder
receives a capital gain dividend with respect to shares and such shares have a
tax holding period of six months or less at the time of a sale or redemption of
such shares, then any loss the shareholder realizes on the sale or redemption
will be treated as a long-term capital loss to the extent of such capital gain
dividend. All or a portion of any sales load paid upon the purchase of shares
of a Fund will not be taken into account in determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent the redemption proceeds are reinvested, or the exchange is effected,
without payment of an additional sales load pursuant to the reinvestment or
exchange privilege. The load not taken into account will be added to the tax
basis of the newly-acquired shares. Additionally, any loss realized on a sale
or redemption of shares of a Fund may be disallowed under "wash sale" rules to
the extent the shares disposed of are replaced with other shares of the same
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a dividend reinvestment in
shares of such Fund. If disallowed, the loss will be reflected in an adjustment
to the basis of the shares acquired.
Each Fund may be required to withhold, as "backup withholding,"
federal income tax at a rate of 31% from dividends (including capital gain
dividends) and share redemption and exchange proceeds to individuals and other
non-exempt shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to the Fund is incorrect, or if (when required to do so) the payee fails
to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability.
NON-U.S. SHAREHOLDERS
=====================
The discussion above relates solely to U.S. federal income tax law as
it applies to "U.S. persons" subject to tax under such law. Shareholders who, as
to the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
a Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable
B-72
<PAGE>
year and certain other conditions are met. Non-U.S. shareholders may also be
subject to U.S. federal withholding tax on deemed income resulting from any
election by CORE International Equity, International Equity, Emerging Markets
Equity or Asia Growth Funds to treat qualified foreign taxes it pays as passed
through to shareholders (as described above), but they may not be able to claim
a U.S. tax credit or deduction with respect to such taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
===============
Each Fund may be subject to state or local taxes in jurisdictions in
which such Fund may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of such Fund and
its shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent
Public Accountants, contained in the 1997 Annual Report of each of the Funds
(except CORE Large Cap Growth Fund), are incorporated herein by reference into
this Additional Statement and attached hereto. Unaudited financial statements
for the CORE Large Cap Growth Fund for the period ended July 31, 1997 are also
attached hereto and incorporated by reference into this Statement of Additional
Information. No other part of the Annual or Semi-Annual Report is incorporated
by reference herein.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
any one shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by
each Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the
B-73
<PAGE>
value of its net assets; or for such other period as the SEC may by order permit
for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
B-74
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are pleased to have the opportunity to discuss the performance and holdings
of the Goldman Sachs Mid-Cap Equity Fund for the 12 months ended January 31,
1997. The U.S. equity market rewarded investors with excellent returns once
again in 1996, with the Goldman Sachs Mid-Cap Equity Fund outperforming its
benchmark by a wide margin during the period under review. To help put the
fund's performance in perspective, we will also provide a brief overview of the
economic and investment environment.
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Mid-Cap Equity Fund seeks long-term capital growth primarily
by investing at least 65% of its total assets in equities with market
capitalizations of between $500 million and $7 billion at the time of
investment. However, the fund currently intends to emphasize investments in
companies with market capitalizations of under $5 billion at the time of
investment. The fund is managed with a value style, which means we focus on
companies whose stocks we believe are inexpensive relative to their expected
long-term earnings growth and their asset value. Investments may include well-
known companies that are temporarily out of favor due to cyclical economic
conditions or are experiencing near-term difficulties the portfolio managers
judge to be temporary in nature. In-depth fundamental research of a company's
financial structure, its competitive position in the market and its management's
commitment to increasing shareholder value are all critical parts of the fund's
investment approach. Though we are not sector investors, we closely monitor the
fund's sector and industry exposures compared with the benchmark in an effort to
avoid unintentional over- or underweightings.
MID-CAPS PERFORMED WELL, BUT LAGGED LARGE-CAPS
The U.S. stock market surged to record levels during the period under review,
rising an impressive 26.3% (as measured by the Standard & Poor's 500 stock
index). After a run-up from January through mid-February, market volatility
notably increased, as investor sentiment vacillated between two contradictory
concerns. With some economic news, investors feared that the economy was growing
too quickly, making higher inflation a possibility, while other news caused them
to worry that the economy was slowing, putting earnings at risk. In May,
investors briefly overcame their fears and sent the market higher, but their
concerns quickly reemerged and caused the market to settle into another choppy
trading range that culminated in a sharp sell-off in July. However, stock
prices rebounded throughout the second half of the period, as investors became
more confident that the environment of low inflation, moderate economic growth
and healthy corporate earnings would persist. Though small-cap stocks led the
market during the first half of the year, the post-July rally was dominated by a
handful of large-cap, growth companies.
During the period, the mid-cap sector of the stock market recorded a total
return of 20.9% (as measured by the Russell Midcap index), lagging its larger
peers but slightly outperforming small-cap stocks, which rose 19.0% (as measured
by the Russell 2000 index). The divergence between the performance of the
different stock capitalizations was primarily a reflection of investors "flight
to quality" in the uncertain market, with investors favoring large-cap growth
companies that were highly liquid.
1
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
ECONOMIC GROWTH REBOUNDED AFTER A WEAK START, THEN MODERATED
When the period began, lackluster consumer spending, harsh winter weather and
the General Motors strike restrained economic growth. Despite these adverse
conditions, the economy advanced faster than expected, with first-quarter real
GDP growth reported at 2.0% (annualized). Momentum accelerated even more
dramatically during the second quarter, as industrial activity, automobile sales
and home sales all showed significant improvement. As a result, second-quarter
GDP rose a robust 4.7% (annualized), its highest rate in two years.
The economy's torrid growth cooled markedly during the third quarter, with
annualized real GDP slowing to 2.1%, largely due to lackluster consumer spending
and a widening U.S. trade deficit. This slowdown proved to be temporary,
however, as a wide range of economic reports pointed toward renewed strength
from October through December. Fourth-quarter real GDP growth was revised to
3.9% (annualized), reflecting a narrowing trade deficit, rising consumer
spending and accelerating manufacturing activity. In January 1997, the economic
data suggested that the economy's advance was continuing. Despite firm growth,
underlying inflation remained surprisingly mild. For all of 1996, consumer
prices rose only 2.9%.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis points in
January 1996, just prior to the start of the period. Though stronger than
expected growth shifted investor expectations from further Federal Reserve
interest rate cuts to potential tightening, the Fed then left rates unchanged.
As of January 31, 1997, the Federal funds rate remained at 5.25%.
PERFORMANCE REVIEW: STRONG OUTPERFORMANCE, LED BY OUR TECHNOLOGY, FINANCIAL AND
ENERGY STOCKS
For the 12-month period ended January 31, 1997, the Goldman Sachs Mid-Cap
Equity Fund had a total return of 25.63% based on net asset value, significantly
outperforming the 20.90% total return of the fund's benchmark, the Russell
Midcap Index. We are also pleased to note that the fund fared very well
compared with its peers. For the 12-month period ended January 31, 1997, the
fund ranked within the top 20% of the Lipper mid-cap fund category (30th of
157), according to Lipper Analytical Services, Inc. (Please note that Lipper
rankings do not take sales charges into account and that past performance is not
a guarantee of future results.)
The fund's strong results came primarily during the second half of the period,
and can be attributed to successful stock selection. The best performing stocks
came from a wide range of sectors, with technology, financial and energy-related
investments performing particularly well. In addition, the fund benefited from
several of its positions in consumer nondurables, a sector that had been
underweighted early in the period and subsequently increased.
The fund's top performers included a number of manufacturers of computer-
related components. For example, we took advantage of the slump in technology
stocks in early 1996 by establishing a position in TERADYNE, INC., a
manufacturer of semiconductor testing equipment, at an extremely inexpensive
price. The stock then rebounded much faster than we anticipated in advance of
the turnaround of the semiconductor cycle. Other successful holdings in the
sector were the best performing initial public offering of 1996, CYMER, INC., a
producer of excimer lasers used to etch semiconductors, and SEAGATE TECHNOLOGY,
INC., the world's largest independent disk-drive maker. Seagate Technology
spent much of the past year
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
integrating its acquisition of Conner Peripherals, Inc., which gave it a
dominant market share and made it the most vertically integrated hard disk-drive
manufacturer. By the end of the period, we sold the fund's position in Cymer and
reduced Teradyne and Seagate Technology as they appreciated and became less
undervalued.
In the financial sector, several of our bank and insurance holdings performed
extremely well. Bank stocks included GREENPOINT FINANCIAL CORP., which reported
strong demand for its "no-documentation" and "low-documentation" mortgages;
REPUBLIC BANK OF NEW YORK CORP., which achieved an earnings improvement due to
better than expected revenues and non-interest expense control; and STANDARD FED
BANCORPORATION, a Michigan-based thrift that is in the process of being
acquired, which we sold after it reached our target price. In the insurance
industry, OLD REPUBLIC INTERNATIONAL CORP. enhanced shareholder value in a slow
premium growth environment by improving its capital management, which included a
stock buyback program; USLIFE CORP. surged amid takeover speculation, and
ALLMERICA FINANCIAL CORP. announced a restructuring that would combine its four
units.
The fund also benefited from several of its energy and consumer nondurable
investments. TOSCO CORP., an oil refiner and distributor, continued to
consolidate its market position through an ambitious acquisition strategy, and
LONG ISLAND LIGHTING CO., a New York-based utility, agreed to be acquired by
Brooklyn Union Gas Co. at a very attractive price. In the consumer nondurable
sector, SUNBEAM CORP., a leading consumer products company, surged due to the
aggressive restructuring program initiated by its new CEO; and FRUIT OF THE
LOOM, INC. performed well due to increased investor recognition of its ability
to improve future cash flow.
DIFFICULT INDUSTRY CONDITIONS IMPACTED SEVERAL HOLDINGS
Fund holdings that did not fulfill our expectations included several companies
that were affected by difficult industry conditions. These included GEON CORP.,
VISHAY INTERTECHNOLOGY, INC. and STONE CONTAINER CORP., which all suffered when
their respective businesses -- chemicals, electronic capacitors, and pulp and
paper products -- came under pressure due to increased competition and
overcapacity. Another disappointment was CENTRAL MAINE POWER CO., which was
impacted by continuing uncertainty in the regulatory environment for electric
utilities. We believe that the market has overreacted to the short-term
problems facing these companies and the fund continued to hold them as of the
end of the period.
NEW INVESTMENTS ADDED DIVERSIFICATION
After many holdings performed extremely well and were sold upon reaching our
price targets, we initiated several new investments that we determined were very
undervalued. These included two stocks that were among the fund's 10 largest
positions as of the end of the period under review: INTERNATIONAL MULTIFOODS
CORP. and UNICOM CORP. International Multifoods Corp., a distributor of
specialty foods, has a relatively low valuation, a high degree of operating
leverage and new management that is expected to improve profitability,
particularly in its vending distribution business. Unicom Corp., an electric
utility that operates 12 nuclear units at six sites, generates excess capital
and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects.
We established a major position in PERRIGO CO., the largest manufacturer of
store-brand health and
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND (cont'd)
- --------------------------------------------------------------------------------
beauty aids, over-the-counter pharmaceuticals and nutritional products. We
expect Perrigo to benefit from stricter cost controls as well as its "over-the-
counter switch" business, where it produces drugs that are equivalent to brand-
name products after the original drug patents expire. These products are a
significant new source of revenues because they command higher margins and have
higher unit growth. Another new position was IMATION CORP., a spin-off of 3M
Co., which manufactures products for data storage, printing and publishing,
medical imaging and photography. Imation has a strong balance sheet and is using
the cash flow generated by its older businesses to develop new products such as
high-capacity disks.
We significantly increased the fund's existing position in THIOKOL CORP., a
defense/aerospace company that has a debt-free balance sheet, trades at a very
low earnings multiple and is reducing its dependence on the federal government.
As part of this strategy, Thiokol formed a joint venture to manufacture
components for commercial aircraft, which will enable it to benefit from an
expected upturn in the aircraft cycle.
<TABLE>
<CAPTION>
TOP 10 EQUITY HOLDINGS AS OF JANUARY 31, 1997
COMPANY LINE OF BUSINESS PERCENTAGE OF TOTAL NET ASSETS
<S> <C> <C>
Thiokol Corp. Defense/Aerospace 3.0%
Shopko Stores, Inc. Discount Retailer 2.5%
Goodyear Tire & Rubber Co. Tire and Rubber Products 2.5%
Republic Bank of New York Corp. Bank 2.5%
Long Island Lighting Co. Electric Utilities 2.5%
International Multi-foods Corp. Food Distributor 2.4%
Avnet, Inc. Electronic Components Distributor 2.4%
USLife Corporation Insurance 2.4%
Unicom Corp. Utility 2.4%
Owens-Illinois, Inc. Packaging 2.4%
</TABLE>
OUTLOOK
As of this writing, we believe the stock market, in general, is somewhat
overvalued. Though we still expect the market to achieve positive results in
1997, its returns are unlikely to match the strong returns of 1995 or 1996.
Despite the expensive market, the fund's current holdings are attractively
valued and we expect them to continue to perform well. We intend to continue to
utilize extensive fundamental research to identify attractive, undervalued
stocks with solid long-term prospects.
Sincerely,
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Portfolio Manager
U.S. Active Equity Value
March 3, 1997
4
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID-CAP EQUITY FUND
- --------------------------------------------------------------------------------
The following graph shows the value, as of January 31, 1997, of a $1,000,000
investment made on the inception date of the Fund. For comparative purposes,
the performance of the Fund's benchmark (the Russell Midcap Index ("Russell
Midcap")) is shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
(dollars in thousands)
[LINE GRAPH APPEARS HERE]
GS MIDCAP RUSSELL MIDCAP
8/1/95 $1,000 $1,000
1/31/96 $1,069 $1,094
1/31/97 $1,344 $1,523
<TABLE>
<CAPTION>
Average Annual Total Return
-----------------------------------
One Year Since Inception
(a)
-----------------------------------
<S> <C> <C>
Institutional 25.63% 21.65%
Shares
</TABLE>
(a) Institutional shares commenced operations on August 1, 1995.
5
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS
January 31, 1997
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<S> <C> <C>
Common Stocks--96.5%
Airlines--2.0%
102,400 Continental Airlines, $ 2,867,200
Inc.*
- -------------------------------------------------------------
APPLIANCE MANUFACTURER--1.8%
95,300 Sunbeam Corp., Inc. 2,644,575
- -------------------------------------------------------------
AUTO--ORIGINAL EQUIPMENT MANUFACTURER--0.7%
48,500 Exide Corp. 1,091,250
- -------------------------------------------------------------
BANKS--4.1%
27,600 Greenpoint Financial Corp. 1,504,200
40,700 Republic Bank of New York 3,607,038
Corp.
14,800 Unionbancal Corp. 791,800
5,903,038
- -------------------------------------------------------------
CHEMICALS--COMMODITY--1.2%
94,600 Geon Co. 1,773,750
- -------------------------------------------------------------
COMPUTERS AND PERIPHERALS--3.2%
124,300 Decisionone Corp. 2,175,250
48,000 Seagate Technology, Inc.* 2,472,000
4,647,250
- -------------------------------------------------------------
CONSUMER STAPLES--1.8%
56,135 Block Drug Company, Inc. 2,638,345
- -------------------------------------------------------------
DEFENSE--3.0%
76,600 Thiokol Corp. 4,289,600
DEPARTMENT STORES--2.5%
228,000 Shopko Stores, Inc. 3,619,500
- -------------------------------------------------------------
ELECTRIC UTILITIES--8.6%
242,100 Central Maine Power Co. 2,693,362
38,500 CMS Energy Corp. 1,289,750
158,100 Long Island Lighting Co. 3,596,775
147,500 Niagara Mohawk Power 1,493,437
Corp.*
145,900 Unicom Corp. 3,446,888
12,520,212
- -------------------------------------------------------------
FOOD--4.1%
161,900 Chiquita Brands 2,367,788
International, Inc.
197,000 International Multifoods 3,546,000
Corp.
5,913,788
- -------------------------------------------------------------
FOREST PRODUCTS--2.7%
31,000 Georgia-Pacific Corp. 2,282,375
130,000 Stone Container Corp. 1,755,000
4,037,375
- -------------------------------------------------------------
HEALTHCARE MANAGEMENT--4.8%
57,800 Health Systems 1,495,575
International, Inc.*
104,900 Horizon CMS Healthcare 1,442,375
Corp.
126,400 Tenet Healthcare Corp.* 3,412,800
33,000 Trigon Healthcare Inc. 585,750
6,936,500
- -------------------------------------------------------------
HOME BUILDERS--3.1%
46,000 Centex Corp. 1,794,000
104,600 Lennar Corp. 2,784,975
4,578,975
- -------------------------------------------------------------
INSURANCE--LIFE--3.8%
36,900 Reliastar Financial Corp. 2,047,950
84,700 US Life Corp. 3,472,700
5,520,650
- -------------------------------------------------------------
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSURANCE--PROPERTY AND CASUALTY--3.8%
90,100 Allmerica Financial Group $ 3,299,912
84,300 American States Financial 2,223,413
Corp.*
5,523,325
- -------------------------------------------------------------
INSURANCE BROKERS--1.5%
80,900 Old Republic 2,174,187
International
Corp.
- -------------------------------------------------------------
INVESTMENT BROKERS AND MANAGERS--1.0%
44,300 Lehman Brothers Holdings, 1,400,987
Inc.
- -------------------------------------------------------------
LOGISTICS/TRUCKING--1.9%
106,800 Consolidated Freightways, 2,710,050
Inc.
- -------------------------------------------------------------
LEISURE--2.1%
115,300 Royal Caribbean Cruise 3,041,038
Lines
- -------------------------------------------------------------
MACHINERY--0.9%
22,400 Tecumseh Products, Inc. 1,293,600
MEDIA--1.2%
76,200 Carmike Cinemas 1,809,750
- -------------------------------------------------------------
MEDICAL--2.5%
68,800 Owens and Minor, Inc. 705,200
272,700 Perrigo Co. 2,897,438
3,602,638
- -------------------------------------------------------------
OIL REFINING AND MARKETING--5.5%
59,400 Ashland Inc. 2,561,625
34,600 Tosco Corp. 3,062,100
71,700 Valero Energy Corp. 2,419,875
8,043,600
- -------------------------------------------------------------
PACKAGING--2.4%
144,000 Owens-Illinois Inc.* 3,420,000
- -------------------------------------------------------------
RECREATIONAL PRODUCTS--1.7%
149,300 Outboard Marine Corp. 2,482,112
RESTAURANTS--1.8%
369,800 Darden Restaurants 2,681,050
- -------------------------------------------------------------
SEMICONDUCTORS AND ELECTRONICS--7.8%
56,600 Avnet, Inc. 3,502,125
98,000 Imation Corp. 2,854,250
69,200 Silicon Valley Group, 1,859,750
Inc.*
124,250 Vishay Intertechnology, 2,997,531
Inc.*
11,213,656
- -------------------------------------------------------------
SOFTWARE--1.4%
62,900 Autodesk, Inc. 1,989,213
- -------------------------------------------------------------
STEEL--1.8%
63,600 AK Steel Holding Corp. 2,559,900
- -------------------------------------------------------------
SUPERMARKETS--1.9%
168,800 Fleming Companies, Inc. 2,721,900
TECHNOLOGY CAPITAL GOODS--1.9%
91,700 Teradyne, Inc.* 2,831,238
- -------------------------------------------------------------
TEXTILES--4.1%
141,100 Angelica Corp. 2,698,537
82,300 Fruit of the Loom, Inc.* 3,302,287
6,000,824
- -------------------------------------------------------------
TIRE AND OTHER RELATED
RUBBER PRODUCTS--2.5%
66,200 Goodyear Tire & Rubber Co. 3,607,900
- -------------------------------------------------------------
TOBACCO--1.4%
67,000 Universal Corp. 2,077,000
- -------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $118,250,113) $ 140,165,976
- -------------------------------------------------------------
</TABLE>
6
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (continued)
January 31, 1997
<TABLE>
<CAPTION>
Principal Amount
Interest Rate Maturity Date Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--2.8%
Joint Repurchase Agreement Account
$4,100,000 5.63% 02/03/97 $ 4,100,000
- -----------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $4,100,000) $ 4,100,000
TOTAL INVESTMENTS (COST $122,350,113)** $144,265,976
- -----------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost
$ 27,053,378
Gross unrealized loss for investments in which cost exceeds value
(5,196,819)
- -----------------------------------------------------------------------------------
Net unrealized gain $ 21,856,559
- -----------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** The aggregate cost for federal income tax purposes is $122,409,417.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
7
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investment in securities, at value (identified cost $144,265,976
$122,350,113)
Cash 31,121
Receivables:
Fund shares sold 87,576
Investment securities sold 4,552,534
Dividends and interest 56,999
Deferred organization expenses, net 60,056
Other assets 10,218
TOTAL ASSETS 149,064,480
LIABILITIES:
Payables:
Investment securities purchased 3,687,585
Investment advisory fees 71,762
Administration fees 18,370
Transfer agent fees 4,807
Accrued expenses and other liabilities 28,626
TOTAL LIABILITIES 3,811,150
NET ASSETS:
Paid-in capital 115,859,949
Distributions in excess of net investment income (25,142)
Accumulated undistributed net realized gain on investment and 7,502,660
option transactions
Net unrealized gain on investments 21,915,863
NET ASSETS $145,253,330
Total shares of beneficial interest outstanding, $.001 par 7,755,774
value (50,000,000 shares authorized)
Net asset value, offering and redemption price per share (net $18.73
assets/shares outstanding)
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
Goldman Sachs Mid-Cap Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends $ 2,631,906
Interest 188,358
TOTAL INCOME 2,820,264
- -----------------------------------------------------
EXPENSES:
Investment adviser fees 771,956
Administration fees 192,989
Professional fees 68,906
Transfer agent fees 51,464
Custodian fees 29,506
Amortization of deferred organization 17,213
expenses
Directors' fees 2,234
Other 31,778
- -----------------------------------------------------
TOTAL EXPENSES $1,166,046
Less Expenses reimbursable by Goldman (72,441)
Sachs
NET EXPENSES 1,093,605
NET INVESTMENT INCOME 1,726,659
- -----------------------------------------------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENT AND OPTION TRANSACTIONS:
Net realized gain on investment 13,627,039
transactions
Net realized gain on options written 40,466
Net change in unrealized gain on 14,749,074
investments
- -----------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON 28,416,579
INVESTMENT AND OPTION TRANSACTIONS
- -----------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING $30,143,238
FROM OPERATIONS
- -----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, 1997 JANUARY 31, 1996 (A)
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 1,726,659 $ 1,088,855
Net realized gain on investment 13,627,039 547,655
transactions
Net realized gain (loss) on options 40,466 (83,442)
written
Net change in unrealized gain on 14,749,074 7,166,789
investments
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 30,143,238 8,719,857
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,837,675) (986,293)
In excess of net investment income (25,142) ---
From net realized gains (6,629,058) ---
Total distributions to shareholders (8,491,875) (986,293)
- ------------------------------------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS: SHARES SHARES
- ------------------------------------------------------------------------------------------------------------
Proceeds from sales of shares 227,071 3,933,239 9,029,858 135,730,361
Reinvestment of dividends and 483,747 8,489,760 64,045 986,293
distributions
Cost of shares repurchased (1,480,859) (24,491,993) (568,088) (8,779,257)
Net increase (decrease) in net assets
resulting from share transactions (770,041) (12,068,994) 8,525,815 127,937,397
- ------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 9,582,369 135,670,961
NET ASSETS:
Beginning of period 135,670,961 ---
End of period $145,253,330 $135,670,961
- ------------------------------------------------------------------------------------------------------------
Accumulated undistributed
(distributions in excess of) net $ (25,142) $ 102,562
investment income
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
JANUARY 31, 1997 JANUARY 31, 1996 (a)
------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $ 15.91 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.24 0.13
Net realized and unrealized gain on investments 3.77 0.90
and options
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 4.01 1.03
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.24) (0.12)
- ------------------------------------------------------------------------------------------------------------
In excess of net investment income (0.02) --
Net realized gain on investments and option (0.93) --
transactions
- ------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1.19) (0.12)
- ------------------------------------------------------------------------------------------------------------
Net increase in net asset value 2.82 0.91
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.73 $ 15.91
Total return /(b)/ 25.63% 6.89% /(d)/
Portfolio turnover rate 74.03% 58.77% /(d)/
Average commission rate /(e)/ $ 0.0547 --
Net assets at end of period $145,253,330 $135,670,961
Ratio of net expenses to average net assets /(c)/ 0.85% 0.85%
Ratio of net investment income to average net assets /(c)/ 1.35% 1.67%
Ratios assuming no expense limitations:
Ratio of expenses to average net assets /(c)/ 0.91% 0.98%
Ratio of net investment income to average net assets /(c)/ 1.29% 1.54%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/ For the period from August 1, 1995 (commencement of operations) to January
31, 1996.
/(b)/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
/(c)/ Annualized.
/(d)/ Not annualized.
/(e)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
January 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Goldman Sachs Mid-Cap Equity Fund ("the Fund") is a separate diversified
portfolio of Goldman SachsEquity Portfolios, Inc. (the "Company"). The Company
consists of eight funds and is a Marylandcorporation registered under the
Investment Company Act of 1940, as amended, as an open-end,management investment
company. The Fund offers two classes of shares - Institutional shares
andService shares. No Service shares were outstanding as of January 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significantaccounting policies consistently
followed by the Fund. The preparation of financial statements inconformity with
generally accepted accounting principles requires management to make
estimatesand assumptions that may affect the reported amounts.
A. Investment Valuation
- -- --------------------
Investments in securities traded on a U.S. or foreignsecurities exchange or the
NASDAQ system are valued daily at their last sale or closing price on
theprincipal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on aU.S. exchange or NASDAQ are valued at the mean between the
closing bid and asked price, andsecurities traded on a foreign exchange will be
valued at the official bid price. Unlisted equity anddebt securities for which
market quotations are available are valued at the mean between the mostrecent
bid and asked prices. Debt securities are valued at prices supplied by an
independent pricingservice, which reflect broker/dealer-supplied valuations and
matrix pricing systems. Short-termdebt obligations maturing in sixty days or
less are valued at amortized cost. Restricted securities, andother securities
for which quotations are not readily available, are valued at fair value using
methodsapproved by the Board of Directors of the Company.
B. Securities Transactions and Investment Income
- -- ---------------------------------------------
Securities transactions are recorded on the tradedate. Realized gains and
losses on sales of investments are calculated on the identified-costbasis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Fund hasthe choice to receive either cash or stock are recognized as investment
income in an amountequal to the cash dividend. This amount is also used as an
estimate of the fair value of the stockreceived. Interest income is determined
on a basis of interest accrued, premium amortized anddiscount earned.
C. Federal Taxes
- -- -------------
It is the Fund's policy to comply with the requirements of the Internal Revenue
Codeapplicable to regulated investment companies and to distribute substantially
all of its investmentcompany taxable income and capital gains to its
shareholders. Accordingly, no federal tax provisionis required. The
characterization of distributions to shareholders for financial reporting
purposes isdetermined in accordance with income tax rules. Therefore, the source
of a portfolio's distributionsmay be shown in the accompanying financial
statements as either from or in excess of netinvestment income or net realized
gain on investment transactions, or from capital, dependingon the type of
book/tax differences that may exist.
D. Deferred Organization Expenses
- -- ------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
12
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
E. Expenses
- -- --------
Expenses incurred by the Company which do notspecifically relate to an
individual fund of the Company are allocated to the funds based on eachfund's
relative average net assets for the period.
F. Option Accounting Principles
- -- ----------------------------
When the Fund writes call or put options, an amount equal to the premium
received is recordedas an asset and as an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current market
value of the option written. When a written option expires onits stipulated
expiration date or the Fund enters into a closing purchase transaction, the Fund
realizes again or loss without regard to any unrealized gain or loss on the
underlying security, and the liabilityrelated to such option is extinguished.
When a written call option is exercised, the Fund realizes again or loss from
the sale of the underlying security, and the proceeds of the sale are
increasedby the premium originally received. When a written put option is
exercised, the amount of thepremium originally received will reduce the cost of
the security which the Fund purchases uponexercise. There is a risk of loss
from a change in value of such options which may exceed the relatedpremiums
received.
Upon the purchase of a call option or aprotective put option by the Fund, the
premium paid is recorded as an investment and subsequentlymarked-to-market to
reflect the current market value of the option. If an option which the Fundhas
purchased expires on the stipulated expiration date, the Fund will realize a
loss in the amount ofthe cost of the option. If the Fund enters into a closing
sale transaction, the Fund will realize a gainor loss, depending on whether the
sale proceeds from the closing sale transaction are greater or lessthan the cost
of the option. If the Fund exercises a purchased put option, the Fund will
realize a gainor loss from the sale of the underlying security, and the proceeds
from such sale will be decreased bythe premium originally paid. If the Fund
exercises a purchased call option, the cost of the securitywhich the Fund
purchases upon exercise will be increased by the premium originally paid.
G. Futures Contracts
- -- -----------------
The Fund may enter into financial futures contracts for hedging purposes or to
increase total return. Upon entering into a futures contract, the Fund is
required to deposit with a broker an amount of cashor securities equal to the
minimum "initial margin" requirement of the futures exchange on which
thecontract is traded. Subsequent payments ("variation margin") are made or
received by theFund each day, dependent on the daily fluctuations in the value
of the underlying index, and arerecorded for financial reporting purposes as
unrealized gains or losses by the Fund. Whenentering into a closing
transaction, for book purposes, the Fund will realize a gain or loss equalto the
difference between the value of the futures contract to sell and the futures
contract to buy. Futures contracts are valued at the most recent settlement
price, unless such price does not reflectthe fair market value of the contract,
in which case the position will be valued using methods approvedby the Board of
Directors of the Company.
Certain risks may arise upon entering intofutures contracts. The predominant
risk is that the changes in the value of the futures contract may notdirectly
correlate with changes in the value of the underlying securities. This risk may
decrease theeffectiveness of the Fund's hedging strategies and may also result
in a loss to the Fund.
13
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), aseparate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund'sinvestment adviser
pursuant to an Investment Advisory Agreement. Under the InvestmentAdvisory
Agreement, GSAM, subject to the general supervision of the Company's Board of
Directors,manages the Fund's portfolio. As compensation for the services
rendered under the AdvisoryAgreement and the assumption of the expenses related
thereto, GSAM is entitled to a fee,computed daily and payable monthly, at an
annual rate equal to .60% of the Fund's average daily netassets.
GSAM also acts as the Fund's administratorpursuant to an Administration
Agreement. Under the Administration Agreement, GSAM administersthe Fund's
business affairs, including providing facilities. As compensation for the
servicesrendered pursuant to the Administration Agreement, the Fund pays GSAM a
fee, computeddaily and payable monthly, at an annual rate equal to .15% of the
Fund's average daily net assets.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" (excludingadvisory, administration, service plan and transfer agent
fees and litigation, indemnification, taxes,interest, brokerage commissions and
extraordinary expenses) until further notice to the extent suchexpenses exceed
..06% of the average daily net assets of the Fund. For the year ended January
31,1997, these expense reimbursements amounted to $72,441 and Goldman Sachs owed
the Fund $8,717at year end.
Goldman Sachs serves as the Distributor ofshares of the Fund pursuant to a
distribution agreement and receives no fee. Goldman Sachsalso serves as the
Transfer Agent of the Fund for a fee.
4. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line of
creditfacility. In addition, the Fund participates in a $50,000,000 committed,
unsecured revolving lineof credit facility. Both facilities are to be used
solely for temporary or emergency purposes. Under the most restrictive
arrangement, the Fund must own securities having a market value inexcess of 300%
of the total bank borrowings. The interest rate on the borrowings is based on
theFederal Funds rate. The committed facility also requires a fee to be paid
based on the amount of thecommitment which has not been utilized. During the
year ended January 31, 1997, the Fund did nothave any borrowings under these
facilities.
5. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities ofsecurities (excluding short-term
investments and options) for the year ended January 31, 1997 were$92,601,511 and
$112,186,001, respectively.
For the year ended January 31, 1997, optiontransactions in the Fund were as
follows:
<TABLE>
<CAPTION>
Put Options written Contracts Premium Received
- ----------------------------------------------------
<S> <C> <C>
Balance outstanding,
beginning of period -- $ --
Options written 240 40,466
Options expired (240) (40,466)
- ----------------------------------------------------
Balance outstanding,
end of period -- $ 0
- ----------------------------------------------------
</TABLE>
Certain risks arise related to written call or put options from the possible
inability of counterpartiesto meet terms of their contracts.
For the year ended January 31, 1997, GoldmanSachs earned approximately $22,000
of brokerage commissions from portfolio transactions executedon behalf of the
Fund.
14
<PAGE>
Goldman Sachs Mid-Cap Equity Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
January 31, 1997
- --------------------------------------------------------------------------------
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, thevalue of the underlying
securities, including accrued interest, is required to equal or exceed thevalue
of the repurchase agreement. The underlying securities for all repurchase
agreements are held insafekeeping at the Fund's custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having advisory
agreements withGSAM, transfer uninvested cash balances into joint accounts, the
daily aggregate balance of which isinvested in one or more repurchase
agreements. The underlying securities for the repurchaseagreements are U.S.
Treasury obligations. At January 31, 1997, the Fund had an undividedinterest
in the repurchase agreements in the following joint account which equaled
$4,100,000in principal amount. At January 31, 1997, the repurchase agreements
held in this joint account,along with the corresponding underlying securities
(including the type of security, market value,interest rate and maturity date)
were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns Securities, dated 01/31/97, repurchase price
$800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26; FNMA:
$720,411,516, 5.50% - 8.00%, 02/01/09 -09/01/26; FHLMC:
77,372,676, 6.0% -$ 8.0%, 04/01/98 - 07/01/26)
$800,000,000 5.63% 02/03/97 $ 800,000,000
Nomura Securities, dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.5% - 10.25%
01/15/20 - 01/20/27)
100,000,000 5.65 02/03/97 100,000,000
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.375%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535 05/15/02 - 11/15/03)
201,800,000 5.60 02/03/97 201,800,000
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,101,800,000
- --------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, theMid-Cap Equity Fund has
reclassified $8,454 from paid-in capital to distributions in excess of
netinvestment income. These reclassifications have no impact on the net asset
value of the Fund and isdesigned to present the Fund's capital accounts on a tax
basis.
9. OTHER MATTERS
As of January 31, 1997, The Goldman, Sachs & Co. Employees Profit Sharing and
Retirement IncomePlan was the beneficial owner of approximately 98% of the
outstanding shares of the Fund.
15
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of GoldmanSachs Mid-Cap Equity Fund:
We have audited the accompanying statement ofassets and liabilities of Goldman
Sachs Mid-Cap Equity Fund, one of the portfolios constituting Goldman Sachs
Equity Portfolios, Inc., including the statement of investments, as of January
31, 1997, and the relatedstatement of operations and the statement of changes in
net assets and the financial highlights for the periodspresented. These
financial statements and the financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlightsbased on our audits.
We conducted our audits in accordance withgenerally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtainreasonable assurance about whether the financial statements and the
financial highlights are free ofmaterial misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts anddisclosures in
the financial statements. Our procedures included confirmation of securities
owned as of January 31, 1997 by correspondence with the custodian and brokers.
An audit also includes assessing the accountingprinciples used and significant
estimates made by management, as well as evaluating the overall
financialstatement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in allmaterial respects, the financial position of
Goldman Sachs Mid-Cap Equity Fund as of January 31, 1997, theresults of its
operations and the changes in its net assets and the financial highlights for
the periods presented, inconformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
16
<PAGE>
Goldman Sachs
1 New York Plaza
New York, NY 10004
DIRECTORS
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Pauline Taylor, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser, Administrator,
Distributor and Transfer Agent
17
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
The U.S. equity market rewarded investors with excellent returns once
again in the 12-month period ended January 31, 1997. Most European markets
achieved significant gains as well, with several outpacing the U.S., while the
performance of Asian markets varied widely. We are pleased to report that most
of the Goldman Sachs equity funds performed very well in this generally
favorable global equity environment.
U.S. Stocks Continued to Climb Amid Heightened Volatility
The U.S. stock market surged to record levels during the period under
review, rising an impressive 26.3% (as measured by the Standard & Poor's 500
stock index). During 1996, the market advanced in a "staircase" pattern, where
notable gains are achieved within a relatively short time and are followed by a
period of choppy trading. For example, after a run-up from January through
mid-February, market volatility notably increased, as investor sentiment
vacillated between two contradictory concerns. With some economic news,
investors feared that the economy was growing too quickly, making higher
inflation a possibility, while other news caused them to worry that the economy
was slowing, putting earnings at risk. In May, investors briefly overcame their
fears and sent the market higher, but their concerns quickly re-emerged and
caused the market to settle into another choppy trading range that culminated in
a sharp sell-off in July.
By August, sentiment significantly improved when data indicated that
earnings growth was more resilient than generally expected and inflation
remained under control. Thus reassured, investors propelled stocks to record
highs during the second half of the period, with the Dow Jones Industrial
Average crossing the 6000 mark for the first time by mid-October. The ascent
continued through the end of the period, with the Dow climbing to 7000 by
mid-February 1997.
Though small-cap stocks led the market during the first half of the
year, the post-July rally was dominated by large-cap, growth companies.
Furthermore, the rally was very narrowly focused, with a handful of large-cap
stocks (primarily in the technology, finance and pharmaceutical sectors)
contributing substantially to the S&P 500 index's performance for the period.
After a Weak Start, Economic Growth Rebounded, Then Moderated
When the period began, lackluster consumer spending and the General
Motors strike restrained economic growth, but the economy still advanced faster
than expected, with first-quarter real GDP growth of 2.0% (annualized). Momentum
accelerated even more dramatically during the second quarter, as industrial
activity, automobile sales and home sales all showed significant improvement. As
a result, second-quarter real GDP rose a robust 4.7% (annualized), its highest
rate in two years.
The economy's torrid growth cooled markedly during the third quarter
with an annualized real GDP growth of 2.1%, largely due to lackluster consumer
spending and a widening U.S. trade deficit. This slowdown proved to be
temporary, however, as the economy strengthened from October through December.
Fourth-quarter real GDP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Table of Contents
<S> <C>
Introduction/Market Overview............................................. 1
Goldman Sachs Balanced Fund.............................................. 4
Goldman Sachs Select Equity Fund......................................... 14
Goldman Sachs Growth and Income Fund..................................... 22
Goldman Sachs Capital Growth Fund........................................ 28
Goldman Sachs Small Cap Equity Fund...................................... 34
Goldman Sachs International Equity Fund.................................. 40
Goldman Sachs Asia Growth Fund........................................... 48
Financial Statements..................................................... 56
Notes to Financial Statements............................................ 64
Financial Highlights..................................................... 74
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
growth was revised to 3.9% (annualized), reflecting a narrowing trade deficit,
rising consumer spending and accelerating manufacturing activity. Despite firm
growth, underlying inflation remained surprisingly mild. For all of 1996,
consumer prices rose only 2.9%. In January 1997, most indicators suggested that
the economy would continue to advance.
The U.S. Federal Reserve cut the Federal funds rate by 25 basis
points in January 1996, just prior to the start of the period, in response to
generally poor year-end economic conditions. Though stronger than expected
growth shifted investor expectations from further Federal Reserve interest rate
cuts to potential tightening, the Fed then left rates unchanged. As of January
31, 1997, the Federal funds rate remained at 5.25%.
The Dollar Resumed Its Climb Against the Yen and the Mark Following a Brief July
Slide
During the period under review, the dollar continued to strengthen,
rising to a 47-month high against the yen and a 31-month high against the mark.
Though the dollar declined briefly in July along with the U.S. stock market, it
quickly rebounded in August and continued to rally through the end of the
period. The dollar's climb was reflective of several developments, including the
relative strength of the U.S. economy, reductions in the budget deficit and
controlled inflation. Despite the run-up, Goldman Sachs' economists do not
expect a major impact on U.S. growth in 1997, nor do they anticipate a major
decrease in exports, as the dollar's effect on U.S. trade flows is relatively
small and stretched out over time. Furthermore, domestic demand in Canada and
Mexico, which together accounted for nearly one-third of U.S. exports in 1996,
is expected to rise.
The International Market Environment: European Equities Performed Well, Japan
Declined Sharply and Asian Markets Were Mixed Amid Increased Volatility
During the period under review, most global economies experienced
modest growth, but long-awaited recoveries in Europe and Japan fell short of
expectations. In Europe, several major economies, such as Germany and France,
continued to be plagued by weaker than expected manufacturing activity and
record-high unemployment, while others, such as the U.K., clearly accelerated.
In contrast to the mixed economic conditions, most European equity markets
performed very well, buoyed by healthy corporate profits. Though the Japanese
economy strengthened, equities declined due to concerns regarding the
sustainability of earnings growth as well as fears that the newly elected
government would delay deregulation. In January 1997, the already weak Japanese
market sold off sharply when the government announced an austerity program that
was expected to curb growth. In other Asian countries, key elections heightened
political uncertainty throughout the region and a marked slowdown in economic
growth increased volatility.
Outlook in the U.S.: Economic Growth Is Expected to Continue to Strengthen
Goldman Sachs' economists expect first-quarter real GDP growth to
slow to just under 2.0% (annualized) due to a widening trade deficit. However,
this slowdown should not be interpreted as any change in economic fundamentals,
as underlying demand remains firm and consumer confidence, income and employment
trends continue to support consumer spending. The favorable economic environment
of moderate growth and low inflation appears likely to persist in the near term,
which could translate to a seventh year of profit growth for U.S. corporations
in 1997 and another good year for U.S. equities, though not likely as strong as
last year. As always, equity performance can be affected by changes in the
economic environment, such as higher than expected inflation, which could lead
to a Fed tightening by midyear, or an unforeseen faltering of economic growth.
After the outstanding performance of the past two years, it is
important to maintain realistic expectations from your equity investments. As
increased volatility during 1996 demonstrated, equities can go down as well as
up. Over the long run, however, stocks have historically outperformed other
asset classes, rewarding investors committed to a long-term investment horizon.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
A Major Addition to Our Active Equity Management Team
We are pleased to announce that we have recently acquired Liberty
Investment Management, a Tampa, Florida-based investment advisory firm with an
impressive 16-year track record. Liberty's Chief Investment Officer, Herbert
Ehlers, and his portfolio management team have assumed primary responsibility
for the Goldman Sachs Capital Growth Fund, which they will manage using a
"growth at a reasonable price" investment style. The Liberty group adds both
breadth and depth to the Goldman Sachs U.S. Active Equity team, and we look
forward to working with them.
In conclusion, thank you for making the Goldman Sachs equity funds part of
your long-term financial plan.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
March 3, 1997
- --------------------------------------------------------------------------------
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Balanced Fund seeks to provide investors with a
combination of long-term growth of capital and current income by investing in a
diversified portfolio that includes both equity and fixed income securities.
Under normal market conditions, the fund is expected to maintain an asset mix of
45% to 65% in equity securities, with the remainder (at a minimum 25%) in fixed
income securities. The fund's portfolio management team will review the fund's
asset mix on a regular basis and adjust it to reflect changes in the economic
environment.
Stocks are selected using a value style, identifying those judged to
be inexpensive relative to their expected long-term earnings and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, we actively manage the
portfolio within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
Performance Review: Equity, Fixed Income and Asset Allocation Contributed to
Strong Results
<TABLE>
<CAPTION>
Fund Total Return
(based on net Benchmark
asset value) Total Return+
------------ -------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 18.59% 15.51%
Class B (5/1/96 - 1/31/97)* 16.22% 14.99%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%).
We are pleased to report that during the period under review, the
fund's Class A and Class B shares outperformed the benchmark. In addition, the
fund's Class A shares ranked within the top 15% of the Lipper balanced fund
category (35th of 281) for the 12-month period ended January 31, 1997, according
to Lipper Analytical Services, Inc. (Please note that Lipper rankings do not
take sales charges into account and that past performance is not a guarantee of
future results. Class B shares were not ranked because they did not exist during
the full year.)
The equity and fixed income portions of the fund both performed
favorably, with equity investments contributing most to fund results. In
addition, our asset allocation decisions also benefited performance. During the
spring of 1996, we reduced the fund's equity weightings in favor of fixed income
investments, which worked in its favor when equities fell sharply in July. In
October, we increased the fund's equity weighting, just prior to a significant
rally in the stock market. As of January 31, 1997, the fund's asset mix based on
net assets was 54% in equities, 42% in fixed income and the remainder in cash
equivalents.
Best Performing Equity Investments Included Technology, Finance and Energy
Stocks
The fund's best performing stocks came from a wide range of
industries, particularly technology, finance and energy. Technology holdings
that performed well included Intel Corp., the dominant microprocessor
manufacturer, which we sold after it climbed sharply due to stronger than
expected personal computer sales and reached our target price, and Avnet, Inc.,
the second largest distributor of semiconductors and other electronic
components. In the financial sector, BankAmerica Corp. increased its focus on
aggressive capital management, and NationsBank Corp. began to realize the
benefits of cost cuts. Top-performing energy-related investments were Tosco
Corp., an oil refiner and distributor, which continued its ambitious acquisition
strategy, and Texaco Inc., which benefited from higher petroleum prices and a
successful restructuring program. Disappointing performers included three
companies that suffered from
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride.
One of the fund's new investments was Unicom Corp., an electric
utility that operates 12 nuclear units at six sites. Unicom generates excess
capital and, unlike many other electric utilities, has no utility power purchase
problems. We established a position after its stock price declined due to a
mandated increase in spending on operations and maintenance, an issue that
management believes will not impair the company's long-term prospects. During
the period, we sold several stocks after they appreciated and reached our price
targets, including Anheuser-Busch Co., Inc., the world's largest brewer, and
Greenpoint Financial Corp., a New York-based thrift.
<TABLE>
<CAPTION>
Top 10 Equity Holdings as of January 31, 1997
Percentage of
Total
Company Line of Business Net Assets
<S> <C> <C>
Aetna Inc. Healthcare 1.9%
Management
Tenet Healthcare Corp. Hospitals 1.9%
Cigna Corp. Insurance 1.7%
Lear Corp. Autoparts/Original 1.7%
Equipment
Brunswick Corp. Pleasure 1.7%
Boats/Marine
Engines
Goodyear Tire & Rubber Co. Tire and Rubber 1.6%
Products
Dean Witter Discover & Co. Financial Services 1.6%
Avnet, Inc. Electronic 1.5%
Components
Distributor
Philip Morris Companies, Tobacco and Food 1.5%
Inc. Products
Owens-Illinois, Inc. Packaging 1.5%
</TABLE>
Corporate and Emerging Market Debt Sectors Led the Fund's Fixed Income
Performance
The fixed income sectors that contributed most to the fund's
performance were its corporate bond holdings and emerging market debt
securities. Corporate bonds benefited when many companies reported positive
earnings growth throughout the period. Emerging market debt was one of the
fund's smaller allocations during the year but performed extremely well due to
positive emerging country credit trends and supportive cash flows resulting from
global investors' persistent search for incremental yield. In addition, the
fund's investments in the mortgage and asset-backed sectors also performed well,
reflecting healthy investor demand.
The fund's largest fixed income allocation was mortgage-backed
securities (MBS), which accounted for a 12.9% position in terms of total net
assets, up from 10.0% a year ago. The MBS sector fared particularly well during
the first half of the period, when interest rates rose and prepayment fears
abated. We gradually trimmed the fund's exposure in the corporate bond sector to
9.8%, down from 13.2% a year ago, as it became more fully valued. The fund's
asset-backed securities (ABS) weighting was 4.8%, and they continued to offer
incremental yield over similar duration Treasuries. U.S. Treasuries, with an
8.5% allocation, were used together with futures to manage the fund's interest
rate risk. Finally, 3.3% of the fund was invested in emerging market debt, where
we stressed higher credit, short-duration bonds, and 0.7% was invested in
government agency securities.
Outlook
We believe that, overall, the stock market is moderately overvalued
and is therefore unlikely to match the strong return it achieved in 1996.
However, it is important to note that even after last year's rally, the fund's
equity holdings continue to be attractively valued. We expect that our emphasis
on using extensive fundamental research to identify stocks selling below their
- --------------------------------------------------------------------------------
5
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
- --------------------------------------------------------------------------------
intrinsic value will continue to serve us well in 1997's potentially more
challenging stock market environment.
We have a relatively cautious view of the fixed income markets in the
coming months due to a possible tightening by the Federal Reserve later in the
year, which would impact the prices of fixed income securities. In the MBS
market, the pace of mortgage prepayments remains stable, and we continue to
identify specific securities that present attractive investment opportunities.
We have a moderately optimistic view for the corporate sector, where we will
continue to emphasize short-duration bonds that offer attractive incremental
yield over Treasuries. Finally, we believe ABS still offer attractive value
relative to other similarly rated securities, and we expect new supply to
continue to be met with enthusiastic demand.
Going forward, we will continue to actively allocate the portfolio's
asset mix between the equity and fixed income sectors to take advantage of
changing market conditions throughout the coming year.
/s/ Ronald E. Gutfleish /s/ Jonathan A. Beinner
Ronald E. Gutfleish Jonathan A. Beinner
Senior Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ G. Lee Anderson /s/ c. Richard Lucy
G. Lee Anderson C. Richard Lucy
Portfolio Manager, Co-Head,
U.S. Active Equity Value U.S. Fixed Income
/s/ Eileen A. Aptman /s/ Richard H. Buckholz
Eileen A. Aptman Richard H. Buckholz
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Fixed Income
March 3, 1997
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 index ("S&P 500") and the Lehman
Brothers Aggregate Bond Index (LBABI)) are shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class A Class A
(w/sales charge) (no sales charge) LBABI S&P 500
---------------- ----------------- ----- -------
<S> <C> <C> <C> <C>
10/12/94 9,450 10,000 10,000 10,000
1/31/95 9,532 10,087 10,233 10,184
1/31/96 12,211 12,922 11,966 14,123
1/31/97 14,488 15,331 12,357 17,842
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Balanced GS Balanced
Class B Class B
(no redemp. charge) (w/redemp. charge) LBABI S&P 500
------------------- ------------------ ----- -------
<S> <C> <C> <C> <C>
5/1/96 10,000 10,000 10,000 10,000
1/31/97 11,622 11,122 10,642 12,218
</TABLE>
---------------------------------------
Average Annual Total Return
---------------------------------------
One Year Since Inception/(a)/
------------------------------- ------------------ -------------------
Class A, no sales charge 18.59% 20.32%
------------------------------- ------------------ -------------------
Class A, w/sales charge 12.07% 17.41%
------------------------------- ------------------ -------------------
Class B, no redemption charge N/A 16.22%/(b)/
------------------------------- ------------------ -------------------
Class B, w/redemption charge N/A 11.22%/(b)/
------------------------------- ------------------ -------------------
/(a)/ Class A and B shares commenced operations October 12, 1994 and May 1,
1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve
months of operations.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--53.0%
Airlines--1.8%
7,700 AMR Corp.* $ 619,850
32,600 Continental Airlines, Inc.* 908,725
- --------------------------------------------------------------------
1,528,575
- --------------------------------------------------------------------
Appliance Manufacturer--0.9%
28,600 Sunbeam Corp. 793,650
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.7%
38,200 Lear Corp.* 1,427,725
- --------------------------------------------------------------------
Auto/Vehicle--1.0%
25,600 Ford Motor Co. 824,400
- --------------------------------------------------------------------
Banks--4.5%
10,300 BankAmerica Corp. 1,149,738
5,300 Chase Manhattan Corp. 490,250
9,400 Fleet Financial Group, Inc. 507,600
9,300 NationsBank Corp. 1,004,400
7,400 Republic Bank of New York Corp. 655,825
- --------------------------------------------------------------------
3,807,813
- --------------------------------------------------------------------
Chemicals-Commodity--1.1%
31,400 Geon Co. 588,750
7,600 Union Carbide Corp. 344,850
- --------------------------------------------------------------------
933,600
- --------------------------------------------------------------------
Defense--2.1%
17,900 McDonnell Douglas Corp. 1,203,775
6,200 Northrop Grumman Corp. 484,375
1,900 Thiokol Corp. 106,400
- --------------------------------------------------------------------
1,794,550
- --------------------------------------------------------------------
Department Stores--0.8%
13,900 Sears Roebuck & Co. 667,200
- --------------------------------------------------------------------
Electric Utilities--2.8%
5,500 CMS Energy Corp. 184,250
43,000 Long Island Lighting Co. 978,250
49,600 Unicom Corp. 1,171,800
- --------------------------------------------------------------------
2,334,300
- --------------------------------------------------------------------
Food--1.5%
40,200 Chiquita Brands International, Inc. 587,925
4,000 Unilever Inc. 658,000
- --------------------------------------------------------------------
1,245,925
- --------------------------------------------------------------------
Forest Products--1.1%
12,400 Georgia Pacific Corp. 912,950
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
23,300 Baxter International, Inc. 1,074,713
- --------------------------------------------------------------------
Healthcare Management--3.8%
20,400 Aetna Inc. 1,611,600
57,800 Tenet Healthcare Corp.* 1,560,600
- --------------------------------------------------------------------
3,172,200
- --------------------------------------------------------------------
Home Builders--1.8%
18,200 Centex Corp. 709,800
28,200 Lennar Corp. 750,825
- --------------------------------------------------------------------
1,460,625
- --------------------------------------------------------------------
Insurance-Life--2.5%
9,500 Cigna Corp. 1,440,438
11,700 Lincoln National Corp. 627,413
- --------------------------------------------------------------------
2,067,851
- --------------------------------------------------------------------
Insurance-Property and Casualty--1.6%
9,200 Allmerica Financial Corp. 336,950
16,100 Partner Re Holding Ltd. 571,550
12,700 Tig Holdings, Inc. 439,738
- --------------------------------------------------------------------
1,348,238
- --------------------------------------------------------------------
Integrated Oil--2.6%
8,100 Atlantic Richfield Co. 1,071,225
10,300 Texaco, Inc. 1,090,513
- --------------------------------------------------------------------
2,161,738
- --------------------------------------------------------------------
Logistics/Rail--1.0%
30,400 Canadian Pacific Ltd. 824,600
- --------------------------------------------------------------------
Logistics/Trucking--1.2%
39,600 Consolidated Freightways, Inc. 1,004,850
- --------------------------------------------------------------------
Oil Refining & Marketing--1.9%
12,800 Ashland Inc. 552,000
11,300 Tosco Corp. 1,000,050
- --------------------------------------------------------------------
1,552,050
- --------------------------------------------------------------------
Packaging--1.5%
52,500 Owens-Illinois Inc.* 1,246,875
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
8
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Recreational Products--1.7%
55,500 Brunswick Corp. $ 1,394,438
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--0.5%
13,100 Lehman Brothers Holdings, Inc. 414,288
- --------------------------------------------------------------------
Semiconductors & Electronics--1.5%
20,700 Avnet Inc. 1,280,813
- --------------------------------------------------------------------
Software--0.5%
13,800 Autodesk Inc. 436,425
- --------------------------------------------------------------------
Specialty Finance--1.6%
34,200 Dean Witter Discover & Co. 1,303,875
- --------------------------------------------------------------------
Steel--1.0%
20,200 AK Steel Holding Corp. 813,050
- --------------------------------------------------------------------
Supermarkets--2.0%
56,300 Fleming Companies, Inc. 907,838
24,600 Supervalu, Inc. 759,525
- --------------------------------------------------------------------
1,667,363
- --------------------------------------------------------------------
Textiles--1.3%
27,500 Fruit of The Loom, Inc.* 1,103,438
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--1.6%
24,000 Goodyear Tire & Rubber Co. 1,308,000
- --------------------------------------------------------------------
Tobacco--2.8%
4,200 Loews Corp. 415,275
10,700 Philip Morris Companies, Inc. 1,271,963
12,100 RJR Nabisco, Inc. 396,275
8,500 Universal Corp. 263,500
- --------------------------------------------------------------------
2,347,013
- --------------------------------------------------------------------
Total Common Stocks
(Cost $35,773,086) $44,253,131
====================================================================
Preferred Stocks--0.1%
Media Content--0.1%
63 Time Warner, Inc. 10.25% $ 69,064
- --------------------------------------------------------------------
Tobacco--0.0%
3,400 RJR Nabisco, Inc., class C 9.25% 22,525
- --------------------------------------------------------------------
Total Preferred Stocks
(Cost $84,320) $ 91,589
====================================================================
Rights--1.1%
Forest Products--0.7%
42,000 Stone Container Corp. * exp. 08/08/98 $ 567,000
Technology Capital Goods--0.4%
10,800 Teradyne, Inc.* exp. 03/26/00 333,450
- --------------------------------------------------------------------
Total Rights
(Cost $923,718) $ 900,450
====================================================================
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Fixed Income--41.5%
Asset-Backed Securities--4.8%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 102,655
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 249,609
Case Equipment Loan Trust, Series 1995-A, Class A
74,286 7.30 03/15/02 75,124
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/03 139,343
Chevy Chase Auto Receivables Trust Series 1995-2, Class A
74,323 5.80 06/15/02 74,137
Discover Card Master Trust 1994-2, Class A
70,000 5.83 10/16/04 70,613
Discover Card Master Trust 1996-2, Class A
110,000 5.70 07/18/05 110,550
Discover Card Master Trust 1996-4, Class A
740,000 5.86 10/16/13 751,329
Discover Card Master Trust 1996-4, Class B
420,000 6.03 10/16/13 424,460
Fasco Auto Trust, Series 1996-1
266,114 6.65 11/15/01 267,223
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 200,936
Navistar Financial Trust, Series 1995-A, Class A2
134,590 6.55 11/20/01 135,347
Navistar Financial Trust, Series 1995-b, Class A3
120,000 6.05 04/15/02 120,000
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 733,026
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Asset-Backed Securities (continued)
Sears Credit Card Master Trust, Series 1995-3, Class A
$ 70,000 7.00% 10/15/04 $ 71,268
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 117,322
Standard Credit Card Master Trust, Series 1995-1, Class A
360,000 8.25 01/07/07 389,135
- --------------------------------------------------------------------
Total Asset-Backed Securities
(Cost $4,019,726) $ 4,032,077
====================================================================
Corporate Bonds--9.8%
Finance Bonds--3.6%
BankAmerica Corp.
$ 500,000 7.75% 07/15/02 $ 520,600
Capital One Bank
200,000 8.33 02/10/97 200,056
250,000 8.13 02/27/98 254,825
Conseco Finance
120,000 8.70 11/15/26 122,912
Continental Bank
100,000 12.50 04/01/01 120,501
Countrywide Funding Corp.
100,000 6.08 07/14/99 99,368
150,000 8.00 12/15/26 147,029
Edison Mission Energy Funding Corp.
100,000 6.77 09/15/03 99,852
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 248,888
Golden West Financial Corp.
200,000 10.25 12/01/00 223,894
Meditrust, Inc.
120,000 7.82 09/10/26 128,021
Mic Finance Trust
80,000 8.38 02/01/27 80,442
Olympic Financial Ltd.
95,000 13.00 05/01/00 107,350
PXRE Cap Trust
65,000 8.85 02/01/27 65,847
Signet Banking Corp.
$ 500,000 9.63% 06/01/99 $ 531,870
Washington Real Estate
55,000 7.13 08/13/03 54,745
- --------------------------------------------------------------------
Total Finance Bonds
(Cost $3,035,271) $ 3,006,200
====================================================================
Industrial Bonds--5.6%
360 Communications Co.
$ 195,000 7.13% 03/01/03 $ 193,518
Auburn Hills Trust
90,000 12.00 05/01/20 134,352
Blockbuster Entertainment
50,000 6.63 02/15/98 49,995
Chelsea GCA Realty
226,000 7.75 01/26/01 228,362
DVI Equipment Lease Trust
434,745 6.55 07/10/04 434,605
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,038
General Motors Acceptance Corp.
170,000 7.13 05/10/00 173,087
210,000 5.63 02/05/01 202,810
H + T Master Trust, Class A2
220,000 8.18 08/15/02 220,000
K Mart Corp.
40,000 9.55 06/30/98 40,290
40,000 9.60 09/15/98 40,845
Loewen Group International
50,000 7.75 10/15/01 50,000
News America Holdings, Inc.
160,000 7.50 03/01/00 163,784
Northwest Airlines
217,076 8.97 01/02/15 226,558
NWA
68,025 8.26 03/10/06 71,149
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
10
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Corporate Bonds (continued)
Industrial Bonds (continued)
Oryx Energy Co.
$ 245,000 9.50% 11/01/99 $ 259,252
RJR Nabisco Inc.
135,000 8.00 07/15/01 136,184
160,000 8.63 12/01/02 164,654
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 119,600
Tele-Communications, Inc.
295,000 6.19 09/15/03 292,956
125,000 9.65 10/01/03 133,951
20,000 6.82 09/15/10 19,899
Tenet Healthcare Corp.
60,000 9.63 09/01/02 65,100
Time Warner, Inc.
375,000 7.45 02/01/98 378,776
125,000 9.63 05/01/02 139,444
250,000 7.98 08/15/04 256,243
Tosco Corp.
110,000 7.00 07/15/00 110,793
U.S. Home Corp.
70,000 7.95 03/01/01 68,250
USI American Holdings Corp.
60,000 7.25 12/01/06 58,540
Viacom International
80,000 9.13 08/15/99 81,800
95,000 10.25 09/15/01 103,550
- --------------------------------------------------------------------
Total Industrial Bonds
(Cost $4,650,412) $ 4,660,385
====================================================================
Utility Bonds--0.6%
Arkla Inc.
$ 250,000 9.20% 12/18/97 $ 255,665
Central Maine Power Co.
100,000 7.38 01/01/99 100,138
160,000 7.45 08/30/99 159,134
- --------------------------------------------------------------------
Total Utility Bonds
(Cost $521,661) $ 514,937
====================================================================
- --------------------------------------------------------------------
====================================================================
Total Corporate Bonds
(Cost $8,207,344) $ 8,181,522
====================================================================
Government Bonds--1.2%
Australia Commonwealth
AUD1,000,000 7.50% 07/15/05 $ 769,138
Province of Quebec
$ 200,000 13.25 09/15/14 238,976
- --------------------------------------------------------------------
Total Government Bonds
(Cost $1,033,387) $ 1,008,114
====================================================================
Emerging Market Debt--3.3%
Argentina Bocan
$ 144,111 5.69% 04/01/01 $ 138,490
Asia Pulp and Paper International Finance Co.
100,000 7.26(a) 04/03/97 98,614
200,000 8.30 06/28/99 198,118
90,000 10.25 10/01/00 90,754
Banco De Commercio Exterior
30,000 8.63 06/02/00 30,979
BCO De Colombia
110,000 8.63 06/02/00 113,590
Bridas Corp.
170,000 12.50 11/15/99 181,433
Bridas Corp. Gtd Euro Medium
60,000 9.50 06/17/99 60,147
Corp. Andina de Fomento
160,000 7.25 04/30/98 161,774
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,440
Empresa Col Petroleos
80,000 7.25 07/08/98 80,566
Financiera Energy Nacional
230,000 5.88 02/17/98 226,062
60,000 8.13 04/09/98 60,347
200,000 8.46 06/19/98 201,876
80,000 9.38 06/15/06 82,847
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Balanced Fund (continued)
January 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Emerging Market Debt (continued)
Grupo Industrial Durango
$ 120,000 12.00% 07/15/01 $ 127,978
Grupo Televisa
20,000 11.38 05/15/03 21,425
Imexsa Export Trust
100,000 10.13 05/31/03 104,190
Inst Fomento Industrial
290,000 8.38 07/29/01 295,707
PT Indah Kiat
50,000 8.88 11/01/00 49,518
Republic of Argentina
89,600 8.63 04/06/98 90,730
150,000 5.63 04/01/00 75,600
Sampoerna International
50,000 8.38 06/15/06 51,208
YPF Sociedad Anonima
111,483 7.50 10/26/02 113,132
- --------------------------------------------------------------------
Total Emerging Market Debt
(Cost $2,710,872) $ 2,766,525
====================================================================
Government Agency Obligations--0.7%
Federal National Mortgage Association
$ 520,000 8.50% 02/01/05 $ 545,917
- --------------------------------------------------------------------
Total Government Agency Obligations
(Cost $566,963) $ 545,917
====================================================================
Mortgage Backed Obligations--12.9%
Federal Home Loan Mortgage Corp.
$ 2,000,000 7.50% TBA-30yr/(b)/ $ 2,003,740
Federal National Mortgage Association
2,000,000 8.00 TBA-30yr/(b)/ 2,042,500
1,000,000 6.50 TBA-15yr/(b)(d)/ 990,930
95,702 8.50 09/01/06/(d)/ 100,068
119,291 8.50 03/01/07/(d)/ 124,733
677,419 8.50 03/01/10/(d)/ 707,985
1,000,000 3.50 05/25/19 869,370
====================================================================
Government National Mortgage Association
$ 1,000,000 7.50% TBA-30yr/(b)/ $ 1,002,180
963,086 7.50 05/15/23 969,404
1,005,709 7.00 07/15/23 990,311
1,000,000 7.00 08/15/23 984,690
- --------------------------------------------------------------------
Total Mortgage Backed Obligations
(Cost $10,687,107) $10,785,911
====================================================================
Sovereign Credit--0.2%
State of Israel
$ 150,000 6.38% 12/15/05 $ 141,983
- --------------------------------------------------------------------
Total Sovereign Credit
(Cost $139,082) $ 141,983
====================================================================
U.S. Treasury Obligations--8.5%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13/(d)/ $ 666,592
120,000 8.75 05/15/17/(d)/ 144,619
30,000 8.88 08/15/17 36,595
580,000 8.75 05/15/20 704,068
160,000 8.75 08/15/20/(d)/ 194,400
680,000 7.63 02/15/25 743,430
United States Treasury Notes
1,200,000 6.88 08/31/99 1,223,628
1,000,000 6.13 07/31/00 999,220
900,000 7.88 11/15/04 977,202
United States Treasury Principal Only Stripped Securities/(a)/
80,000 6.03/(a)/ 08/15/99 68,774
740,000 6.55/(a)/ 11/15/04/(d)/ 447,552
320,000 6.59/(a)/ 05/15/05 186,781
2,200,000 7.09/(a)/ 02/15/19 473,968
890,000 7.10/(a)/ 05/15/20 175,205
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $7,102,563) $ 7,042,034
====================================================================
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
12
<PAGE>
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity
Amount Rate Date Value
====================================================================
<S> <C> <C> <C>
Yankee Bonds--0.1%
Korea Electric Power
$ 93,927 7.40% 04/01/16 $ 93,712
- --------------------------------------------------------------------
Total Yankee Bonds
(Cost $90,825) $ 93,712
====================================================================
Total Fixed Income
(Cost $34,557,869) $34,597,795
- --------------------------------------------------------------------
Short-Term Obligations--0.2%
Argentina Treasury Bill
$ 40,000 6.00%/(a)/ 02/14/97 $ 39,896
Banco Nacional de Com
50,000 10.63 06/23/97 51,291
Republic of Argentina
90,000 6.29(a) 05/16/97 88,166
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $179,353) $ 179,353
====================================================================
Repurchase Agreement--11.0%
Joint Repurchase Agreement Account
$ 9,200,000 5.63% 02/03/97/(d)/ $ 9,200,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $9,200,000) $ 9,200,000
====================================================================
Total Investments
(Cost $80,718,346)/(c)/ $89,222,318
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $ 9,461,225
Gross unrealized loss for investments in which
cost exceeds value (981,857)
- --------------------------------------------------------------------
Net unrealized gain $ 8,479,368
====================================================================
<CAPTION>
- --------------------------------------------------------------------
====================================================================
Futures contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain(Loss)
- ------------------------- ------------ --------------- -----------
<S> <C> <C> <C>
2-Year U.S. Treasury Note 5 March 1997 $(3,438)
10-Year U.S. Treasury Bond 15 March 1997 (25,500)
30-Year U.S. Treasury Bond 2 March 1997 (3,969)
S&P 500 Stock Index 4 March 1997 123,100
- -------------------------------------------------------------------
$90,193
- -------------------------------------------------------------------
</TABLE>
* Non-income producing security.
/(a)/ The interest rate disclosed for these securitites represents effective
yields to maturity.
/(b)/ TBA (To Be Assigned) securities are purchased on a forward commitment
basis with an approximate (generally +/-2.5%) principal amount and no
definite maturity date. The actual principal amount and maturity date will
be determined upon settlement when the specific mortgage pools are
assigned.
/(c)/ The aggregate cost for federal income tax purposes is $80,742,950.
/(d)/ Portions of these securities are being segregated as collateral for
futures contracts, TBA (To Be Assigned) securities, covered short sales
and/or mortgage dollar rolls.
/(e)/ Each 2-Year U.S. Treasury Note contract represents $200,000 in notional
par value. Each 10-Year and 30-Year U.S. Treasury Bond contract represents
$100,000 in notional par value. Each S&P 500 Stock Index represents
$50,000 in notional par value. The total net notional amount and market
value at risk are $2,900,000 and $4,463,969, respectively. The
determination of notional amounts does not consider market risk factors
and therefore notional amounts as presented here are indicative only of
volume of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Select Equity Fund is designed to provide investors with
a broadly diversified portfolio that can be used as a core holding on which to
build an investment program. The fund's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of predominantly large-cap and
blue-chip equity securities representing all major sectors of the U.S. economy.
The fund's mandate is to remain fully invested with industry diversification,
capitalization and risk characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's relative
performance compared with the market comes almost exclusively from stock
selection within sectors. We believe the fund offers investors an attractive
combination of value and growth, without assuming more risk than the broad
market.
The fund employs a disciplined approach that combines fundamental
investment research provided by the Goldman Sachs Global Investment Research
Department with quantitative analysis generated by the Asset Management
Division's proprietary model. Our quantitative system evaluates each stock using
many different criteria including valuation measures, growth expectations,
earnings momentum and risk. It also objectively analyzes the impact of current
economic conditions on different types of stocks. Those stocks ranked highly by
both our quantitative model and by Goldman Sachs research are selected for the
fund's portfolio.
Performance Review: Quantitative Model Contributed to the Fund's Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 -1/31/97)* 23.75% 26.25%
Class B (5/1/96 -1/31/97)* 18.59% 22.18%
Institutional (1/31/96 -1/31/97)* 24.63% 26.25%
Service (6/7/96 - 1/31/97)* 15.92% 18.36%
</TABLE>
- --------------------------------------------------------------------------------
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B and Service shares is a cumulative total
return (not annualized) from their inception through the end of the period.
During the period, the fund achieved strong absolute returns, with most of
its gains occurring in the second half of the year. When the period began, the
fund performed well primarily due to successful stock selection. The Research
Department's qualitative ratings were particularly helpful early in the period,
when its analysis helped the fund steer clear of underperforming stocks. During
the latter half of the year, most of the fund's positive performance came from
the Asset Management Division's quantitative model.
Of the three themes considered by our quantitative model -- value, growth
and low-risk -- stocks with value-oriented features, such as low price/earnings
ratios, received the highest weighting during most of the period. This emphasis
did not work in the fund's favor during the second and third quarters of 1996,
when stocks with growth characteristics (strong near-term growth expectations
and high price/earnings multiples) outperformed value-oriented stocks. In the
fourth quarter, however, our emphasis on value proved to be extremely
successful, as stocks with value characteristics soared to record highs and
outperformed the other themes by a substantial margin. As a result of this
dramatic rebound, value emerged as the dominant investment style for the year.
Despite the positive results from our quantitative model, the fund
underperformed the index because it was
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
unable to keep pace with the dramatic outperformance of the largest 50 stocks,
which accounted for a significant portion of the market's gains. In addition,
the fund held a slightly higher cash position than usual as the volume of new
assets invested in the fund rapidly increased, particularly during the fourth
quarter, when the top 50 stocks surged. To address this issue, at the end of
1996 the fund instituted new procedures to ensure that cash balances will be
invested more rapidly. Furthermore, we expect that any future market advance
will broaden to include stocks beyond the top 50.
The fund's best performers were large-capitalization stocks from a wide
range of sectors, including banks (BankAmerica Corp. and NationsBank Corp.),
technology companies (Intel Corp., Microsoft Corp. and IBM Corp.), consumer
staples (Procter & Gamble Co.), electrical equipment (General Electric Co.) and
tobacco (Philip Morris Companies, Inc.).
Stocks that fell short of our expectations included some of the fund's
utility, telecommunication and oil investments such as Unicom Corp., Airtouch
Communications, Inc. and Tenneco, Inc.
Portfolio Composition: Model Increasingly Favored Stocks With Defensive
Characteristics
As of January 31, 1997, the fund held 141 stocks. While its sector
exposures were generally in line with the S&P 500 index, the fund was
overweighted in electric/gas (5.8% for the fund versus 3.3% for the S&P 500) and
energy (10.1% versus 8.0%) and underweighted in consumer nondurables (10.2%
versus 12.9%) and telecommunications (3.9% versus 6.3%). These over- and
underweightings, as shown in Table II, were the result of the fund's stock
selection process and were not a reflection of our economic forecast for
specific sectors.
During the first quarter of 1996, the Fund's quantitative model favored
growth characteristics (such as earnings momentum and price momentum) and put a
smaller, but still positive, weight on stocks with value or low-risk
characteristics (e.g., low beta and low "disappointment" risk). As the year
progressed, the fund's strategy became somewhat more defensive as our
quantitative model increased its weighting in value and low-risk themes. This
shift was triggered by a number of indicators that pointed toward emerging
excesses in the equity market: Low cash cushions held by equity mutual funds,
the increasing volatility of equity prices, the record-low dividend yields and
the divergence in returns between stocks and bonds.
As a result of our more defensive posture, over the past year we gradually
increased the fund's weighting in energy-related companies such as Texaco Inc.
and Atlantic Richfield Co., both newcomers to the fund's 10 largest holdings. We
also decreased the fund's exposure to consumer noncyclicals, which includes
food/agriculture companies (e.g., IBP, Inc. and Kellogg Co.).
As of the end of the period, the fund's major valuation characteristics
were more attractive than the benchmark. These included a lower price/earnings
ratio based on 1997 estimated earnings (15.9x versus 17.3x for the S&P 500) as
well as a lower price/book ratio (3.0x versus 3.4x). The fund achieved these
favorable valuation levels while maintaining growth and risk characteristics in
line with those of the S&P 500.
Table I: Top 10 Portfolio Holdings as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
General Electric Co. Electronics 2.9%
Intel Corp. Semiconductors 2.8%
and Electronics
Exxon Corp. Petroleum and 2.2%
Natural Gas
Microsoft Corp. Computer Software 2.1%
Texaco Inc. Petroleum and 2.0%
Natural Gas
Merck & Co., Inc. Pharmaceuticals 1.9%
Atlantic Richfield Co. Petroleum and 1.7%
Natural Gas
Bristol-Myers Squibb Co. Pharmaceuticals 1.7%
Philip Morris Companies, Tobacco and Food 1.7%
Inc. Products
Travelers Group, Inc. Financial Services 1.6%
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
- --------------------------------------------------------------------------------
Table II: Sector Breakout as of 1/31/97
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of
Percentage S&P 500
Industry Sectors of Portfolio Index Difference
<S> <C> <C> <C>
Finance 17.8% 16.2% 1.6%
Consumer Nondurables 10.2% 12.9% -2.7%
Energy 10.1% 8.0% 2.1%
Health 9.6% 10.4% -0.8%
Technology 9.3% 10.9% -1.6%
Basic Industry 7.9% 7.1% 0.8%
Capital Spending 6.5% 5.6% 0.9%
Electric/Gas 5.8% 3.3% 2.5%
Miscellaneous 4.4% 5.0% -0.6%
Retail 4.3% 3.6% 0.7%
Telecommunications 3.9% 6.3% -2.4%
Consumer Services 3.8% 4.8% -1.0%
Consumer Durables 2.6% 2.5% 0.1%
Aerospace 1.8% 2.0% -0.2%
Transportation 1.1% 1.4% -0.3%
Cash 1.0% 0.0% 1.0%
</TABLE>
- --------------------------------------------------------------------------------
Outlook
Goldman Sachs expects the U.S. equity market to continue to advance in
1997, although returns will likely be more modest than the unusually strong
results of 1995 and 1996. In addition, we expect equity gains to broaden beyond
the top 50 stocks. In 1997, we will continue to maintain a balanced approach by
considering risk, value and growth simultaneously.
However, the relative importance of avoiding riskier stocks has increased in the
current market environment, which is likely to result in greater emphasis on
defensive stocks with below-average price volatility, attractive valuations and
lower possibility of near-term earnings disappointments.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
March 3, 1997
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Select Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class A Class A
(w/sales charge) (no/sales charge) S&P 500
---------------- ---------------- -------
<S> <C> <C> <C>
5/24/91 9,450 10,000 10,000
1/31/92 10,112 10,701 11,092
1/31/93 10,548 11,162 12,266
1/31/94 12,144 12,851 13,846
1/31/95 12,009 12,708 13,919
1/31/96 16,654 17,617 19,306
1/31/97 20,613 21,813 24,390
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Select Eq GS Select Eq
Class B Class B
(no redemption charge) (w/redemption charge) S&P 500
---------------------- --------------------- -------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 11,859 11,359 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Select Eq
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/15/95 10,000 10,000
1/31/96 12,014 12,029
1/31/97 14,983 15,197
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Select Eq
Serv. Class S&P 500
------------ -------
<S> <C> <C>
6/7/96 10,000 10,000
1/31/97 11,592 11,836
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
Average Annual Total Return
------------------------------------------------
One Year Since Inception/(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 23.75% 14.67%
- --------------------------------------------------------------------------------
Class A, w/sales charge 16.98% 13.54%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 18.59% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 13.59% /(b)/
- --------------------------------------------------------------------------------
Institutional Class 24.63% 28.04%
- --------------------------------------------------------------------------------
Service Class N/A 15.92% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
May 24, 1991, May 1, 1996, June 15, 1995 and June 7, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
17
<PAGE>
Statement of Investments
Goldman Sachs Select Equity Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks--97.3%
Aerospace--0.8%
43,600 United Technologies Corp. $ 3,041,100
- --------------------------------------------------------------------
Agency/Government--0.9%
93,800 Federal National Mortgage Assn. 3,705,100
- --------------------------------------------------------------------
Agriculture/Heavy Equipment--2.5%
25,100 Case Corp. 1,330,300
55,500 Caterpillar, Inc. 4,308,188
44,100 Conagra, Inc. 2,227,050
48,900 Tenneco, Inc. 1,956,000
- --------------------------------------------------------------------
9,821,538
- --------------------------------------------------------------------
Airlines--1.2%
19,700 AMR Corp.* 1,585,850
38,500 Delta Air Lines, Inc. 3,041,500
- --------------------------------------------------------------------
4,627,350
- --------------------------------------------------------------------
Alcohol--0.2%
21,600 Anheuser Busch Companies, Inc. 918,000
- --------------------------------------------------------------------
Appliance Manufacturer--1.0%
38,300 Emerson Electric Co. 3,782,125
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--0.3%
23,100 Cummins Engine, Inc. 1,215,638
- --------------------------------------------------------------------
Auto/Vehicle--1.5%
25,200 Chrysler Corp. 878,850
32,200 Ford Motor Co. 1,034,425
70,700 General Motors Corp. 4,171,300
- --------------------------------------------------------------------
6,084,575
- --------------------------------------------------------------------
Bank Holding Companies--0.4%
26,000 Comerica, Inc. 1,485,250
- --------------------------------------------------------------------
Banks--6.0%
33,550 Banc One Corp. 1,522,331
48,000 Bank of New York, Inc. 1,758,000
46,400 BankAmerica Corp. 5,179,400
12,900 Chase Manhattan Corp. 1,193,250
25,800 Citicorp 3,002,475
28,500 First Bank System, Inc. 2,166,000
34,400 First Chicago Corp. 1,965,100
6,400 First Union Corp. 535,200
48,400 NationsBank Corp. 5,227,200
4,500 Wells Fargo & Company $ 1,371,375
- --------------------------------------------------------------------
23,920,331
- --------------------------------------------------------------------
Beverages--1.6%
41,900 Coca Cola Co. 2,424,963
115,300 Pepsico, Inc. 4,021,088
- --------------------------------------------------------------------
6,446,051
- --------------------------------------------------------------------
Business Services--0.2%
19,100 Automatic Data Processing, Inc. 790,263
- --------------------------------------------------------------------
Chemicals-Commodity--2.1%
46,000 Dow Chemicals Co. 3,547,750
20,600 Du Pont EI de Nemours 2,258,275
68,900 Monsanto Co. 2,609,588
- --------------------------------------------------------------------
8,415,613
- --------------------------------------------------------------------
Chemicals-Specialty--1.0%
37,800 Allied Signal, Inc. 2,655,450
27,700 Morton International, Inc. 1,125,313
- --------------------------------------------------------------------
3,780,763
- --------------------------------------------------------------------
Commercial Services--0.3%
32,500 Interim Services, Inc.* 1,178,125
- --------------------------------------------------------------------
Communications Services Companies--1.5%
75,500 Airtouch Communications, Inc.* 1,953,563
96,100 Sprint Corp. 3,916,075
- --------------------------------------------------------------------
5,869,638
- --------------------------------------------------------------------
Communications Technology--0.8%
37,403 Lucent Technologies, Inc. 2,029,113
15,200 Motorola Inc. 1,037,400
- --------------------------------------------------------------------
3,066,513
- --------------------------------------------------------------------
Computers--0.9%
65,200 Hewlett Packard Co. 3,431,150
- --------------------------------------------------------------------
Computers & Peripherals--3.7%
45,400 Cisco Systems, Inc.* 3,166,650
35,000 Compaq Computer Corp.* 3,040,625
20,300 Eastman Kodak Co. 1,761,025
33,400 International Business Machines 5,252,150
51,100 Sun Microsystems, Inc.* 1,622,425
- --------------------------------------------------------------------
14,842,875
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Construction/Environmental Services--0.2%
13,300 Armstrong World Industries, Inc. $ 944,300
- --------------------------------------------------------------------
Consumer Staples--3.4%
51,700 American Home Products Corp. 3,276,488
13,300 Clorox Co. 1,577,713
60,200 Gillette Co. 4,906,300
33,400 Procter & Gamble Co. 3,857,700
- --------------------------------------------------------------------
13,618,201
- --------------------------------------------------------------------
Defense--1.4%
5,400 Boeing Co. 578,475
17,700 McDonnell Douglas Corp. 1,190,325
18,500 Textron, Inc. 1,801,438
36,800 TRW, Inc. 1,867,600
- --------------------------------------------------------------------
5,437,838
- --------------------------------------------------------------------
Department Stores--3.2%
147,400 Dayton Hudson Corp. 5,545,925
38,000 Federated Dept. Stores, Inc.* 1,249,250
18,900 Mercantile Stores Co. 926,100
65,700 Sears Roebuck & Co. 3,153,600
72,100 Walmart Stores, Inc. 1,712,375
- --------------------------------------------------------------------
12,587,250
- --------------------------------------------------------------------
Electric Utilities--4.7%
76,300 Duke Power Co. 3,576,563
128,700 Edison International, Inc. 2,750,963
31,500 Empresa Nacional de Electric ADR 2,071,125
139,600 Niagara Mohawk Power* 1,413,450
57,700 Public Service Company of New Mexico 1,154,000
92,800 Texas Utilities Co. 3,758,400
156,300 Unicom Corp. 3,692,588
- --------------------------------------------------------------------
18,417,089
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--2.9%
112,200 General Electric Co. 11,556,600
- --------------------------------------------------------------------
Financial Services--0.7%
53,300 Providian Corp. 2,871,538
- --------------------------------------------------------------------
Food Producers--0.5%
10,600 CPC International, Inc. 814,875
16,400 Ralston Purina Co. 1,289,450
- --------------------------------------------------------------------
2,104,325
- --------------------------------------------------------------------
Forest Products--2.6%
78,600 Avery Dennison Corp. 2,878,725
32,000 Champion International Corp. 1,340,000
32,600 Georgia Pacific Corp. 2,400,175
26,000 International Paper Co. 1,062,750
19,700 Mead Corp. 1,108,125
30,700 Weyerhaeuser Co. 1,396,850
- --------------------------------------------------------------------
10,186,625
- --------------------------------------------------------------------
Funeral Services--0.2%
29,600 Service Corp. International 858,400
- --------------------------------------------------------------------
Gas Distribution & Pipeline--1.2%
55,600 Columbia Gas Systems, Inc. 3,620,950
22,900 Panenergy Corp. 1,056,263
- --------------------------------------------------------------------
4,677,213
- --------------------------------------------------------------------
Health Suppliers/Services--1.3%
73,200 Johnson & Johnson 4,218,150
15,800 Medtronic Inc. 1,082,300
- --------------------------------------------------------------------
5,300,450
- --------------------------------------------------------------------
Healthcare Management--0.8%
55,800 Columbia HCA Healthcare 2,204,100
38,300 Manor Care, Inc. 976,650
- --------------------------------------------------------------------
3,180,750
- --------------------------------------------------------------------
Information Management--0.7%
114,100 Dun & Bradstreet Corp. 2,738,400
- --------------------------------------------------------------------
Insurance Brokers & Other Insurance--0.3%
24,600 Exel Insurance Ltd. 1,042,425
- --------------------------------------------------------------------
Insurance-Life--2.6%
29,100 American General Corp. 1,160,363
18,700 Cigna Corp. 2,835,388
122,933 Travelers Group, Inc. 6,438,616
- --------------------------------------------------------------------
10,434,367
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Select Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Insurance-Property and Casualty--2.2%
25,956 Allstate Corp. $ 1,706,607
36,850 American International Group, Inc. 4,463,456
68,500 Safeco Corp. 2,603,000
- --------------------------------------------------------------------
8,773,063
- --------------------------------------------------------------------
Integrated Oil--11.1%
22,100 Amoco Corp. 1,922,700
51,800 Atlantic Richfield Co. 6,850,550
84,300 Exxon Corp. 8,735,574
46,800 Kerr McGee Corp. 3,217,500
17,200 Mobil Corp. 2,257,500
52,000 Norsk Hydro ADR 2,925,000
32,000 Phillips Petroleum Co. 1,412,000
26,600 Royal Dutch Petroleum ADR 4,615,100
75,700 Texaco, Inc. 8,014,738
97,300 Unocal Corp. 4,098,763
- --------------------------------------------------------------------
44,049,425
- --------------------------------------------------------------------
Investment Brokers & Managers--2.7%
52,500 Merrill Lynch Co. 4,423,125
38,300 Morgan Stanley Group, Inc. 2,187,888
76,900 Salomon, Inc. 4,248,725
- --------------------------------------------------------------------
10,859,738
- --------------------------------------------------------------------
Local Phone Companies--2.3%
53,600 Ameritech Corp. 3,202,600
67,100 GTE Corp. 3,153,700
104,900 Worldcom, Inc.* 2,635,613
- --------------------------------------------------------------------
8,991,913
- --------------------------------------------------------------------
Machinery and Equipment--0.6%
20,100 Dover Corp. 994,950
29,300 Ingersoll-Rand Co. 1,336,813
- --------------------------------------------------------------------
2,331,763
- --------------------------------------------------------------------
Media/Entertainment--1.4%
41,400 King World Productions, Inc.* 1,619,775
54,942 Walt Disney Co. 4,024,502
- --------------------------------------------------------------------
5,644,277
- --------------------------------------------------------------------
Nonferrous Metals--1.3%
15,900 Phelps Dodge Corp. 1,111,013
72,800 Tyco International Ltd. 4,158,700
- --------------------------------------------------------------------
5,269,713
- --------------------------------------------------------------------
Office & Business Equipment--0.5%
36,400 Xerox Corp. 2,133,950
- --------------------------------------------------------------------
Oil & Gas Exploration--0.4%
31,100 Burlington Resources, Inc. 1,547,225
- --------------------------------------------------------------------
Pharmaceuticals--6.7%
51,100 Abbott Labs 2,778,563
53,100 Bristol Myers Squibb 6,743,700
18,600 Eli Lilly & Co. 1,620,525
82,100 Merck & Co. 7,450,575
23,600 Pfizer, Inc. 2,191,850
31,700 Pharmacia & Upjohn, Inc. 1,180,825
47,600 Schering Plough Corp. 3,599,750
13,800 Warner Lambert Co. 1,110,900
- --------------------------------------------------------------------
26,676,688
- --------------------------------------------------------------------
Recreational Products--0.2%
29,407 Mattel, Inc. 827,072
- --------------------------------------------------------------------
Restaurants & Hotels--1.0%
14,000 HFS, Inc.* 980,000
23,000 ITT Corp.* 1,313,875
40,200 McDonalds Corp. 1,829,100
- --------------------------------------------------------------------
4,122,975
- --------------------------------------------------------------------
Retail--0.7%
34,100 Home Depot, Inc. 1,687,950
29,900 TJX Companies, Inc. 1,188,525
- --------------------------------------------------------------------
2,876,475
- --------------------------------------------------------------------
Retail-Specialty--1.2%
48,200 Gap, Inc. 1,385,750
49,600 Nike, Inc. 3,366,600
- --------------------------------------------------------------------
4,752,350
- --------------------------------------------------------------------
Semiconductors & Electronics--2.8%
67,800 Intel Corp. 11,000,550
- --------------------------------------------------------------------
Software--2.7%
33,350 Computer Associates International,
Inc. 1,513,256
79,900 Microsoft Corp.* 8,149,800
24,600 Oracle Corp.* 956,325
- --------------------------------------------------------------------
10,619,381
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Supermarkets--0.9%
63,300 Great A&P Tea Co., Inc. $ 1,978,125
31,200 Safeway, Inc.* 1,489,800
- --------------------------------------------------------------------
3,467,925
- --------------------------------------------------------------------
Technical Services--0.4%
22,800 3Com Corp.* 1,530,450
- --------------------------------------------------------------------
Technology Capital Goods--0.7%
18,800 Applied Materials, Inc.* 928,250
22,000 Harris Corp. 1,674,750
- --------------------------------------------------------------------
2,603,000
- --------------------------------------------------------------------
Telecommunications--0.2%
17,000 Tellabs, Inc.* 700,188
- --------------------------------------------------------------------
Textiles--1.1%
22,500 Liz Claiborne, Inc. 947,813
33,200 Sara Lee Corp. 1,311,400
30,800 VF Corp. 2,048,200
- --------------------------------------------------------------------
4,307,413
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--0.8%
36,800 BF Goodrich Co. 1,508,800
29,800 Goodyear Tire & Rubber Co. 1,624,100
- --------------------------------------------------------------------
3,132,900
- --------------------------------------------------------------------
Tobacco--1.7%
55,600 Philip Morris Companies, Inc. 6,609,450
- --------------------------------------------------------------------
Total Common Stocks
(Cost $294,916,122) $ 385,205,653
====================================================================
Rights--0.9%
Insurance--0.2%
9,400 MBIA, Inc.,* exp. 12/12/01 $ 903,575
- --------------------------------------------------------------------
Insurance-Life--0.4%
36,400 Protective Life Corp.*, exp. 07/13/97 1,442,350
- --------------------------------------------------------------------
Specialty Finance--0.3%
19,100 Beneficial Corp.,* exp. 11/23/97 1,284,475
- --------------------------------------------------------------------
Total Rights
(Cost $2,826,759) $ 3,630,400
- --------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
U.S. Treasury Obligations--0.2%
$ 841,000 U.S. Treasury Bill
5.08%, 05/29/97/(b)/ $ 827,118
- --------------------------------------------------------------------
Total U.S. Treasury Obligations
(Cost $827,118) $ 827,118
- --------------------------------------------------------------------
Repurchase Agreement--0.9%
$ 3,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 3,600,000
- --------------------------------------------------------------------
Total Repurchase Agreements
(Cost $3,600,000) $ 3,600,000
- --------------------------------------------------------------------
Total Investments
(Cost $302,169,999)/(a)/ $ 393,263,171
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 94,373,749
Gross unrealized loss for investments in
which cost exceeds value (3,489,045)
- --------------------------------------------------------------------
Net unrealized gain $ 90,884,704
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts open at January 31, 1997 are as follows:
Number of
Contracts Settlement Unrealized
Type Long/(c)/ Month Gain
- ------------------------- ------------- ------------ ----------------
<S> <C> <C> <C>
S&P 500 Stock Index 7 March 1997 $91,800
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $302,378,467.
/(b)/Portion of this security is being segregated as collateral for futures
contracts.
/(c)/Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and net market value at risk are $350,000 and
$2,756,250, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Growth and Income Fund seeks long-term growth of
capital and growth of income primarily through investments in a diversified
portfolio of common stocks and other equity securities. The fund is managed with
a value style, which means we focus on companies whose stocks we believe are
inexpensive relative to their expected long-term earnings growth and their
ability to pay dividends. Investments may include well-known companies that are
temporarily out of favor due to cyclical economic conditions or are experiencing
near-term difficulties the portfolio managers judge to be temporary in nature.
In-depth fundamental research of a company's financial structure, its
competitive position in the market and its management's commitment to increasing
shareholder value are all critical parts of the fund's investment approach.
Though we are not sector investors, we closely monitor the fund's sector and
industry exposures compared with the benchmark in an effort to avoid
unintentional over- or underweightings.
Performance Review: The Fund Outperformed the Index...
<TABLE>
<CAPTION>
- ------------------------------------- ----------------- -----------
Fund Total
Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 28.42% 26.25%
Class B (5/1/96 - 1/31/97)* 22.23% 22.18%
Institutional (6/3/96 - 1/31/97)* 20.77% 19.11%
Service (3/6/96 - 1/31/97)* 23.87% 22.20%
- ------------------------------------- ----------------- -----------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inceptions through the end
of the period.
The U.S. stock market continued to soar during the period under
review, adding to the impressive performance recorded during the prior year.
Most of the market's gains occurred during the latter half of the period, when
equities rebounded strongly following a sharp correction in July.
We are pleased to report that all of the fund's share classes
outperformed the S&P 500 stock index during the past fiscal year. Most notably,
its Class A shares returned 28.42% (at net asset value) versus 26.25% for the
index. During the period, the fund increased its regular quarterly dividend.
....And Fared Very Well Relative to Its Peers
We are proud to announce that for the three-year period ended January
31, 1997, the fund's Class A shares were rated "five stars" (out of 1,858
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency. The "five star" designation is Morningstar's highest rating for
historical risk-adjusted performance, and is given to mutual funds that
Morningstar determines to be in the top 10% of their category.1
In addition, the fund's Class A shares ranked within the top 10% of
the Lipper growth and income category (53rd of 533) for the 12-month period
ended January 31, 1997, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. Class B, Institutional and
Service shares
- -------------------------
1 Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. For the one-year period, the Class A shares
received four stars and was rated among 2,990 domestic equity funds. The
Morningstar rating applies only to the fund's Class A shares; the fund's Class
B, Institutional and Service shares have not been rated. Class B, Institutional
and Service shares are subject to additional fees and expenses that may have the
effect of lowering performance and may affect any future Morningstar rating.
Morningstar rates funds against peers in the same category. In all, there are
five Morningstar categories (domestic equity, international equity, fixed
income, municipal and hybrid). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
were not ranked because they did not exist during the full year.)
Financial, Technology and Energy Stocks Were Among the Fund's Best Performers
The fund's outperformance came from successful stock selection in a
wide range of industries, led by finance, its largest sector weighting at 18.0%.
Technology and energy investments also did well. In addition, the fund benefited
significantly from our decision to limit its exposure in the media and
communication sector. Our concerns regarding increased competition between the
local exchange and long-distance companies and high valuations in the sector
proved to be on target.
In the financial sector, top performers were BankAmerica Corp. and
NationsBank Corp., the country's third and fourth largest banks, respectively.
BankAmerica Corp. increased its focus on aggressive capital management, which
resulted in its exiting unprofitable businesses and buying back some of its
stock. NationsBank Corp. acquired Bank South Corp. and Boatmen's Bancshares,
Inc., and investors began to realize the benefits of its cost structure due to
its acquisitions over the past few years.
Technology holdings that performed well included Intel Corp., the
dominant microprocessor manufacturer, which was purchased when the sector was
depressed due to concerns that the personal computer upgrade cycle had slowed.
Intel quickly rebounded when investors recognized the advantages of its dominant
market position, and we subsequently sold the stock when it reached our target
price. We saw solid gains from Avnet, Inc., the second largest distributor of
semiconductors and other electronic components, which we viewed as an
inexpensive opportunity to participate in the growth of the technology sector.
The fund was also well served by a number of its energy-related
investments. Tosco Corp., an oil refiner and distributor, more than doubled in
price as it continued to consolidate its market position through an ambitious
acquisition strategy, and Texaco Inc. benefited from higher petroleum prices and
a restructuring program that meaningfully improved profits.
In addition, several holdings appreciated due to special situations.
Our confidence in Long Island Lighting Co., a New York-based utility, which had
been shunned by many other investors, was handsomely rewarded when the stock
soared after Brooklyn Union Gas Co. made an attractive bid for the company in
January. The fund also benefited when McDonnell Douglas Corp., one of our
long-term positions, was acquired by Boeing Co. at a very favorable price.
Sunbeam Corp., a leading consumer products company, met with an enthusiastic
investor response to the aggressive restructuring program initiated by its new
CEO.
Paper and Chemical Stocks Were Weak
Disappointing performers included three companies impacted by
overcapacity in their respective industries: Georgia-Pacific Corp. and Stone
Container Corp., both manufacturers of paper products, and Geon Corp., a
manufacturer of polyvinyl chloride. We continue to have confidence in these
companies and expect their prospects to improve over time.
Additional Investments in a Variety of Sectors
During the period, we added a number of new holdings. These included
Dean Witter, Discover & Co., which we viewed as undervalued based on the
potential of its broker-dealer/asset management business and its large Discover
credit card business. In February 1997, Dean Witter, Discover & Co. announced
its intention to merge with investment bank Morgan Stanley. We also invested in
Unicom Corp., an electric utility that operates 12 nuclear units at six sites.
Unicom generates excess capital and, unlike many other electric utilities, has
no utility power purchase problems. We established a position after its stock
price declined due to a mandated increase in spending on operations and
maintenance, an issue that management believes will not impair the company's
long-
23
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund (continued)
- --------------------------------------------------------------------------------
term prospects. Also notable was our decision to increase the fund's
position in Tenet Healthcare Corp., a long-term holding, based on its prospects
for improved efficiencies resulting from the integration of its acquisition of
OrNda Healthcorp., a for-profit hospital chain.
Sales Included Several Financial and Technology Positions
We sold several stocks after they appreciated and reached our price
targets. These included Anheuser-Busch Co., Inc., the world's largest brewer,
which reported strong earnings; Greenpoint Financial Corp., which benefited from
increased investor appreciation of the value of its
"no-documentation--low-documentation" mortgage franchise; and technology
holdings Compaq Computer Corp. and Intel Corp.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total Net
<S> <C> <C>
Company Line of Business Assets
Aetna Inc. Healthcare Service 3.3%
Provider
Tenet Healthcare Corp. Hospitals 3.3%
Lear Corp. Autoparts/Original 3.0%
Equipment
Cigna Corp. Insurance 2.9%
Brunswick Corp. Pleasure 2.9%
Boats/Marine
Engines
Dean Witter, Discover & Co. Financial Services 2.8%
Goodyear Tire & Rubber Co. Tire and Rubber 2.8%
Products
Philip Morris Companies, Tobacco and Food 2.7%
Inc. Products
Avnet, Inc. Electronic 2.7%
Components
Distributor
BankAmerica Corp. Commercial Bank 2.6%
- --------------------------------------------------------------------
</TABLE>
Outlook
As we enter the seventh year of a bull market for U.S. equities, we
view the market as moderately overvalued and therefore unlikely to match the
strong return it achieved in 1996. In this environment, it is particularly
noteworthy that the fund's holdings continue to be attractively valued even
after last year's rally. Our focus on undervalued stocks and extensive
fundamental research will continue to be extremely important in the more
challenging market we anticipate ahead.
/s/ Ronald E. Gutfleish /s/ G. Lee Anderson
- ------------------------ -------------------------
Ronald E. Gutfleish G. Lee Anderson
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ Eileen A. Aptman
--------------------
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
March 3, 1997
24
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class A Class A
(w/sales charge) (no sales charge) S&P 500
---------------- ----------------- -------
<S> <C> <C> <C>
2/5/93 $ 9,450 $10,000 $10,000
1/31/94 10,686 11,308 11,073
1/31/95 11,110 11,757 11,132
1/31/96 14,716 15,573 15,436
1/31/97 18,911 20,012 19,501
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Growth & Inc GS Growth & Inc
Class B Class B
(no redemp charge) (w/redemp charge) S&P 500
------------------ ----------------- -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 12,223 11,723 12,218
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Institutional Class S&P 500
------------------- -------
<S> <C> <C>
6/3/96 $10,000 $10,000
1/31/97 12,077 11,911
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Growth & Inc
Service Class S&P 500
--------------- -------
<S> <C> <C>
3/6/96 $10,000 $10,000
1/31/97 12,387 12,220
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
Average Annual Total Return
--------------------------------------------
One Year Since Inception /(a)/
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 28.42% 18.98%
- --------------------------------------------------------------------------------
Class A, w/sales charge 21.39% 17.31%
- --------------------------------------------------------------------------------
Class B, no redemption charge N/A 22.23% /(b)/
- --------------------------------------------------------------------------------
Class B, w/redemption charge N/A 17.23% /(b)/
- --------------------------------------------------------------------------------
Institutional Class N/A 20.77% /(b)/
- --------------------------------------------------------------------------------
Service Class N/A 23.87% /(b)/
- --------------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations on
February 5, 1993, May 1, 1996, June 3, 1996 and March 6, 1996,
respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
25
<PAGE>
Statement of Investments
- -------------------------------------------------------------------
Goldman Sachs Growth and Income Fund
January 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
===================================================================
<S> <C> <C>
Common Stocks--93.2%
Airlines--3.2%
96,100 AMR Corp.* $ 7,736,050
463,600 Continental Airlines, Inc.* 12,980,800
- -------------------------------------------------------------------
20,716,850
- -------------------------------------------------------------------
Appliance Manufacturer--1.9%
440,900 Sunbeam Corp. 12,234,975
- -------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.0%
512,800 Lear Corp.* 19,165,900
- -------------------------------------------------------------------
Auto/Vehicle--2.0%
394,800 Ford Motor Co. 12,682,950
- -------------------------------------------------------------------
Banks--8.3%
146,600 BankAmerica Corp. 16,364,225
64,900 Chase Manhattan Corp. 6,003,250
117,800 Fleet Financial Group Inc. 6,361,200
146,900 NationsBank Corp. 15,865,200
96,500 Republic of New York Corp. 8,552,313
- -------------------------------------------------------------------
53,146,188
- -------------------------------------------------------------------
Chemicals-Commodity--2.0%
439,800 Geon Co. 8,246,250
97,400 Union Carbide Corp. 4,419,525
- -------------------------------------------------------------------
12,665,775
- -------------------------------------------------------------------
Defense--3.4%
225,100 McDonnell Douglas Corp. 15,137,975
79,800 Northrop Grumman Corp. 6,234,375
6,300 Thiokol Corp. 352,800
- -------------------------------------------------------------------
21,725,150
- -------------------------------------------------------------------
Department Stores--1.6%
207,700 Sears Roebuck & Co. 9,969,600
- -------------------------------------------------------------------
Electric Utilities--5.1%
95,100 CMS Energy Corp. 3,185,850
641,400 Long Island Lighting Co. 14,591,850
632,300 Unicom Corp. 14,938,088
- -------------------------------------------------------------------
32,715,788
- -------------------------------------------------------------------
Food--2.8%
582,200 Chiquita Brands International, Inc. 8,514,675
58,400 Unilever Inc. 9,606,800
- -------------------------------------------------------------------
18,121,475
- -------------------------------------------------------------------
Forest Products--1.9%
161,500 Georgia Pacific Corp. 11,890,438
- -------------------------------------------------------------------
Health Suppliers/Services--2.0%
280,800 Baxter International, Inc. 12,951,900
- -------------------------------------------------------------------
Healthcare Management--6.6%
266,400 Aetna Inc. 21,045,600
768,500 Tenet Healthcare Corp.* 20,749,500
- -------------------------------------------------------------------
41,795,100
- -------------------------------------------------------------------
Home Builders--3.1%
232,800 Centex Corp. 9,079,200
388,500 Lennar Corp. 10,343,813
- -------------------------------------------------------------------
19,423,013
- -------------------------------------------------------------------
Insurance-Life--4.3%
123,600 Cigna Corp. 18,740,850
166,200 Lincoln National Corp. 8,912,475
- -------------------------------------------------------------------
27,653,325
- -------------------------------------------------------------------
Insurance-Property & Casualty--1.4%
16,100 Integon Corp. 223,388
237,600 Partner Re Holding Ltd. 8,434,800
- -------------------------------------------------------------------
8,658,188
- -------------------------------------------------------------------
Integrated Oil--4.8%
121,400 Atlantic Richfield Co. 16,055,150
138,900 Texaco, Inc. 14,706,038
- -------------------------------------------------------------------
30,761,188
- -------------------------------------------------------------------
Logistics/Rails--1.8%
415,700 Canadian Pacific Ltd. 11,275,863
- -------------------------------------------------------------------
Logistics/Trucking--2.0%
512,100 Consolidated Freightways, Inc. 12,994,538
- -------------------------------------------------------------------
Oil Refining & Marketing--3.6%
187,700 Ashland Inc. 8,094,563
166,800 Tosco Corp. 14,761,800
- -------------------------------------------------------------------
22,856,363
- -------------------------------------------------------------------
Packaging--2.5%
661,600 Owens Illinois Corp.* 15,713,000
- -------------------------------------------------------------------
Recreational Products--2.9%
724,800 Brunswick Corp. 18,210,600
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
Common Stocks (continued)
Security and Commodity Brokers, Dealers and Services--1.0%
195,900 Lehman Brothers Holdings, Inc. $ 6,195,338
- -------------------------------------------------------------------
Semiconductors & Electronics--2.7%
275,100 Avnet, Inc. 17,021,813
- -------------------------------------------------------------------
Software--1.1%
214,300 Autodesk, Inc. 6,777,238
- -------------------------------------------------------------------
Specialty Finance--2.8%
470,200 Dean Witter Discover & Co. 17,926,375
- -------------------------------------------------------------------
Steel--1.6%
251,600 AK Steel Holding Corp. 10,126,900
- -------------------------------------------------------------------
Supermarkets--3.4%
726,500 Fleming Companies, Inc. 11,714,813
316,700 Supervalu, Inc. 9,778,113
- -------------------------------------------------------------------
21,492,926
- -------------------------------------------------------------------
Textiles--2.4%
374,400 Fruit of The Loom, Inc.* 15,022,800
- -------------------------------------------------------------------
Tire & Other Related Rubber Products--2.8%
320,900 Goodyear Tire & Rubber Co. 17,489,050
- -------------------------------------------------------------------
Tobacco--5.2%
63,700 Loews Corp. 6,298,338
144,700 Philip Morris Companies, Inc. 17,201,204
187,480 RJR Nabisco, Inc. 6,139,970
115,600 Universal Corp. 3,583,600
- -------------------------------------------------------------------
33,223,112
- -------------------------------------------------------------------
Total Common Stocks
(Cost $465,569,279) $ 592,603,719
===================================================================
Preferred Stocks--0.6%
Food--0.3%
44,600 Chiquita Brands International, Inc.
Convertible, 5.75% $ 2,073,900
- -------------------------------------------------------------------
Tobacco--0.3%
287,100 RJR Nabisco, Inc., Class C 9.25% 1,902,038
- -------------------------------------------------------------------
Total Preferred Stocks
(Cost $3,843,410) $ 3,975,938
===================================================================
Rights--2.0%
Forest Products--1.2%
579,100 Stone Container Corp.,* exp.
08/08/98 $ 7,817,850
- -------------------------------------------------------------------
Technology Capital Goods--0.8%
166,300 Teradyne, Inc.,* exp. 03/26/00 5,134,513
- -------------------------------------------------------------------
Total Rights
(Cost $13,294,493) $ 12,952,363
===================================================================
Repurchase Agreements--4.2%
- -------------------------------------------------------------------
$ 26,800,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 26,800,000
- -------------------------------------------------------------------
Total Repurchase Agreements
(Cost $26,800,000) $ 26,800,000
===================================================================
<CAPTION>
Contracts Description Value
===================================================================
<C> <S> <C>
Options*--0.4%
1,340 S & P 500 Index Put, Strike 750
exp. 06/97 $ 2,244,500
1,439 S & P 500 Index Put, Strike 700
exp. 03/97 377,738
- -------------------------------------------------------------------
Total Options
(Cost $4,105,525) $ 2,622,238
===================================================================
Total Investments
(Cost $513,612,707)/(a)/ $ 638,954,258
===================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost $136,933,045
Gross unrealized loss for investments in which
cost exceeds value (11,607,531)
- -------------------------------------------------------------------
Net unrealized gain $125,325,514
===================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $513,628,744. The
percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- -------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
primarily through investments in a portfolio of large-capitalization stocks. We
use extensive fundamental research to identify companies in a diversified range
of industries that we believe offer attractive growth potential at a reasonable
price.
The fund's investment management team believes that wealth is created
through the long-term ownership of growing businesses. As such, we view each
stock purchase as if we were buying the entire business. To implement this
investment strategy, we focus on growing companies with characteristics such as
strong brand franchises, dominant market share, recurring revenue, product
pricing flexibility, long product life cycles, high returns on invested capital,
high profit margins, strong free cash flow, excellent management and favorable
long-term prospects. Finally, we will buy a stock meeting our rigorous criteria
only if it trades at a reasonable discount to the company's intrinsic value.
Performance Review: Fund Achieved Strong Results
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Fund Total Return S&P 500
(based on net Total
asset value) Return
----------- ------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 25.97% 26.25%
Class B (5/1/96 - 1/31/97)* 19.39% 22.18%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the 12-month period ended January 31, 1997, the fund's Class A shares
achieved a total return of approximately 26%, in line with the S&P 500 stock
index, reflecting the robust equity market, particularly during the second half
of the period. The fund's Class B shares also achieved strong absolute results;
however, a partial year of only nine months is obviously too short a time frame
to meaningfully measure long-term performance.
We are pleased to report that for the five-year period ended January
31, 1997, the fund's Class A shares were rated "four stars" (out of 1,072
domestic equity funds) by Morningstar, Inc., an independent mutual fund rating
agency./1/ In addition, the fund's Class A shares fared well versus its peers in
the Lipper growth fund category, placing in the top third (187th out of 685) for
the 12-month period and in the top quartile (56th out of 263) for the five-year
period, as of January 31, 1997, according to Lipper Analytical Services, Inc.
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results. Lipper did not rank
the fund's Class B shares.)
Top Performers Included Financial, Technology and Defense Stocks
The fund's best performers during the period came from a variety of sectors,
particularly financial services (20.4% of the portfolio), technology (9.1%) and
defense/aerospace (3.2%).
.. Top performers in the financial sector included MBNA Corp. and First USA
Inc., the nation's third and fourth largest credit card issuers, respectively,
which both reported better than expected earnings and loan growth. In
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 1/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-day
Treasury bill returns with appropriate fee and sales charge adjustments and a
risk factor that reflects fund performance below 90-day Treasury bill returns.
The one-year rating is calculated using the same methodology, but is not a
component of the overall rating. The fund's Class A shares received three stars
for both the three- and one-year periods. The Class A shares were rated among
1,858 and 2,990 domestic equity funds for the three- and one-year periods,
respectively. The Morningstar rating applies only to the fund's Class A shares;
the fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are five Morningstar categories
(domestic equity, international equity, fixed income, municipal and hybrid).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
addition, these companies benefited from continuing industry consolidation,
with First USA performing particularly well after Banc One announced that it was
acquiring the company. Two of the fund's commercial bank holdings, BankAmerica
Corp. and NationsBank Corp., appreciated due to successful cost cutting, strong
earnings growth and aggressive capital management, and PartnerRe Holding Ltd., a
worldwide provider of catastrophe reinsurance, rose on strong earnings.
.. Several of our technology holdings also performed well. During the first
half of the period, we increased the fund's positions in Intel Corp., the
dominant microprocessor manufacturer, and Compaq Computer Corp., the world's
largest manufacturer of personal computers, when their prices slumped because of
concerns regarding slowing computer sales. This strategy significantly
contributed to the fund's performance when computer sales were stronger than
expected. We subsequently sold Compaq Computer when it reached our target price
but continue to hold Intel, which more than tripled in price during the period.
.. Consolidation in the defense industry helped two of the fund's long-
standing investments in that sector. McDonnell Douglas Corp. climbed over 50%
after the announcement of its proposed merger with Boeing Co., and Northrop
Grumman Corp. was buoyed by its purchase of Westinghouse Electric Corp.'s
defense electronics businesses.
Specific Paper, Airline and Insurance Stocks Lagged
Not all of the fund's holdings fulfilled our expectations. For example,
Georgia-Pacific Corp., a manufacturer of paper products, suffered from an
industry oversupply and a consequent decline in paper and pulp prices; AMR
Corp., the holding company of American Airlines, was impacted by concerns
regarding competition from discount carriers; and Integon Corp., a provider of
automobile insurance, experienced a higher than expected increase in claims and
lower earnings.
New Additions in Consumer Product Companies and Pharmaceuticals
During the period, we initiated several positions that reflect our new
emphasis on large-capitalization stocks with world-class franchises and/or
strong brand names. For example, we added Procter & Gamble Co., one of the
strongest marketers in the U.S. with a stable of brand name products, many of
which hold number one or number two positions in their respective markets. Over
the past decade, the company has achieved steady growth in revenues and
earnings, exactly the type of consistent operating history that we favor.
Another recent investment was Coca-Cola Co., a world-class company with four of
the five leading carbonated soft drinks -- Coca-Cola, Diet Coke, Sprite and
Fanta. With 80% of its business coming from abroad, we expect Coca-Cola's long-
term earnings growth to continue as it further penetrates the emerging markets
of China, India, Latin America, Southeast Asia, Eastern Europe and Russia.
Other new positions included pharmaceutical companies Bristol-Myers
Squibb Co., Johnson & Johnson Co. and Pfizer, Inc., which are attractive because
of their strong new product flow, huge free cash flow, earnings growth and
essentially net debt-free balance sheets. We believe these companies are
positioned to be major beneficiaries as the baby boomers age and require more
health-related products and services over the coming decades.
Sales Included Several Investments in Cyclical Industries
During the period, we sold Kirby Corp. and Trinity Industries after we lost
confidence in their managements' attempts to improve their competitive
positions, and cyclical stocks such as Quanex Corp. and Harnischfeger
Industries, Inc. after they were unable to improve their profitability in
difficult industry conditions. In contrast, we sold the fund's long-held
position in Millipore Corp., an industrial filter producer, after it reached our
target price.
- --------------------------------------------------------------------------------
29
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
<TABLE>
<CAPTION>
Percentage
of Total
Company Line of Business Net Assets
<S> <C> <C>
First USA, Inc. Financial Services 4.5%
Intel Corp. Semiconductors and 4.3%
Electronics
NationsBank Corp. Commercial Bank 3.4%
Aetna Inc. Healthcare 3.4%
Management
Texaco Inc. International 3.3%
Integrated Oil
Company
BankAmerica Corp. Commercial Bank 3.2%
Tenet Healthcare Corp. Hospitals 3.0%
Philip Morris Companies, Tobacco and Food 3.0%
Inc. Products
Baxter International, Inc. Medical Supplies 2.9%
PartnerRe Ltd. Insurance 2.7%
- --------------------------------------------------------------------
</TABLE>
Outlook
We believe that the global political and economic environments will
continue to remain favorable for the financial markets. In our opinion, the
outlook for the U.S. stock market is attractive, as we expect it to continue to
benefit from low inflation, moderate growth and high levels of consumer
confidence. In addition, we anticipate that the equity market will continue to
be buoyed as baby boomers increase their savings and 401(k) investment plans
grow. To enhance the fund's ability to benefit from the positive investing
climate, we expect to continue to diversify the portfolio among industry sectors
and increase its holdings of large-cap stocks, with the intention of both
providing favorable long-term returns and reducing portfolio risk.
We want to emphasize that investing is a marathon, not a sprint.
Notwithstanding the excellent performance the fund has recently experienced, we
have a long-term investment horizon. In a nutshell, we hope to be able to
purchase great companies with attractive business characteristics and favorable
long-term outlooks, and then patiently hold them for an extended period of time
so that their growth compounds.
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
- --------------------------------------------------------------------------------
30
<PAGE>
- -------------------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Standard and Poor's 500 Index ("S&P 500")) is shown for the appropriate
time periods. All performance data shown represents past performance and should
not be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when redeemed, to be worth more or less than their original
cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class A Class A
(w/sales charge) (no sales charge) S&P 500
----------------- ----------------- -------
<S> <C> <C> <C>
4/20/90 9,450 10,000 10,000
1/31/91 9,529 10,084 10,552
1/31/92 12,322 13,040 12,946
1/31/93 14,542 15,388 14,316
1/31/94 16,998 17,987 16,160
1/31/95 16,254 17,200 16,246
1/31/96 21,203 22,437 22,528
1/31/97 26,726 28,282 28,460
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Capital Growth GS Capital Growth
Class B Class B
(no redemp. charge) (w/redemp. charge) S&P 500
------------------- ------------------ -------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 11,939 11,439 12,218
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------
Average Annual Total Return
----------------------------------------------
One Year Five Year Since Inception/(a)/
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A, no sales charge 25.97% 16.73% 16.54%
- ------------------------------------------------------------------------------
Class A, w/sales charge 19.04% 15.42% 15.57%
- ------------------------------------------------------------------------------
Class B, no redemption charge N/A N/A 19.39%/(b)/
- ------------------------------------------------------------------------------
Class B, w/redemption charge N/A N/A 14.39%/(b)/
- ------------------------------------------------------------------------------
</TABLE>
/(a)/Class A and Class B shares commenced operations on April 20, 1990 and
May 1, 1996, respectively.
/(b)/An aggregate total return (not annualized) is shown instead of an average
annual total return since this class has not completed a full twelve months
of operations.
- --------------------------------------------------------------------------------
31
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Capital Growth Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--98.9%
Advertising & Marketing--1.8%
888,900 Valassis Communications, Inc.* $ 16,333,538
- --------------------------------------------------------------------
Airlines--1.5%
176,500 AMR Corp.* 14,208,250
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--1.6%
391,900 Lear Corp.* 14,647,262
- --------------------------------------------------------------------
Banks--6.6%
263,700 BankAmerica Corp. 29,435,512
291,500 NationsBank Corp. 31,482,000
- --------------------------------------------------------------------
60,917,512
- --------------------------------------------------------------------
Beverages--2.1%
155,100 Coca Cola Co. 8,976,413
293,800 Pepsico, Inc. 10,246,275
- --------------------------------------------------------------------
19,222,688
- --------------------------------------------------------------------
Commercial Services--0.9%
226,500 Ecolab Inc. 8,380,500
- --------------------------------------------------------------------
Communications Technology--1.7%
290,860 Lucent Technologies, Inc. 15,779,155
- --------------------------------------------------------------------
Construction/Environmental Services--2.0%
497,500 WMX Technologies, Inc. 18,220,938
- --------------------------------------------------------------------
Consumer Staples--4.0%
150,800 Avon Products Inc. 9,462,700
109,000 Gillette Co. 8,883,500
160,940 Procter & Gamble Co. 18,588,570
- --------------------------------------------------------------------
36,934,770
- --------------------------------------------------------------------
Defense--3.2%
226,800 McDonnell Douglas Corp. 15,252,300
187,500 Northrop Grumman Corp. 14,648,438
- --------------------------------------------------------------------
29,900,738
- --------------------------------------------------------------------
Electric Utilities--1.6%
669,400 Long Island Lighting Co. 15,228,850
- --------------------------------------------------------------------
Electrical Equipment Manufacturer--1.0%
89,400 General Electric Co. 9,208,200
- --------------------------------------------------------------------
Electronics & Semiconductors--1.5%
219,700 Avnet Inc. 13,593,937
- --------------------------------------------------------------------
Food--1.8%
186,500 Nabisco Holdings Corp. 7,133,625
160,480 William Wrigley Jr. Co. 9,327,900
- --------------------------------------------------------------------
16,461,525
- --------------------------------------------------------------------
Forest Products--2.2%
273,500 Georgia Pacific Corp. 20,136,437
- --------------------------------------------------------------------
Health Suppliers/Services--8.4%
589,600 Baxter International, Inc. 27,195,300
477,500 Fisher Scientific International, Inc. 20,950,312
176,400 Johnson & Johnson 10,165,050
277,600 Perkin-Elmer Corp. 19,397,300
- --------------------------------------------------------------------
77,707,962
- --------------------------------------------------------------------
Healthcare Management--8.5%
395,760 Aetna Inc. 31,265,040
487,650 Columbia HCA Healthcare 19,262,175
1,021,400 Tenet Healthcare Corp.* 27,577,800
- --------------------------------------------------------------------
78,105,015
- --------------------------------------------------------------------
Hotels & Restaurants--1.0%
169,720 Marriott International, Inc. 9,016,375
- --------------------------------------------------------------------
Information Management--1.9%
241,000 First Data Corp. 8,676,000
135,670 Reuters Holdings Corp. ADR 8,665,921
- --------------------------------------------------------------------
17,341,921
- --------------------------------------------------------------------
Insurance-Property and Casualty--3.2%
356,650 Integon Corp. 4,948,519
703,800 PartnerRe Holding Ltd. 24,984,900
- --------------------------------------------------------------------
29,933,419
- --------------------------------------------------------------------
Integrated Oil--6.7%
68,700 Amoco Corp. 5,976,900
52,700 Atlantic Richfield Co. 6,969,575
90,900 Mobil Corp. 11,930,625
41,200 Royal Dutch Petroleum ADR 7,148,200
284,800 Texaco, Inc. 30,153,200
- --------------------------------------------------------------------
62,178,500
- --------------------------------------------------------------------
Logistics/Rails--1.6%
556,900 Canadian Pacific Ltd. 15,105,912
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Shares Description Value
- --------------------------------------------------------------------
<S> <C> <C>
Common Stocks (continued)
Media Content--4.6%
166,200 Gaylord Entertainment Co. $ 4,258,875
261,800 Knight Ridder, Inc. 10,046,575
530,700 Telecommunication Liberty
Media Group* 10,083,300
237,610 Time Warner Inc. 9,147,985
130,400 Walt Disney Co. 9,551,800
- --------------------------------------------------------------------
43,088,535
- --------------------------------------------------------------------
Packaging--1.6%
614,000 Owens Illinois Corp.* 14,582,500
- --------------------------------------------------------------------
Pharmaceuticals--2.3%
90,500 Bristol Myers Squibb 11,493,500
104,300 Pfizer, Inc. 9,686,863
- --------------------------------------------------------------------
21,180,363
- --------------------------------------------------------------------
Retail Trade--1.0%
222,600 Walgreen Co. 9,154,425
- --------------------------------------------------------------------
Retail-Department Stores--2.1%
658,400 Dillard Department Stores, Inc. 19,669,700
- --------------------------------------------------------------------
Security and Commodity Brokers, Dealers and Services--2.0%
571,000 Lehman Brothers Holdings, Inc. 18,057,875
- --------------------------------------------------------------------
Semiconductors & Electronics--4.3%
247,000 Intel Corp. 40,075,750
- --------------------------------------------------------------------
Specialty Finance & Agency--8.6%
345,300 Federal National Mortgage Assn. 13,639,350
828,200 First USA, Inc. 41,927,625
683,925 MBNA Corp. 23,595,413
- --------------------------------------------------------------------
79,162,388
- --------------------------------------------------------------------
Specialty Retail--1.0%
311,900 Service Corp. International 9,045,100
- --------------------------------------------------------------------
Technology Capital Goods--1.5%
286,400 Applied Materials Inc.* 14,141,000
- --------------------------------------------------------------------
Tire & Other Related Rubber Products--2.1%
362,400 Goodyear Tire & Rubber Co. 19,750,800
- --------------------------------------------------------------------
Tobacco--3.0%
229,400 Philip Morris Companies, Inc. 27,269,925
- --------------------------------------------------------------------
Total Common Stocks
(Cost $661,066,240) $ 913,741,765
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Repurchase Agreement--2.0%
$18,300,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 18,300,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $18,300,000) $ 18,300,000
- --------------------------------------------------------------------
Total Investments
(Cost $679,366,240)(a) $ 932,041,765
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 255,377,138
Gross unrealized loss for investments in
which cost exceeds value (3,163,091)
- --------------------------------------------------------------------
Net unrealized gain $ 252,214,047
====================================================================
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $679,827,718.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Letter to Shareholders
- ----------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
- ----------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Small Cap Equity Fund's objective is long-term
capital appreciation, primarily through investments in equity securities of U.S.
companies with market capitalizations of $1 billion or less. The fund is managed
using a "business value" approach to investing, which means we look for
attractive companies with high or improving returns on capital that we believe
can achieve solid, sustainable growth, as well as generate free cash after
investing for future growth. This approach differs markedly from many emerging
growth small-cap funds that invest in companies with high price-to-earnings
multiples solely on the basis of rapid, but frequently unsustainable, growth
rates. Using our own rigorous fundamental research, which includes meeting with
a company's management and examining a company's competitors, customers and
suppliers, we build the fund's portfolio one stock at a time.
Performance Review: Class A Shares Outperformed the Benchmark and the S&P 500
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
<S> <C> <C>
Fund Total Return Russell
(based on net 2000 Total
asset value) Return
----------- ------
Class A (1/31/96 - 1/31/97)* 27.28% 18.95%
Class B (5/1/96 - 1/31/97)* 5.39% 7.32%
- --------------------------------------------------------------------
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Performance for Class B shares is a cumulative total return (not annualized)
from their inception through the end of the period.
During the period under review, small-cap stocks achieved strong
returns but still underperformed large-cap stocks. Small-caps began the period
on a strong note, outpacing large-caps from February through May, then gave up
their early lead during June and July when the market experienced a sharp
correction. While both large-cap and small-cap stocks sold off, small-caps were
particularly hard hit. During the latter half of the period, the market surged
to record highs, but small-caps trailed their larger peers as investors rushed
to participate in the rising market, but hedged their bets by sticking with the
largest, most liquid stocks.
Despite the small-cap sector's waning momentum, we are pleased to
report that the fund's Class A shares returned 27.28% (at net asset value),
outperforming both its benchmark, the Russell 2000 index (18.95%), and the
large-cap S&P 500 stock index (26.25%). In addition, the fund's Class A shares
placed in the top third of the Lipper small-company growth fund category
(ranking 129th out of 394) for the 12-month period ended January 31, 1997,
according to Lipper Analytical Services, Inc. (Please note that Lipper rankings
do not take sales charges into account and that past performance is not a
guarantee of future results. Lipper did not rank the fund's Class B shares.) The
fund's Class B shares also achieved positive returns, but did not fare as well
because their inception coincided with the start of a more difficult market
environment for small-cap stocks.
The fund's performance was especially strong during the first half of
the period, when a number of its long-held investments performed well. These
positions included some companies that had experienced temporary difficulties
and rebounded on improving fundamentals, as well as companies that had been
relatively undiscovered and garnered increased investor awareness due to
continued strong earnings gains. The fund also performed better than the broader
market during the summer correction, when expensive, momentum-type stocks were
hit harder than those with inexpensive valuations, which the fund typically
emphasizes. In contrast, during the second half of the period, stocks with
momentum characteristics rebounded, while the types of stocks that the fund
stresses did not perform as strongly. In addition, the fund experienced price
corrections in several holdings due to earnings volatility.
The fund's top performers during the period came from a wide variety
of industries, with Black Box Corp. and Morningstar Group, Inc. contributing
significantly to overall results. Black Box Corp., a catalog marketer of
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
communications and networking products, was the fund's largest holding in the
beginning of the period and climbed substantially as it continued to achieve
record revenues and profits due to successful direct marketing efforts and new
product introductions. The position in Black Box was then sold after it reached
our target price. Morningstar Group, Inc., a manufacturer of specialty foods,
was the fund's eighth largest holding at the start of the period and nearly
tripled in price when it consolidated its market position through internal
growth, new product introductions and several attractive acquisitions. The fund
has held Morningstar Group for over four years; it is a good example of our
willingness to hold strong businesses until the market recognizes their true
value.
Other strong performers included American Safety Razor Co., the
leading U.S. manufacturer of private-brand and value-priced shaving blades,
which benefited from internal profit enhancement efforts and particularly strong
sales of its branded and private-label shaving and personal care products;
Movado Group, Inc., the owner of the Movado, Concord and Esquire watch brands,
which rebounded due to significant sales growth, new licensing agreements and
increased analyst coverage; J. Baker, Inc., a diversified retailer of footwear
and apparel, which announced its intention to sell its shoe division in order to
focus its resources on its successful "Casual Male Big & Tall" stores; and
Nimbus CD International, Inc., a CD and CD-ROM manufacturer that we sold after
it rose sharply due to high investor expectations of future DVD (digital video
disk) demand. Finally, several financial holdings performed well, such as Horace
Mann Educators Co., a provider of property, casualty and life insurance for the
educator market, and Terra Nova Bermuda Holdings, a worldwide provider of
property casualty insurance and reinsurance.
Not all of the fund's holdings fulfilled our expectations. Several
stocks were hurt by disappointing earnings, although we continue to believe in
their long-term prospects. For example, Landstar System, Inc. experienced
weakness when the restructuring of its trucking operations from a fixed cost to
a variable cost business took longer than expected. In addition, Central Maine
Power Co. was impacted by uncertainty in the regulatory environment, and Alpine
Lace Brands, Inc., a developer and marketer of cheese products, declined due to
an increase in commodity cheese prices. We took advantage of lower prices and
increased the fund's positions in all three stocks. In contrast, we liquidated
two other underperformers, Musicland Stores Corp. and Levitz Furniture Inc.,
because their fundamental businesses continued to deteriorate.
Recent Additions
During the period, we initiated a number of positions that have
already contributed to performance. These included Linens 'N Things, Inc., a
retailer of home accessories, which was attractively valued versus its key
competitor, Bed, Bath and Beyond, and has significant store expansion and margin
improvement potential, and Sun Healthcare Group, Inc., a well-managed
owner/operator of nursing homes with attractive long-term growth potential.
Though Sun Healthcare Group has been temporarily impacted by a government
investigation of one of its subsidiaries, we believe this issue is fully
reflected in the current stock price. In the technology sector, we added
DecisionOne Holdings Corp., the leading independent provider of computer
hardware and maintenance support services to U.S. companies. We intend to
continue to focus on technology-related service providers and distributors that
we believe are positioned to benefit from the expected long-term growth of the
sector but are not dependent on the success of any single product or service.
Other new investments were APS Holding Corp., a distributor of
automotive parts, which was depressed by industry- and company-specific issues
that we believe to be temporary, and Friedman's, Inc., a retailer of inexpensive
jewelry with significant expansion potential and a very low-cost operating
strategy. We also added two specialty insurance companies, SCPIE Holdings, Inc.
and Symon's International Group, Inc.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund (continued)
- --------------------------------------------------------------------------------
Sales Included Several Financial Holdings
The fund sold several stocks after they appreciated and reached our
target prices. These included a number of financial holdings, such as Greenpoint
Financial Corp., the leading national lender of "no-documentation--low-
documentation" mortgages; Dime Bancorp, Inc., the fifth largest thrift in the
U.S.; and Western National Corporation, a marketer of annuity products.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage of
Total Net
Company Line of Business Assets
<S> <C> <C>
Movado Group, Inc. Luxury and 5.6%
Affordable Watch
Distributor
DecisionOne Holdings Corp. Computer Support 4.9%
Provider
Sun Healthcare Group, Inc. Healthcare Services 3.9%
APS Holding Corp. Automotive Parts 3.6%
Distributor
Mariner Health Group, Inc. Healthcare Services 3.6%
Groupe AB Television 3.5%
Programming
Distributor
Friedman's, Inc. Jewelry Retailer 3.5%
J. Baker, Inc. Specialty Apparel 3.5%
Heritage Media Corp. Marketing Services 3.4%
Provider
Linens 'N Things, Inc. Home Products 3.1%
Retailer
- --------------------------------------------------------------------
</TABLE>
Outlook
One of the key factors that will affect equity performance during
1997 will be the continuation of the favorable economic environment of moderate
growth and low inflation, which would ensure that both the corporate earnings
outlook and the interest rate climate remain hospitable. Small-capitalization
stocks as a group currently appear undervalued relative to large-cap stocks and
to their own expected earnings potential. We believe that corporate earnings
growth will slow somewhat in 1997, and to the extent that smaller companies can
achieve better earnings growth than larger companies, they should perform
relatively well. The performance of small-caps will particularly depend on
investors broadening their focus from the largest, most liquid stocks to
smaller, less widely followed issues. We are optimistic regarding the fund's
future performance based on the strong earnings growth and the free cash flow we
expect from many of our top holdings, as well as from new investments.
/s/ Paul D. Farrell
Paul D. Farrell
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ Matthew B. McLennan
Matthew B. McLennan
Assistant Portfolio Manager,
U.S. Active Equity Value
/s/ Timothy G. Ebright
Timothy G. Ebright
Portfolio Manager,
U.S. Active Equity Growth
March 3, 1997
36
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- -------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's
benchmarks (the Standard and Poor's 500 Index ("S&P 500") and the Russell 2000)
are shown for the appropriate time periods. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class A GS Small Cap Class A Russell
(w/sales charge) (no sales charge) S&P 500 2000
-------------------- --------------------- ------- -------
<S> <C> <C> <C> <C>
10/22/92 $ 9,450 10,000 $10,000 $10,000
1/31/93 11,138 11,786 10,655 11,733
1/31/94 14,494 15,337 12,027 13,914
1/31/95 11,953 12,649 12,091 13,078
1/31/96 12,813 13,559 16,768 17,010
1/31/97 16,320 17,270 21,183 20,242
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Small Cap Class B GS Small Cap Class B Russell
(no redemp. charge) (w/redemp. charge) S&P 500 2000
-------------------- -------------------- ------- -------
<S> <C> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000 $10,000
1/31/97 10,539 10,039 12,218 10,732
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
Average Annual Total Return
-----------------------------------------
One Year Since Inception/(a)/
-------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge 27.28% 13.61%
-------------------------------------------------------------------------
Class A, w/sales charge 20.27% 12.12%
-------------------------------------------------------------------------
Class B, no redemption charge N/A 5.39%/(b)/
-------------------------------------------------------------------------
Class B, w/redemption charge N/A 0.39%/(b)/
-------------------------------------------------------------------------
</TABLE>
/(a)/ Class A and Class B shares commenced operations on October 22, 1992
and May 1, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an
average annual total return since this class has not completed a full
twelve months of operations.
- --------------------------------------------------------------------------------
37
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Small Cap Equity Fund
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--92.5%
- --------------------------------------------------------------------
Auto/Original Equipment Manufacturer--3.6%
777,200 APS Holding Corp.* $ 7,869,150
- --------------------------------------------------------------------
Commercial Products--2.4%
211,000 Figgie International, Inc. Class A* 2,611,125
231,400 Figgie International, Inc. Class B* 2,487,550
- --------------------------------------------------------------------
5,098,675
- --------------------------------------------------------------------
Commercial Services--1.0%
539,200 Opinion Research Corp.* 2,022,000
- --------------------------------------------------------------------
Computers & Peripherals--7.5%
598,700 DecisionOne Holdings Corp.* 10,477,250
467,100 Multiple Zones International, Inc.* 5,605,200
- --------------------------------------------------------------------
16,082,450
- --------------------------------------------------------------------
Consumer Staples--3.8%
270,700 American Safety Razor Co.* 3,958,987
389,400 Spartech Corp. 4,234,725
- --------------------------------------------------------------------
8,193,712
- --------------------------------------------------------------------
Electric Utilities--2.2%
433,900 Central Maine Power Co. 4,827,137
- --------------------------------------------------------------------
Electrical Equipment--2.3%
240,100 Carbide/Graphite Group* 5,012,087
- --------------------------------------------------------------------
Food--2.3%
374,600 Alpine Lace Brands, Inc.* 2,341,250
109,000 Morningstar Group, Inc.* 2,588,750
- --------------------------------------------------------------------
4,930,000
- --------------------------------------------------------------------
Healthcare Management--9.0%
20,100 Health Systems International, Inc.* 520,088
798,000 Mariner Health Group, Inc.* 7,780,500
517,100 Sun Healthcare Group, Inc.* 8,402,875
146,200 Trigon Healthcare, Inc.* 2,595,050
- --------------------------------------------------------------------
19,298,513
- --------------------------------------------------------------------
Home Furnishing & Services--2.9%
221,500 Congoleum Corp.* 3,156,375
160,900 Synthetic Industries, Inc.* 3,036,988
- --------------------------------------------------------------------
6,193,363
- --------------------------------------------------------------------
Insurance Specialty--1.6%
63,100 Old Republic International Corp. 1,695,812
83,900 Scpie Holdings, Inc.* 1,761,900
- --------------------------------------------------------------------
3,457,712
- --------------------------------------------------------------------
Insurance-Life--0.3%
36,000 AmerUs Life Holdings, Inc.* 711,000
- --------------------------------------------------------------------
Insurance-Property and Casualty--6.0%
50,500 Horace Mann Educators Co. 2,158,875
206,500 IPC Holdings Ltd. 4,943,094
92,200 Symons International Group* 1,475,200
215,800 Terra Nova Bermuda Holdings 4,262,050
- --------------------------------------------------------------------
12,839,219
- --------------------------------------------------------------------
Leisure--1.0%
210,700 Trump Hotels & Casino Resorts,
Inc.* 2,212,350
- --------------------------------------------------------------------
Media Content--9.0%
596,300 Groupe AB SA ADR* 7,602,825
609,800 Heritage Media Corp.* 7,393,825
432,300 International Post Ltd.* 1,729,200
324,200 Platinum Entertainment, Inc.* 2,674,650
- --------------------------------------------------------------------
19,400,500
- --------------------------------------------------------------------
Metal Products--0.5%
57,200 Doncasters Plc ADR* 1,122,550
- --------------------------------------------------------------------
Packaging--0.7%
88,100 Shorewood Packaging Corp.* 1,596,813
- --------------------------------------------------------------------
Real Estate--0.7%
73,700 Insignia Financial Group, Inc.* 1,538,487
- --------------------------------------------------------------------
Recreation Products--5.6%
539,200 Movado Group, Inc. 12,064,600
- --------------------------------------------------------------------
Restaurants & Hotels--6.4%
262,400 IHOP Corp.* 6,461,600
399,300 Mortons Restaurant Group, Inc.* 6,438,713
40,000 Sonic Corp.* 815,000
- --------------------------------------------------------------------
13,715,313
- --------------------------------------------------------------------
Retail Hardgoods--4.7%
731,000 Brookstone Inc.* 5,939,375
290,700 Finlay Enterprises, Inc.* 4,287,825
- --------------------------------------------------------------------
10,227,200
- --------------------------------------------------------------------
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Specialty Retail--12.7%
506,200 Friedmans, Inc.* $ 7,593,000
242,000 General Nutrition Companies, Inc.* 4,386,250
1,500 Hibbett Sporting Goods, Inc.* 24,375
1,100,400 J. Baker, Inc. 7,565,250
87,000 Leslies Poolmart, Inc.* 1,141,875
307,200 Linens N'Things, Inc.* 6,758,400
- --------------------------------------------------------------------
27,469,150
- --------------------------------------------------------------------
Telephone Communications--0.3%
15,400 Telephone & Data Systems, Inc. 587,125
- --------------------------------------------------------------------
Textiles--1.6%
87,800 Samsonite Corp.* 3,468,100
- --------------------------------------------------------------------
Trucking--2.3%
207,100 Landstar Systems, Inc.* 4,918,625
- --------------------------------------------------------------------
Voice, Video and Data--2.1%
263,200 Pegasus Communications, Inc.* 3,224,200
142,700 Rural Cellular Corp.* 1,391,325
- --------------------------------------------------------------------
4,615,525
- --------------------------------------------------------------------
Total Common Stocks
(Cost $194,261,908) $199,471,356
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bond--0.2%
- --------------------------------------------------------------------
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 412,500
- --------------------------------------------------------------------
Total Corporate Bond
(Cost $498,387) $ 412,500
====================================================================
Repurchase Agreement--7.7%
- --------------------------------------------------------------------
$16,600,000 Joint Repurchase Agreement Account
5.63%, 02/03/97 $ 16,600,000
- --------------------------------------------------------------------
Total Repurchase Agreement
(Cost $16,600,000) $ 16,600,000
====================================================================
<CAPTION>
Contracts Description Value
====================================================================
<S> <C> <C>
Options*--0.5%
200 S&P 500 Index Put Strike 725
exp. 03/97 $ 95,000
351 S&P 500 Index Put Strike 700
exp. 03/97 92,138
560 S&P 500 Index Put Strike 750
exp. 06/97 938,000
- --------------------------------------------------------------------
Total Options
(Cost $1,643,182) $ 1,125,138
====================================================================
Total Investments
(Cost $213,003,477)/(a)/ $217,608,994
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 31,335,604
Gross unrealized loss for investments in
which cost exceeds value (26,835,810)
- --------------------------------------------------------------------
Net unrealized gain $ 4,499,794
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $213,109,200.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment opportunities.
While the fund does not allocate assets across specific countries based on
top-down economic or market forecasts, the portfolio managers strive to manage
risk by remaining diversified by country and industry sector and by closely
monitoring economic and political events in countries in which the fund does
invest.
Economic and Market Overview: European Markets Were Strong Despite Weak
Economies; Asia Faltered
Economic growth was slower than expected in many countries during the
period, prompting further monetary easing in much of Europe and continued very
low short-term interest rates in Japan. European equity markets performed very
well despite the growth shortfall, benefiting from an increased focus on
improving shareholder value. The Japanese market declined significantly, while
results in other Asian markets were mixed.
.. Europe. The economies of several European markets, such as the U.K., Norway
and Ireland, strengthened during the period, but overall growth remained weak
throughout most of Europe. A number of European countries attempted to stimulate
their economies through monetary easing, but maintained tight fiscal policies in
an effort to reduce their budget deficits enough to qualify for European
Monetary Union. This strategy proved to be only modestly successful, as
unemployment remained at record highs, particularly in Germany. Though the
recovery was somewhat disappointing, European equity markets rose 26.6% during
the period (as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies), fueled by low inflation, low interest rates and relatively strong
bond markets. In addition, corporate profits improved, reflecting increased
emphasis on cost cutting and restructuring. The equity markets of Finland, Spain
and Sweden were among the strongest performers, while British stocks lagged much
of Europe due to a strengthening currency (which made U.K. exports more
expensive) and expectations of increases in short-term interest rates.
.. Japan. The Japanese economy strengthened during the period, but earnings
growth fell short of expectations. For the 12-month period ended January 31,
Japanese stocks (as measured by the TOPIX index in yen) declined 14.9%, with
approximately half of the loss occurring in January 1997 alone. During the first
half of the period, the Japanese market was bolstered by heavy demand from
Europe and the U.S., but foreign investors subsequently became net sellers when
the economic recovery softened and raised uncertainty surrounding the
sustainability of corporate profits. The weaker corporate earnings outlook
resulted in a conspicuous divergence between the performance of the largest
international blue-chip stocks and the rest of the market, particularly in the
third quarter. Lackluster investor sentiment was further exacerbated at the end
of the year due to increased pessimism that the Liberal Democratic Party (LDP)
government's higher taxes and scant spending on public works would dampen the
economy.
.. Asia (ex-Japan). Asian stock markets rose 2.4% during the period, as measured
by the MSCI All Country Asia Free (Ex Japan) Index (in terms of local
currencies). Asian markets began the period on a strong note, but several
markets faltered during the spring and summer due to a host of issues. These
included political uncertainty arising from national elections in several Asian
countries as well as slowing economic growth throughout the region, principally
due to weak electronics exports. From
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
September 1996 through January 1997, the region generally improved due to
stronger corporate earnings and stabilizing exports. The performance of the
individual markets varied widely. Malaysia was one of the region's best
performing markets during the period under review, rising 18.4%; Hong Kong, the
largest market in the region, performed well with a 12.0% return; and Thailand
was by far the weakest market, declining 45.3% (all in local currency terms).
Performance Review: Security Selection, Country Allocations and Industry
Weightings All Contributed to Strong Performance
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Fund Total FT/S&P
Return Actuaries
(based on Europe &
net asset Pacific Index
value) Total Return
------ ------------
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* 13.48% 1.27%
Class B (5/1/96 - 1/31/97)* 2.83% -4.22%
Institutional (2/7/96 - 1/31/97)* 12.53% 0.53%
Service (3/6/96 - 1/31/97)* 10.42% 0.86%
- ------------------------------------------------------------------------------
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset value
at the end of the period and no initial sales charge or contingent deferred
sales charge. Performance for Class B, Institutional and Service shares is a
cumulative total return (not annualized) from their inception through the end of
the period.
The fund performed extremely well during the period under review,
with all of its share classes outperforming the benchmark, the Financial
Times/S&P Actuaries Europe & Pacific Index ("Europac") unhedged. Europac is a
capitalization-weighted composite of approximately 1,500 stocks from 23
countries in Europe and the Asia-Pacific region and is calculated on a monthly
basis. We are also pleased to note that the fund's Class A shares placed in the
top third of the Lipper international fund category (ranking 93rd out of 342)
for the 12-month period ended January 31, 1997, according to Lipper Analytical
Services, Inc. (Please note that Lipper rankings do not take sales charges into
account and that past performance is not a guarantee of future results. Lipper
did not rank the fund's Class B, Institutional or Service shares.)
The primary driver of the fund's superior performance was successful
stock selection, as we continued to focus on growing companies that actively
increased shareholder value through actions such as cost cutting, share buybacks
or restructuring. In addition, country allocations that worked in the fund's
favor were its overweighting in Sweden, one of the strongest performing markets
during the period, and its underweighting in Japan, one of the weakest, each the
result of our bottom-up approach to stock selection. The fund's industry
allocations also added value. The fund was overweighted in business services and
diversified consumer goods/services, which were among the best performing
sectors, and underweighted in financial services and basic industries, which
performed relatively poorly.
In terms of currency exposure, though the fund's neutral exposure is
unhedged, it was substantially hedged against the yen, which benefited
performance significantly when the yen continued to fall against the dollar. In
addition, the fund was partially hedged against some European currencies, such
as the Deutsche mark and the Swiss franc, which worked in its favor when the
dollar rose against those currencies.
The fund's Class B shares outperformed the benchmark by a wide
margin, but their performance was not as strong as the other share classes
because they began operations in May, after equity prices had already risen
significantly.
Portfolio Composition: A Widely Diversified Portfolio
As of January 31, 1997, the fund held positions in 56 companies based
in 16 countries. In terms of total portfolio assets, the five largest country
exposures were Japan (27.3%), the U.K. (12.6%), Germany (7.1%), Sweden (7.0%)
and Switzerland (6.8%).
Europe. At the end of the period, the portfolio's 53.0% allocation in European
stocks was in line with that of the benchmark (54.1%). In general, growth stocks
led the
- --------------------------------------------------------------------------------
41
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
- --------------------------------------------------------------------------------
market during the period. Many of the fund's European holdings were
growth-oriented stocks that benefited from positive earnings surprises and
successful efforts by senior management to enhance equity returns and
shareholder value. Several of the portfolio's longer term European holdings
were, once again, among its strongest performers. Securitas (Sweden), the
largest security services company in Europe, more than doubled during the
period, boosted by earnings from companies it acquired in Germany, France and
Portugal. Fresenius (Germany), a major producer of medical supplies, rose over
140% as it merged its global kidney dialysis division with W. R. Grace's
National Medical Center healthcare subsidiary and spun off the resulting
business, Fresenius Medical Care. Ericsson (Sweden), one of the world's leading
suppliers of mobile telephones and infrastructure, rebounded from weakness early
in the period when it achieved very good earnings, which reassured investors
that it was not suffering from margin pressure or weak mobile telephone orders.
Other strong performers were Randstad Holdings (Netherlands), the leading
temporary help organization in its market, which reported healthy sales and
earnings as its business continued to expand, and Comptoirs Modernes (France), a
supermarket chain operator, which gained market share in France and made
important acquisitions in Spain.
Several of the fund's newer additions also contributed to its
positive results. These included two pharmaceutical companies: Hoechst
(Germany), whose acquisition and restructuring plans indicate a commitment to
improving shareholder value, and Novartis (Switzerland), which was formed
through the merger of Ciba-Geigy and Sandoz and is expected to benefit from
significant cost reductions as well as new product development. Other
significant new positions that performed well were SGS Thomson (France), one of
the 10 largest semiconductor manufacturers in the world, which operates in the
high-value-added, application-specific sector of the market, and Telecom Italia
Mobile (Italy), the leading mobile telephone operator in Italy, which generates
strong cash flow and is extremely profitable.
Japan. Approximately 27% of the fund was invested in Japan, which was
underweighted relative to the benchmark (32.1%). The fund's Japanese stocks
fared better than the market, as we avoided banks and brokerages, two of the
weakest industries. We invested in companies with relatively robust earnings
visibility and good valuations, particularly favoring management that improved
cost competitiveness and strengthened their core business. The fund's best
performing Japanese stocks were TDK Corp., an electronic components manufacturer
that reported better than expected earnings due to strong sales of personal
computer-related components; Hoya Corp., an optical glass manufacturer that
aggressively restructured its operations and successfully diversified its
business so that it now dominates the glass magnetic disc market; and Mirai
Industry, a market leader in electric cables, pipes and other electric wiring
that introduced new products and cut costs. In contrast, Kyocera Corp., an
electronics components manufacturer, reported disappointing results due to
increased competition in the semiconductor and communication equipment
businesses. A new addition was Takeda Chemical Industry, the largest
pharmaceutical company in Japan, where aggressive new management initiatives
rapidly expanded overseas sales and improved the profitability of its
prescription drug business.
Asia-Pacific. Asia, a 13.5% allocation (excluding Japan), was slightly
overweighted compared with the benchmark's 10.7%, with Hong Kong representing
the largest country position at 6.7% of the portfolio. For most of the period,
the fund was overweighted in Malaysia, Hong Kong and Australia, which were three
of the better performing Asian markets. Though the performance of some of the
other markets fell short of expectations, our stock selection within the region
worked in the fund's favor. Several of the fund's top performers were financial
stocks, including Commerce Asset-Holdings, the fifth largest financial group in
Malaysia, which benefited from its merchant banking operations and strong loan
growth, and HSBC Holdings, a Hong Kong-based banking and financial services
organization, which reported strong results due to its dominant market position.
New holdings include Australia & New Zealand Bank Group, a bank that is
positioned to benefit from the potential deregulation in Australia's financial
services sector, and Asia Satellite Telecommunications Holdings Ltd., a
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
leading satellite owner and operator in the Asia-Pacific region that owns prime
orbital slots that are expected to result in high utilization rates and fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
of Total
Company Country Line of Business Net Assets
<S> <C> <C> <C>
HSBC Holdings Hong Kong Banking and 3.0%
Finance
Novartis Switzerland Pharmaceuticals 3.0%
Fresenius Germany Kidney Dialysis 2.4%
Equipment
TDK Corp. Japan Tape and Disc 2.4%
Manufacturer
Telecom Italia Italy Mobile Tele- 2.4%
Mobile communications
Operator
Canon, Inc. Japan Office Equipment 2.4%
Manufacturer
Adecco Switzerland Temporary Help 2.4%
Services
Adidas Germany Sporting Goods 2.4%
Manufacturer
Hoechst Germany Chemical and 2.3%
Drug
Manufacturer
Hoya Corp. Japan Optical Glass 2.3%
Manufacturer
- --------------------------------------------------------------------
</TABLE>
Outlook
In the near term, we expect most international economies to continue
to experience moderate growth and subdued inflation. We are particularly
positive on the prospects for the European markets in 1997, where we expect a
modest acceleration in economic growth and a continuation of healthy corporate
earnings growth helped by cost cutting as well as restructuring initiatives.
We are currently most concerned about Japan. Despite the sharp
correction, we expect to remain underweighted in the Japanese market because of
our negative view of the banking sector and only modest earnings recoveries in
nonmanufacturing sectors. Lack of investor confidence in the government's
commitment to deregulation, as well as simultaneous weakness in the bond and
currency markets, have all impacted market sentiment. In this state of
uncertainty, superior stock selection will be essential, and we intend to
emphasize companies with clear earnings visibility, strong management and
attractive valuations. Despite the generally poor conditions, the earnings for
the fund's Japanese holdings are above expectations and are being upgraded. In
non-Japan Asia, corporate earnings reports have been mixed, but we believe
improved political stability and export growth should help stocks in 1997.
Finally, we are pleased to report that we have expanded our
international equity team in all geographic regions to support our effort to
seek out the most promising companies around the world.
/s/ Roderick D. Jack
Roderick D. Jack
Senior Portfolio Manager, London
/s/ Marcel Jongen
Marcel Jongen
Senior Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Senior Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager, Singapore
March 3, 1997
- --------------------------------------------------------------------------------
43
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and Class B, respectively) on the
inception date of each class. For comparative purposes, the performance of the
Fund's benchmark (the Financial Times-Actuaries World Euro-Pacific Index
Unhedged ("FT Euro-Pac (Unhedged)/(b)/) is shown for the appropriate time
periods. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
<TABLE>
<CAPTION>
Class A
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class A Class A FT Euro-Pac Ft Euro-Pac
(w/sales charge) (no sales charge) (Comb )(b) (Unhedged)
---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
12/1/92 9,450 10,000 10,000 10,000
1/31/93 9,566 10,123 10,063 10,055
1/31/94 12,066 12,768 13,498 14,399
1/31/95 10,058 10,643 12,119 13,902
1/31/96 12,942 13,695 13,983 16,039
1/31/97 14,961 15,546 14,160 16,243
<CAPTION>
Class B
[LINE GRAPH APPEARS HERE]
GS Intl Eq GS Intl Eq
Class B Class B FT Euro-Pac
(w/sales charge) (no sales charge) (Unhedged)
---------------- ----------------- -----------
<S> <C> <C> <C>
5/1/96 10,000 10,000 10,000
1/31/97 10,283 9,783 9,578
<CAPTION>
Institutional
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Institutional Class (Unhedged)
------------------- -----------
<S> <C> <C>
2/7/96 10,000 10,000
1/31/97 11,253 10,053
<CAPTION>
Service
[LINE GRAPH APPEARS HERE]
GS Intl Equity FT Euro-Pac
Service Class (Unhedged)
-------------- -----------
<S> <C> <C>
3/6/97 10,000 10,000
1/31/97 11,042 10,086
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------- ------------------- --------------------
<S> <C> <C>
Class A, no sales charge 13.48% 11.15%
- -------------------------------------- ------------------- --------------------
Class A, w/sales charge 7.26% 9.66%
- -------------------------------------- ------------------- --------------------
Class B, no redemption charge N/A 2.83% /(c)/
- -------------------------------------- ------------------- --------------------
Class B, w/redemption charge N/A (2.17)%/(c)/
- -------------------------------------- ------------------- --------------------
Institutional Class N/A 12.53% /(c)/
- -------------------------------------- ------------------- --------------------
Service Class N/A 10.42% /(c)/
- -------------------------------------- ------------------- --------------------
</TABLE>
/(a)/ Class A, Class B, Institutional and Service shares commenced operations
on December 1, 1992, May 1, 1996, February 7, 1996 and March 6, 1996,
respectively.
/(b)/ Beginning on September 1, 1994, the Class A shares began using the
unhedged FT Euro-Pac as its benchmark (prior thereto, Class A used the
hedged FT Euro-Pac). The combined FT Euro-Pac represents the hedged FT
Euro-Pac performance up to August 31, 1994 and the unhedged FT Euro-Pac
performance from September 1, 1994 through January 31, 1997.
/(c)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
44
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks--91.5%
Australian Dollar--3.6%
1,851,658 Australia & New Zealand Bank Group
(Commercial Banks) $ 11,355,706
1,564,955 Woodside Petroleum, Ltd. (Oil &
Gas) 11,053,763
- --------------------------------------------------------------------
22,409,469
- --------------------------------------------------------------------
Austrian Schilling--1.2%
105,400 Oesterreichische Elektrizitats
(Utilities) 7,698,241
- --------------------------------------------------------------------
Belgian Franc--0.2%
14,400 Dexia (Financial Services) 1,372,240
- --------------------------------------------------------------------
British Pound Sterling--12.6%
1,391,569 British Airport Authority
(Transportation) 11,661,442
1,788,649 Electrocomponents (Wholesale
Trade) 12,753,546
1,261,210 Premier Farnell PLC (Electronics) 10,670,067
706,368 Misys PLC (Business Services and
Computer Software) 12,393,414
1,708,700 Rentokil Group (Business Services) 12,553,100
473,916 Siebe (Machinery and Engineering
Services) 7,973,270
873,509 Standard Chartered (Banking) 10,497,224
- --------------------------------------------------------------------
78,502,063
- --------------------------------------------------------------------
Deutsche Mark--4.7%
155,760 Adidas AG (Textiles) 14,749,495
343,320 Hoechst AG (Healthcare) 14,439,672
- --------------------------------------------------------------------
29,189,167
- --------------------------------------------------------------------
French Franc--6.4%
22,531 Comptoirs Modernes (Retail) 11,749,983
40,720 CLF Dexia (Financial Services) 3,649,869
95,602 CLF Dexia - Registered Shares 8,569,124
(Financial Services)
63,189 Seita (Tobacco) 2,400,553
193,600 SGS Thomson Microelectronics
(Electronics) 13,882,408
- --------------------------------------------------------------------
40,251,937
- --------------------------------------------------------------------
Hong Kong Dollar--6.7%
4,148,000 Asia Satellite Tel.
(Telecommunications) 9,233,837
816,800 HSBC Holdings (Commercial Banks) 18,920,583
1,185,000 Sun Hung Kai Properties Co. (Real
Estate) 13,380,759
- --------------------------------------------------------------------
41,535,179
- --------------------------------------------------------------------
Irish Pound--2.3%
1,491,014 Bank of Ireland (Commercial Banks) 14,247,624
- --------------------------------------------------------------------
Italian Lira--2.4%
3,000,500 Telecom Italia Mobile (Utilities) 8,930,448
3,574,000 Telecom Italia Mobile (Di Risp
Shares) (Utilities) 6,095,944
- --------------------------------------------------------------------
15,026,392
- --------------------------------------------------------------------
Japanese Yen--27.3%
206,000 Aderans Company Ltd. (Retail) 4,808,281
702,000 Canon, Inc. (Office Equipment
Manufacturer) 14,880,119
363,000 Hoya Corp. (Electronics and
Instrumentation) 14,520,599
297,400 Inaba Denkisangyo (Industrial) 5,396,346
458,000 Kokuyo Co., Ltd. (Office Equipment
Manufacturer) 9,594,787
149,000 Kyocera Corp. (Electronics) 8,749,887
358,000 Max Co. (Electronics and
Instrumentation) 5,432,966
238,900 Mirai Industry Co. (Electrical
Equipment Manufacturer) 5,852,060
1,927,000 Mitsubishi Heavy Industries Ltd.
(Engineering) 13,874,972
1,530,000 Mitsui Marine & Fire (Insurance) 8,215,019
450,100 Santen Pharmaceutical Co.
(Healthcare) 8,352,716
92,800 Sanyo Shinpan Financial
(Financial) 5,204,668
</TABLE>
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Statement of Investments
- -------------------------------------------------------------------------------
Goldman Sachs International Equity Fund (continued)
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Japanese Yen (continued)
322,000 Shimachu (Retail-Furniture) $ 6,905,027
213,900 SMC Corp. (Machinery) 13,125,622
410,000 Taikisha Ltd. (Machinery) 5,038,558
570,000 Takeda Chemical Industry
(Healthcare) 11,235,927
235,000 TDK Corp. (Consumer Goods) 15,040,620
464,000 Tostem Corp. (Construction) 10,906,842
146,800 York Benimaru (Retail) 3,922,900
- --------------------------------------------------------------------
171,057,916
- --------------------------------------------------------------------
Malaysian Ringgit--1.9%
1,328,000 Commerce Asset Holdings
(Commercial Banks) 10,683,829
581,000 Leader Universal Holdings
(Metals-Diversified) 1,168,544
- --------------------------------------------------------------------
11,852,373
- --------------------------------------------------------------------
Netherlands Guilder--5.0%
146,070 Aegon (Insurance) 8,951,011
136,180 Randstad Holdings (Business
Services) 9,471,458
102,016 Wolters Kluwer (Media) 12,602,793
- --------------------------------------------------------------------
31,025,262
- --------------------------------------------------------------------
Singapore Dollar--1.5%
1,511,000 Singapore Land (Real Estate) 9,123,100
- --------------------------------------------------------------------
Spanish Peseta--1.9%
63,595 Banco Popular (Commercial Banks) 11,571,494
- --------------------------------------------------------------------
Swedish Krona--7.0%
335,300 Ericsson Telecommunications
(Computer - Office) 11,255,719
268,440 Hoganas AB (Metal Products) 8,455,037
405,970 Securitas AB (Business Services) 12,057,737
3,469,100 Swedish Match AB (Tobacco) 11,741,304
- --------------------------------------------------------------------
43,509,797
- --------------------------------------------------------------------
Swiss Franc--6.8%
52,468 Adecco SA (Business Services) 14,753,971
6,726 Cie Financier Richemont AG
(Consumer Goods) 9,231,858
16,335 Novartis AG (Healthcare) 18,730,002
- --------------------------------------------------------------------
42,715,831
- --------------------------------------------------------------------
Total Common Stocks
(Cost $503,926,410) $ 571,088,085
====================================================================
Preferred Stock--2.4%
- --------------------------------------------------------------------
Deutsche Mark--2.4%
74,790 Fresenius AG (Health Care),
Non-voting $ 15,042,126
- --------------------------------------------------------------------
Total Preferred Stock
(Cost $4,437,079) $ 15,042,126
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Short-Term Obligations--6.6%
- --------------------------------------------------------------------
$ 41,394,109 State Street Bank & Trust
Euro-Time Deposit 5.5%, 02/03/97** $ 41,394,109
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $41,394,109) $ 41,394,109
====================================================================
Total Investments
(Cost $549,757,598)/(a)/ $ 627,524,320
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $108,968,495
Gross unrealized loss for investments in
which cost exceeds value (31,533,818)
- --------------------------------------------------------------------
Net unrealized gain $ 77,434,677
====================================================================
</TABLE>
/(a)/ The aggregate cost for federal income tax purposes is $550,089,643.
* Non-income producing security.
** A portion of this security has been segregated for extended
settlement securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an intergral part of these financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------
Common and Preferred Stock Industry Concentrations
====================================================================
<S> <C>
Business Services 7.8%
Commercial Banks 12.4%
Computer Software and Services 2.0%
Computer - Office 1.8%
Construction 1.7%
Consumer Goods 3.9%
Electrical Equipment Manufacturer 0.9%
Electronics 5.3%
Electronics and Instrumentation 3.2%
Engineering 2.2%
Financial 0.8%
Financial Services 2.2%
Health Care 10.9%
Industrial 0.9%
Insurance 2.7%
Machinery 2.9%
Machinery and Engineering Services 1.3%
Media 2.0%
Metal Products 1.4%
Metals-Diversified 0.2%
Office Equipment Manufacturer 3.9%
Oil & Gas 1.8%
Real Estate 3.6%
Retail 3.3%
Retail-Furniture 1.1%
Telecommunications 1.5%
Textiles 2.4%
Tobacco 2.3%
Transportation 1.9%
Utilities 3.6%
Wholesale Trade 2.0%
- --------------------------------------------------------------------
Total Common and Preferred Stock 93.9%
====================================================================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
- --------------------------------------------------------------------
47
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------------------
Objective and Investment Approach
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets, including China, Hong Kong, India, Indonesia, Malaysia, Pakistan,
the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its
price-to-book value and the predictability of its earnings stream as among the
best measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers and
competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell a
position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in one country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
Market Overview: Results Were Mixed in Asian Markets
As a group, the Asian stock markets rose 2.37% during the period, as
measured by the MSCI All Country Asia Free (Ex Japan) Index (without dividends
reinvested). The weak performance indicated by the Index masks the wide
divergence of performance among the individual Asian markets, as several
countries rose more than 10% while others fell more than 20%. The period under
review began on a strong note, but the region quickly sold off in mid-February
when investors became unnerved by rising political tension between China and
Taiwan. Though the Asian markets briefly rebounded, investor interest was
dampened again during the spring and summer due to uncertainty surrounding
national elections in several countries, a decline in exports and slowing
economic growth. From October 1996 through January 1997, most Asian markets
recovered due to improving corporate earnings and signs of stabilizing export
growth.
In terms of individual markets, Taiwan, Malaysia and Indonesia were the
strongest performers, rising 56.0%, 21.9% and 17.5%, respectively (in U.S.
dollar terms), with each overcoming brief setbacks such as negative short-term
economic data and political upheaval. Other positive markets were India, which
was the region's strongest performer during the first half of the year and
subsequently gave back some of its gains, and the Philippines, where healthy
economic growth and declining inflation renewed investor interest. Hong Kong,
the most heavily weighted country in the Index, posted lackluster results early
in the period, then rebounded to close the period with a 12.0% gain due to a
favorable interest rate environment and a soaring property market. The weakest
performer was Thailand, which dropped 46.5%. Thailand was impacted by a very
large budget deficit, exacerbated by the slowdown of computer-related exports as
well as a tear in the speculative bubble in the real estate market, as
nonperforming property loans caused problems in the banking sector. South Korea
and Singapore were weak as well, declining approximately 34% and 7%,
respectively. South Korean equities were affected by an ongoing investigation of
government corruption and a weakening economy, and Singapore's market fell due
to soft electronics exports.
- --------------------------------------------------------------------------------
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Performance Review: Country Allocations Affected the Fund's Performance
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Fund Total MSCI AC
Return Asia Free
(based on net (Ex Japan)
asset value) Index +
------------ -----
<S> <C> <C>
Class A (1/31/96 - 1/31/97)* -1.01% 2.37%
Class B (5/1/96 - 1/31/97)* -6.02% -2.50%
Institutional (2/2/96 - 1/31/97)* -1.09% 2.06%
- -------------------------------------------------------------------
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Class B and Institutional shares is a cumulative total
return (not annualized) from their inception through the end of the period.
+ Represents a price-only index that does not reflect reinvested dividends.
During the period under review, stock selection benefited the fund as a
number of holdings achieved strong returns. The fund's performance was
nonetheless affected by its country over- and underweightings relative to the
Index when individual markets performed better or worse than expected. For
example, Taiwan and Malaysia were two of the region's best performing markets,
but the fund was underweighted in those countries and therefore did not fully
participate in their rallies.
Financial, Property and Infrastructure Stocks Were the Strongest Performers
The fund's best performers during the period were its positions in the
financial, real estate and infrastructure sectors. Top financial stocks included
two of our Hong Kong investments, HSBC Holdings PLC, one of the world's largest
banking and financial services companies, and Wing Hang Bank Ltd., a provider of
banking, foreign exchange and treasury services, which both benefited from
strong growth in mortgage loans resulting from Hong Kong's robust property
market. Metropolitan Bank and Trust, the Philippines' largest bank in terms of
assets, rose substantially due to the growing Philippine economy and aggressive
branch expansion, and Commerce Asset-Holdings, the fifth largest financial group
in Malaysia, benefited from its merchant banking operations and strong loan
growth.
In the real estate sector, Hong Kong's booming property market buoyed
several of the fund's holdings. These included Sun Hung Kai Properties, one of
the largest and best managed property companies in Hong Kong; Henderson Land
Development, a large property development and investment holding company that
concentrates on mass residential developments; and HKR International Ltd., a
real estate developer that primarily focuses on residential development in
Discovery Bay on Lantau Island (a self-contained community that offers a
"quality lifestyle").
Other strong performers were two Malaysian companies that benefited from
the government's commitment to improve the country's infrastructure. Road
Builder Malaysia Holdings, a contractor specializing in civil engineering and
road construction, continued its strategic expansion and diversification, and
United Engineers Malaysia, Malaysia's largest builder and operator of toll
roads, rose due to the opening of several new roads.
Stocks that did not fulfill our expectations included Leader Universal
Holdings, Malaysia's leading manufacturer of power and telecommunication cable,
which reported lower than expected earnings due to very low export margins;
Industrial Finance Corp. of Thailand (IFCT), which declined in sympathy with
Thailand's financial sector; and Tata Engineering and Locomotive Company
(TELCO), India's largest vehicle manufacturer, which slumped on speculation
concerning rising inventories and general market uncertainty. We significantly
reduced the fund's position in Leader Universal Holdings and IFCT, but we
continue to have confidence in TELCO, which has strong fundamentals and fared
well relative to the broader Indian market.
Portfolio Composition
As of January 31, 1997, 97.1% of the fund's total market value was
invested in equities while 2.2% was in cash equivalents, with the remainder in
other securities. The fund's five largest country exposures were Hong Kong
(39.9%), Malaysia (13.5%), Singapore (10.1%), India (9.9%) and Indonesia (5.2%).
At the end of the period, the portfolio was overweighted relative to the Index
in Hong Kong, India and South Korea, slightly underweighted in
- --------------------------------------------------------------------------------
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
- --------------------------------------------------------------------------------
the Philippines, and significantly underweighted in Thailand, Singapore,
Malaysia and Taiwan.
Additions in Real Estate and Security Services, Reductions in Several Existing
Positions
During the period, we added Hysan Development Company, a property
investment company that owns a number of commercial and residential properties
in Hong Kong and should be a beneficiary of rising rental prices, and
Taiwan-Sogo Shinkong, a security services company that controls approximately
38% of the market in Taiwan and is expected to experience growing demand from
residential clients. Other portfolio changes included the trimming of several
positions in Hong Kong after they appreciated significantly and became more
fully valued. These included Sun Hung Kai Properties, Henderson Land Development
and HKR International Ltd.
<TABLE>
<CAPTION>
Top 10 Portfolio Holdings as of January 31, 1997
Percentage
Line of of Total
Company Country Business Net Assets
<S> <C> <C> <C>
HKR International Hong Kong Property 4.4%
Ltd.
Road Builder Malaysia Infrastructure 4.1%
Malaysia Holdings
Swire Pacific Ltd. Hong Kong Conglomerate 4.1%
Metropolitan Bank Philippines Banking and 3.8%
and Trust Finance
Wing Hang Bank Hong Kong Banking and 3.9%
Ltd. Finance
Henderson Land Hong Kong Property 3.7%
Development
HSBC Holdings PLC Hong Kong Banking and 3.5%
Finance
Hutchison Hong Kong Conglomerate 3.5%
Whampoa
Sun Hung Kai Hong Kong Property 3.5%
Properties
Commerce Asset- Malaysia Conglomerate 3.5%
Holdings
</TABLE>
Outlook
In 1997, we expect export growth to strengthen, which should stimulate
economies throughout the region. With most of the region's elections now over,
the region should also benefit from greater political stability in 1997. Though
the recent death of Deng Xiaoping may increase near-term volatility, we remain
optimistic that the handover of Hong Kong to China will proceed smoothly, as it
is in China's best interests to maintain Hong Kong's current economic success.
We intend to increase the fund's weightings in Malaysia, the Philippines and
Indonesia, markets that we expect to benefit from stable currencies and good
economic fundamentals. In September 1996, the benchmark established a new
weighting in Taiwan and doubled its weighting in Korea, and we are actively
seeking investment opportunities in these countries. We continue to have a
favorable view of India but are still cautious regarding Thailand and Singapore,
where real estate overdevelopment may continue to hinder their respective
markets for the near term.
In general, we believe that Asian equities are attractively valued on a
historical basis. We expect that economic growth in the region may slow somewhat
to 5% to 7% annually, still approximately double versus the U.S., one of the
world's most mature economies. Over time, we intend to broaden our emphasis from
companies that tend to do well in the earliest stages of emerging economies to
companies that we believe are poised to benefit most from the region's internal
growth. These include new start-ups, consumer-related products and services, and
infrastructure companies.
On another front, we are pleased to announce that we have recently
expanded our portfolio management team. Our new team members will focus
primarily on real estate companies, conglomerates and cyclical industries, and
they will enhance our ability to seek out companies with above-average growth
potential.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We appreciate your continued support in what has been a challenging period
for the region and the fund. Going forward, we remain confident that the region
continues to offer many attractive investment opportunities for investors with a
long-term view.
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
March 3, 1997
- --------------------------------------------------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
January 31, 1997
- --------------------------------------------------------------------------------
The following graphs show the value, as of January 31, 1997, of a $10,000
investment made (with and without the maximum sales charge of 5.5% and
redemption charge of 5.0% for Class A and B, respectively) on the inception date
of each class. For comparative purposes, the performance of the Fund's benchmark
(the Morgan Stanley Capital International Combined Asia (ex Japan) Index ("MSCI
Combined Asia-ex Japan")) is shown for the appropriate time periods. All
performance data shown represents past performance and should not be considered
indicative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares, when
redeemed, to be worth more or less than their original cost.
Class A
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class A Class A MSCI
(w/sales charge) (no sales charge) Combined
---------------- ----------------- --------
<S> <C> <C> <C>
7/8/94 $ 9,450 $10,000 $10,000
1/31/95 8,934 9,454 9,074
1/31/96 11,300 11,958 11,129
1/31/97 11,186 11,837 11,393
</TABLE>
Class B
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth GS Asia Growth
Class B Class B MSCI
(w/redemp. charge) (no redemp. charge) Combined
------------------- ------------------ --------
<S> <C> <C> <C>
5/1/96 $10,000 $10,000 $10,000
1/31/97 9,398 8,928 9,750
</TABLE>
Institutional
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
GS Asia Growth MSCI
Institutional Combined
-------------- --------
<S> <C> <C>
2/2/96 $10,000 $10,000
1/31/97 9,891 10,206
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
Average Annual Total Return
----------------------------------------
One Year Since Inception/(a)/
- -------------------------------------------------------------------------
<S> <C> <C>
Class A, no sales charge (1.01)% 6.78%
- -------------------------------------------------------------------------
Class A, w/sales charge (6.44)% (4.46)%
- -------------------------------------------------------------------------
Class B, no redemption charge N/A (6.02)%/(b)/
- -------------------------------------------------------------------------
Class B, w/redemption charge N/A (10.72)%/(b)/
- -------------------------------------------------------------------------
Institutional Class N/A (1.09)%/(b)/
- -------------------------------------------------------------------------
</TABLE>
/(a)/ Class A, Class B and Institutional shares commenced operations July 8,
1994, May 1, 1996 and February 2, 1996, respectively.
/(b)/ An aggregate total return (not annualized) is shown instead of an average
annual total return since these classes have not completed a full twelve
months of operations.
- --------------------------------------------------------------------------------
52
<PAGE>
Statement of Investments
- --------------------------------------------------------------------
Goldman Sachs Asia Growth Fund
- --------------------------------------------------------------------
January 31, 1997
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
Common Stocks--96.0%
<S> <C> <C>
Hong Kong Dollar--39.9%
3,734,000 Asia Satellite Tel.*
(Telecommunications) $ 8,312,234
1,107,000 Henderson Land Development Co.
(Recreational Services) 10,250,000
7,947,440 HKR International Ltd.
(Real Estate) 12,358,582
2,731,000 Hong Kong Electric Holdings
(Utility) 9,709,517
426,000 HSBC Holdings
(Commercial Banks) 9,867,983
1,305,000 Hutchison Whampoa
(Conglomerates) 9,851,916
2,513,000 Hysan Development
(Utility) 9,145,257
9,735,666 JCG Holdings Ltd.
(Financial Services) 8,669,002
2,308,200 San Miguel Brewery Ltd.
(Breweries) 1,049,994
869,000 Sun Hung Kai Properties Co.
(Real Estate) 9,812,556
1,262,000 Swire Pacific Ltd. "A"
(Transportation) 11,603,755
2,316,500 Wing Hang Bank Ltd.
(Financial Services) 11,030,952
- --------------------------------------------------------------------
111,661,748
- --------------------------------------------------------------------
Indian Rupee--9.9%
235,000 Brook Bond Lipton India Ltd.
(Food) 2,438,494
372,900 Colgate Palmolive
(Conglomerates) 2,613,421
259,600 Hindustan Lever Ltd.
(Household Products) 6,423,018
10,000 Larsen & Toubro Ltd.
(Engineering) 65,272
143,500 Larsen & Toubro Ltd. GDR
(Engineering) 1,919,313
214,000 Larsen & Toubro LTD. GDS
(Engineering) 2,862,250
434,250 Mahindra & Mahindra Ltd.
(Autos and Trucks) 4,339,472
165,750 Mahindra & Mahindra GDR
(Autos and Trucks) 1,895,351
4,000 Niit Limited
(Computers) 32,022
80,000 Tata Engineering & Locomotive Ltd.
GDR (Engineering) 786,000
446,600 Tata Engineering & Locomotive Ltd.
GDS (Engineering) 4,387,845
- --------------------------------------------------------------------
27,762,458
- --------------------------------------------------------------------
Indonesian Rupiah--5.2%
2,374,750 Indofoods Sukses Makmur - Foreign
(Food) 5,245,031
2,346,000 PT Bank of Bali - Foreign
(Banking) 5,675,011
2,613,000 PT Jaya Real Property - Foreign
(Real Estate) 3,627,640
- --------------------------------------------------------------------
14,547,682
- --------------------------------------------------------------------
Malaysian Ringgit--13.2%
1,217,000 Commerce Asset Holdings
(Conglomerates) 9,790,829
623,000 Leader Universal Holdings
(Electronics) 1,253,017
1,936,000 Road Builder Malaysia Holdings
(Construction) 11,603,540
941,000 Tenaga National Berhad
(Utility) 4,504,385
1,081,000 United Engineers Malaysia Holdings
(Construction) 9,696,822
- --------------------------------------------------------------------
36,848,593
- --------------------------------------------------------------------
New Taiwan Dollar--2.5%
2,118,000 Taiwan Sogo Shinkong Securities
(Financial Services) 7,103,755
- --------------------------------------------------------------------
Philippine Peso--4.6%
18,189,000 Centennial City Inc.
(Real Estate) 2,208,911
- --------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Goldman Sachs Asia Growth Fund (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
====================================================================
<S> <C> <C>
Common Stocks (continued)
Philippine Peso (continued)
393,454 Metropolitan Bank and Trust
(Banking) $ 10,750,925
- --------------------------------------------------------------------
12,959,836
- --------------------------------------------------------------------
Singapore Dollar--9.9%
639,000 Overseas Union Bank - Foreign
(Banking) 5,174,457
1,149,000 Singapore Land
(Real Estate) 6,937,420
383,000 Singapore Press Holdings - Foreign
(Printing & Publishing) 7,671,970
2,195,000 Straits Steamship Land
(Conglomerates) 7,795,852
- --------------------------------------------------------------------
27,579,699
- --------------------------------------------------------------------
South Korean Won--3.8%
168,920 Korea Mobile Telecommunications
Corp. ADR* (Telecommunications) 2,512,685
4,759 Korea Mobile Telecommunications
Corp. (Telecommunications) 5,228,904
7,132 Samsung Fire & Marine Insurance
(Insurance) 2,982,743
- --------------------------------------------------------------------
10,724,332
- --------------------------------------------------------------------
Thai Baht--3.9%
723,800 Electricity Generating Public Co.
(Utility) 1,815,785
758,100 Electricity Generating Public Co.
Foreign(Utility) 1,843,315
1,989,000 Industrial Finance Corp - Foreign
(Financial Services) 5,220,069
425,000 Jasmine International Co. - Foreign
(Diversified) 602,808
1,617,500 Thai Telephone & Telecom Corp. -
Foreign (Telecommunications) 1,326,587
- --------------------------------------------------------------------
10,808,564
- --------------------------------------------------------------------
United States Dollar--3.1%
387,000 Korea Electric Power Corp. ADR*
(Utilities) 8,562,375
- --------------------------------------------------------------------
Total Common Stocks
(Cost $237,846,163) $268,559,042
====================================================================
Rights & Warrants*--0.3%
Singapore Dollar--0.2%
356,750 Straits Steamship Land, exp. 12/12/00
(Conglomerate)- warrants 494,149
Thai Baht--0.1%
808,750 Thai Telephone & Telecom Corp., exp.
03/07/97 (Telecommunications)-rights 351,155
- --------------------------------------------------------------------
Total Rights & Warrants
(Cost $287,980) $ 845,304
====================================================================
<CAPTION>
Principal
Amount Description Value
====================================================================
<S> <C> <C>
Corporate Bonds--0.3%
Malaysian Ringitt--0.3%
MYR United Engineers Malaysia
1,024,000 (Construction) 4.00%, 05/22/99 $ 848,528
- --------------------------------------------------------------------
Total Corporate Bonds
(Cost $521,580) $ 848,528
====================================================================
Short-Term Obligations--2.2%
$ 6,200,104 State Street Bank & Trust Euro-Time
Deposit, 5.50%, 02/03/97 $ 6,200,104
- --------------------------------------------------------------------
Total Short-Term Obligations
(Cost $6,200,104) $ 6,200,104
====================================================================
Total Investments
(Cost $244,855,827)/(a)/ $276,452,978
====================================================================
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost $ 45,982,425
Gross unrealized loss for investments in
which cost exceeds value (14,998,273)
====================================================================
Net unrealized gain $ 30,984,152
====================================================================
</TABLE>
* Non-income producing security.
/(a)/The aggregate cost for federal income tax purposes is $244,890,862.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Common Stock, Rights, Warrants, and Corporate Bond Industry
Concentrations
====================================================================
<S> <C>
Autos and Trucks 2.2%
Banking 7.8%
Breweries 0.4%
Commercial Banks 3.5%
Conglomerates 10.9%
Construction 7.9%
Diversified 0.2%
Electronics 0.4%
Engineering 3.6%
Financial Services 11.5%
Food 2.7%
Household Products 2.3%
Insurance 1.1%
Printing & Publishing 2.7%
Real Estate 12.5%
Recreational Services 3.7%
Telecommunications 6.3%
Transportation 4.1%
Utilities 12.8%
- --------------------------------------------------------------------
Total Common Stock, Rights, Warrants, and
Corporate Bonds 96.6%
====================================================================
</TABLE>
- --------------------------------------------------------------------------------
55
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Assets and Liabilities
January 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
Assets:
Investments in securities, at value (identified cost $80,718,346, $302,169,999,
$513,612,707, $679,366,240, $213,003,477, $549,757,598 and $244,855,827,
respectively) $89,222,318 $393,263,171
Cash, at value 13,884 9,802
Receivables:
Investment securities sold 3,947,652 --
Forward foreign currency exchange contracts 6,692 --
Fund shares sold 565,860 3,095,601
Dividends and interest, at value 451,554 387,080
Variation margin 10,928 95,387
Deferred organization expenses, net 36,173 --
Other assets 97,786 8,495
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 94,352,847 396,859,536
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 9,690,219 --
Forward foreign currency exchange contracts -- --
Fund shares repurchased 44,298 548,016
Amounts owed to affiliates 97,949 388,699
Covered securities sold short (cash received, $936,984) 938,808 --
Accrued expenses and other liabilities 61,446 89,126
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 10,832,720 1,025,841
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 73,750,866 300,246,199
Accumulated undistributed (distributions in excess of) net investment income 180,204 --
(loss)
Accumulated undistributed (distributions in excess of) net realized gain (loss)
on investment, option and futures transactions 977,487 4,402,524
Accumulated net realized foreign currency gain (loss) 12,575 --
Net unrealized gain on investments, options and futures 8,611,563 91,184,972
Net unrealized loss on translation of assets and liabilities denominated in
foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets $83,520,127 $395,833,695
===================================================================================================================================
<CAPTION>
Class A Class B Class A Class B
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Total shares of beneficial interest outstanding, $.001 par
value (100,000,000 and 25,000,000 shares authorized for
each Class A and B, respectively) 4,336,101 112,660 9,688,806 744,222
Net asset and Class A redemption value per share (a) $18.78 $18.73 $23.32 $23.18
Maximum public offering price per share (Class A NAV x
1.0582) $19.87 $18.73 $24.68 $23.18
Institutional Service Institutional Service
------------ -------------- ------------- ------------
Total shares of beneficial interest outstanding, $.001 par
value (50,000,000 shares per each class authorized) -- -- 6,351,958 157,464
Net asset value, offering and redemption price per share -- -- $23.44 $23.27
===============================================================================================================================
(a) At redemption, Class B shares are subject to a contingent deferred sales charge assessed on the amount equal to the lesser
of the current net asset value or the original purchase price of the shares.
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap Equity International Equity Asia Growth
Fund Fund Fund Fund Fund
==================================================================================================================================
<S> <C> <C> <C> <C>
$638,954,258 $932,041,765 $217,608,994 $627,524,320 $276,452,978
59,158 94,994 30,728 1,735,366 1,060,177
1,632,491 1,390,277 4,392,159 959,642 3,093,623
-- -- -- 2,684,757 --
4,847,992 1,524,356 820,288 4,794,141 685,136
572,159 706,624 85,173 440,308 262,880
-- -- -- -- --
19,321 -- 13,467 14,573 77,113
14,043 16,281 2,597 10,188 770
- ----------------------------------------------------------------------------------------------------------------------------------
646,099,422 935,774,297 222,953,406 638,163,295 281,632,677
- ----------------------------------------------------------------------------------------------------------------------------------
9,130,091 9,797,231 6,585,828 8,912,558 --
-- -- -- 3,434,535 1,495
414,917 850,523 165,072 198,616 694,794
716,432 1,160,456 345,810 833,473 400,444
-- -- -- -- --
21,990 99,060 121,890 255,084 846,340
- ----------------------------------------------------------------------------------------------------------------------------------
10,283,430 11,907,270 7,218,600 13,634,266 1,943,073
- ----------------------------------------------------------------------------------------------------------------------------------
492,994,560 657,200,330 203,743,684 542,859,953 266,426,371
(193,256) (275,552) -- (25,666) (1,316,323)
17,673,137 14,266,724 7,385,605 2,530,732 (16,027,669)
-- -- -- (917,847) (411,919)
125,341,551 252,675,525 4,605,517 112,491,393 33,014,375
-- -- -- (32,409,536) (1,995,231)
- ----------------------------------------------------------------------------------------------------------------------------------
$635,815,992 $923,867,027 $215,734,806 $624,529,029 $279,689,604
==================================================================================================================================
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
- ------------- ---------- ------------- ---------- ------------ ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
26,534,286 751,089 55,021,724 193,240 10,140,493 176,544 27,765,580 997,807 16,122,122 206,387
$23.18 $23.10 $16.73 $16.67 $20.91 $20.80 $19.32 $19.24 $16.31 $16.24
$24.53 $23.10 $17.70 $16.67 $22.13 $20.80 $20.44 $19.24 $17.26 $16.24
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service
- ------------- ---------- ------------- ---------- ------------- ------------ ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8,321 136,977 -- -- -- -- 3,524,169 34,830 815,499 --
$23.19 $23.17 -- -- -- -- $19.40 $19.34 $16.33 --
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
57
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended January 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===================================
<S> <C> <C>
Investment income:
Dividends /(a)/ $ 838,092 $ 5,629,026
Interest /(b)/ 2,107,288 541,011
- ----------------------------------------------------------------------------------------------------------------------------------
Total income 2,945,380 6,170,037
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 309,372 1,413,035
Administration fees 92,811 706,517
Distribution fees 157,253 468,965
Authorized dealer service fees 154,686 444,626
Custodian fees 93,352 95,947
Transfer agent fees 148,576 319,246
Professional Fees 71,598 74,319
Amortization of deferred organization expenses 13,468 9,549
Director fees 1,171 2,728
Other 53,077 96,414
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,095,364 3,631,346
Less--expenses reimbursed and fees waived by Goldman Sachs (472,758) (626,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 622,606 3,005,158
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2,322,774 3,164,879
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 3,811,127 14,386,845
Options written (2,680) --
Futures transactions 148,013 645,873
Foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on:
Investments 5,008,557 49,393,370
Futures 14,475 67,175
Translation of assets and liabilities denominated in foreign currencies (12,568) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign currency
transactions 8,979,499 64,493,263
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 11,302,273 $ 67,658,142
==================================================================================================================================
</TABLE>
/(a)/ For the Balanced, Select Equity, Growth and Income, Capital Growth, Small
Cap Equity, International Equity and Asia Growth Funds, taxes withheld on
dividends were $1,496, $42,274, $23,285, $53,869, $4,211, $900,877 and
$372,334, respectively.
/(b)/ For the Balanced Fund, taxes withheld on interest were $969.
/(c)/ Certain expenses reflected in the above statement of operations are
incurred on a class specific basis.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------
Goldman Sachs Goldman Sachs
Growth and Income Capital Growth
Fund Fund
<S> ========================================
Investment income: <C> <C>
Dividends /(a)/ $ 13,008,785 $ 14,748,431
Interest /(b)/ 1,235,823 2,802,840
- ---------------------------------------------------------------------------------------------------------------------------------
Total income 14,244,608 17,551,271
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 2,782,464 6,522,949
Administration fees 758,854 2,174,316
Distribution fees 1,280,332 2,179,405
Authorized dealer service fees 1,261,615 2,174,316
Custodian fees 102,394 129,556
Transfer agent fees 871,030 908,310
Professional Fees 75,891 74,529
Amortization of deferred organization expenses 19,164 --
Director fees 6,744 13,973
Other 144,279 208,397
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 7,302,767 14,385,751
Less--expenses reimbursed and fees waived by Goldman Sachs (1,113,014) (2,171,272)
- ----------------------------------------------------------------------------------------------------------------------------------
Net expenses 6,189,753 12,213,979
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 8,054,855 5,337,292
- ----------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 58,221,421 53,687,297
Options written (37,206) --
Futures transactions 45,994 --
Foreign currency related transactions -- --
Net change in unrealized gain (loss) on:
Investments 67,575,111 145,350,120
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign curren
transactions 125,805,320 199,037,417
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $133,860,175 $204,374,709
====================================================================================================================================
<CAPTION>
-------------------------------------------
Goldman Sachs Goldman Sachs
Small Cap Equity International Equity
Fund Fund
<S> ===========================================
Investment income: <C> <C>
Dividends /(a)/ $ 968,945 $ 5,944,299
Interest /(b)/ 896,528 1,533,039
- ------------------------------------------------------------------------------------------------------------------------------------
Total income 1,865,473 7,477,338
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,598,027 3,478,689
Administration fees 532,676 1,159,514
Distribution fees 538,657 1,115,919
Authorized dealer service fees 532,676 1,086,488
Custodian fees 63,636 786,004
Transfer agent fees 511,883 586,243
Professional Fees 72,844 84,162
Amortization of deferred organization expenses 18,742 17,603
Director fees 3,842 5,519
Other 73,764 229,722
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,946,747 8,549,863
Less--expenses reimbursed and fees waived by Goldman Sachs (529,684) (829,788)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,417,063 7,720,075
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (1,551,590) (242,737)
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions 29,166,218 16,714,697
Options written (398,365) --
Futures transactions -- --
Foreign currency related transactions -- 146,694
Net change in unrealized gain (loss) on:
Investments 22,913,571 60,236,901
Futures -- --
Translation of assets and liabilities denominated in foreign currencies -- (28,245,657)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions 51,681,424 48,852,635
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $50,129,834 $48,609,898
====================================================================================================================================
<CAPTION>
-----------------
Goldman Sachs
Asia Growth
Fund
<S> ==================
Investment income: <C>
Dividends /(a)/ $ 4,216,521
Interest /(b)/ 716,243
- -----------------------------------------------------------------------------------------------------------
Total income 4,932,764
- -----------------------------------------------------------------------------------------------------------
Expenses: /(c)/
Investment advisory fees 1,937,658
Administration fees 645,897
Distribution fees 636,953
Authorized dealer service fees 630,134
Custodian fees 499,487
Transfer agent fees 385,114
Professional Fees 84,316
Amortization of deferred organization expenses 31,711
Director fees 3,496
Other 51,032
- -----------------------------------------------------------------------------------------------------------
Total expenses 4,905,798
Less--expenses reimbursed and fees waived by Goldman Sachs (511,880)
- -----------------------------------------------------------------------------------------------------------
Net expenses 4,393,918
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss) 538,846
- -----------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions (7,294,240)
Options written --
Futures transactions (141,910)
Foreign currency related transactions (1,099,538)
Net change in unrealized gain (loss) on:
Investments 5,823,115
Futures --
Translation of assets and liabilities denominated in foreign currencies (599,549)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment, option, futures and foreign
currency transactions (3,312,122)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,773,276)
===========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
59
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs
Balanced Select Equity
Fund Fund
===============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment, option and futures transactions 3,956,460 15,032,718
Net realized gain (loss) on foreign currency related transactions 12,575 --
Net change in unrealized gain (loss) on investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (12,568) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 11,302,273 67,658,142
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
-----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 27,303,030 149,961,461
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
Net assets:
Beginning of year 50,928,007 193,874,478
===================================================================================================================================
End of year $ 83,520,127 $ 395,833,695
===================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 180,204 $ --
===================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Equity Portfolios, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs
Statements of Changes in Net Assets Growth and Income Capital Growth Small Cap
For the Year Ended January 31, 1997 Fund Fund Equity Fund
====================================================
<S> <C> <C> <C>
From operations:
Net investment income (loss) $ 8,054,855 $ 5,337,292 $ (1,551,590
Net realized gain (loss) on investment, option and futures transactions 58,230,209 53,687,297 28,767,853
Net realized gain (loss) on foreign currency related transactions -- -- --
Net change in unrealized gain (loss) on investments, options and futures 67,575,111 145,350,120 22,913,571
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 133,860,175 204,374,709 50,129,834
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (8,111,894) (5,948,617) --
Class B shares (5,818) -- --
Institutional shares (494) -- --
Service shares (11,500) -- --
In excess of net investment income
Class A shares (135,533) (258,749) --
Class B shares (48,273) (12,838) --
Institutional shares (380) --
Service shares (9,070) -- --
From net realized gain on investment, option and futures transactions
Class A shares (46,442,616) (91,862,169) (10,210,264)
Class B shares (754,312) (179,327) (149,626)
Institutional shares (9,971) -- --
Service shares (255,610) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (55,785,471) (98,261,700) (10,359,890)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 140,362,846 76,008,897 56,119,213
Reinvestment of dividends and distributions 53,352,809 90,088,874 9,876,571
Cost of shares repurchased (72,730,939) (229,399,817) (95,024,895)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 120,984,716 (63,302,046) (29,029,111)
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase 199,059,420 42,810,963 10,740,833
Net Asssets:
Beginning of Year 436,756,572 881,056,064 204,993,973
==================================================================================================================================
End of Year $635,815,992 $923,867,027 $ 215,734,806
==================================================================================================================================
Accumulated distributed (distributions in excess investment income) $ (193,256) $ (275,552) $ --
==================================================================================================================================
<CAPTION>
-----------------------------------------------------
Statements of Changes in Net Assets Goldman Sachs Goldman Sachs
For the Year Ended January 31, 1997 International Asia Growth
Equity Fund Fund
====================================================
<S> <C> <C>
From operations:
Net investment income (loss) $ (242,737) $ 538,846
Net realized gain (loss) on investment, option and futures transactions 16,714,697 (7,436,150)
Net realized gain (loss) on foreign currency related transactions 146,694 (1,099,538)
Net change in unrealized gain (loss) on investments, options and futures 60,236,901 5,823,115
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies (28,245,657) (599,549)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 48,609,898 (2,773,276)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares -- (206,784)
Class B shares -- --
Institutional shares (106,712) --
Service shares -- --
In excess of net investment income
Class A shares -- --
Class B shares -- (5,064)
Institutional shares -- (83,075)
Service shares -- --
From net realized gain on investment, option and futures transactions
Class A shares (5,358,559) --
Class B shares (159,717) --
Institutional shares (689,171) --
Service shares (3,947) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,318,106) (294,923)
- ------------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 321,475,961 144,448,826
Reinvestment of dividends and distributions 5,481,492 221,279
Cost of shares repurchased (75,580,037) (67,451,011)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 251,377,416 77,219,094
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase
Net assets: 293,669,208 74,150,895
Beginning of year 330,859,821 205,538,709
===================================================================================================================================
End of year $624,529,029 $279,689,604
====================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ (25,666) $ (1,316,323)
===================================================================================================================================
</TABLE>
61
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sach
Balanced Select Equity
Fund Fund
==============================================
<S> <C> <C>
From operations:
Net investment income (loss) $ 1,083,645 $ 1,518,160
Net realized gain (loss) on investment, option and futures transactions 1,715,887 4,687,943
Net realized gain on foreign currency related transactions -- --
Net change in unrealized gain on investments, options and futures 3,518,420 37,068,509
Net change in unrealized loss on translation of assets and liabilities
denominated in foreign currencies -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,317,952 43,274,612
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (991,655) (1,610,216)
In excess of net investment income -- --
From net realized gain on investment, option and futures transactions (962,754) (3,527,188)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,954,409) (5,137,404)
- ----------------------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales of shares 41,736,040 102,149,318
Reinvestment of dividends and distributions 1,802,563 4,880,575
Cost of shares repurchased (4,483,707) (46,260,132)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 39,054,896 60,769,761
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 43,418,439 98,906,969
Net assets:
Beginning of year 7,509,568 94,967,509
==================================================================================================================================
End of year $ 50,928,007 $ 193,874,478
==================================================================================================================================
Accumulated undistributed (distributions in excess of) net investment income $ 125,304 $ 86,854
==================================================================================================================================
Summary of share transactions:
===================================================================================================================================
<CAPTION>
Class A Class A Institutional
-------------- -------------- --------------
<S> <C> <C> <C>
Shares sold 2,578,356 2,479,285 3,220,915
Reinvestment of dividends and distributions 108,023 161,481 97,993
Shares repurchased (271,753) (2,578,247) (30,492)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding 2,414,626 62,519 3,288,416
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Capital Growth Small Cap International Asia Growth
Fund Fund Equity Fund Equity Fund Fund
=================================================================================================================================
<S> <C> <C> <C> <C>
$ 5,307,925 $ 6,032,534 $ (1,717,759) $ 725,369 $ 1,643,482
18,815,320 188,790,639 (5,033,599) (8,757,936) (5,766,395)
-- -- -- 21,213,851 416,433
58,081,439 53,559,848 30,594,034 69,834,990 42,480,420
-- -- -- (12,612,130) (1,710,833)
- --------------------------------------------------------------------------------------------------------------------------------
82,204,684 248,383,021 23,842,676 70,404,144 37,063,107
- ---------------------------------------------------------------------------------------------------------------------------------
(5,300,032) (6,289,354) -- (9,491,864) (1,787,451)
-- -- -- -- (1,657,672)
(11,998,907) (139,713,660) (161,357) (14,089,155) --
- ---------------------------------------------------------------------------------------------------------------------------------
(17,298,939) (146,003,014) (161,357) (23,581,019) (3,445,123)
- ---------------------------------------------------------------------------------------------------------------------------------
199,623,973 144,529,476 56,891,181 85,900,104 88,560,430
16,219,024 131,979,456 149,801 21,651,092 2,951,847
(37,764,413) (359,937,680) (195,215,538) (98,600,969) (43,889,831)
- ---------------------------------------------------------------------------------------------------------------------------------
178,078,584 (83,428,748) (138,174,556) 8,950,227 47,622,446
- ---------------------------------------------------------------------------------------------------------------------------------
242,984,329 18,951,259 (114,493,237) 55,773,352 81,240,430
193,772,243 862,104,805 319,487,210 275,086,469 124,298,279
=================================================================================================================================
$436,756,572 $ 881,056,064 $ 204,993,973 $ 330,859,821 $ 205,538,709
=================================================================================================================================
$ 56,087 $ 607,360 $ -- $ 227,683 $ (1,630,536)
=================================================================================================================================
Class A Class A Class A Class A Class A
------------- --------------- --------------- -------------- --------------
10,766,604 9,130,715 3,285,739 5,082,572 5,830,049
848,870 9,145,811 8,585 1,286,112 197,978
(2,027,335) (22,215,374) (11,228,873) (6,067,690) (2,898,305)
- ---------------------------------------------------------------------------------------------------------------------------------
9,588,139 (3,938,848) (7,934,549) 300,994 3,129,722
=================================================================================================================================
- -------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
63
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements
January 31, 1997
- --------------------------------------------------------------------------------
1. Organization
Goldman Sachs Equity Portfolios, Inc. (the "Company") is a Maryland corporation
registered under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. Included in this report are the
financial statements for the Goldman Sachs Balanced Fund ("Balanced Fund"),
Goldman Sachs Select Equity Fund ("Select Equity Fund"), Goldman Sachs Growth
and Income Fund ("Growth and Income Fund"), Goldman Sachs Capital Growth Fund
("Capital Growth Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap Equity
Fund"), Goldman Sachs International Equity Fund ("International Equity Fund")
and Goldman Sachs Asia Growth Fund ("Asia Growth Fund"), collectively, "the
Funds." The Select Equity, Growth and Income, International Equity and Asia
Growth Funds offer four classes of shares - Class A, Class B, Institutional and
Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares - Class A and Class B.
2. Significant Accounting Policies
The following is a summary of the significant accounting policies consistently
followed by the Company. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
- ------------------------
Investments in securities traded on a U.S. or foreign securities exchange or the
NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked price, and securities traded on a foreign exchange
will be valued at the official bid price. Unlisted equity and debt securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices. Debt securities are valued at prices supplied
by an independent pricing service, which reflect broker/dealer-supplied
valuations and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued at
fair value using methods approved by the Board of Directors of the Company.
B. Securities Transactions and Investment Income
- -------------------------------------------------
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value of the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums.
In addition, it is the Funds' policy to accrue for estimated capital gains taxes
on foreign securities held by the Funds subject to such taxes.
C. Mortgage Dollar Rolls
- -------------------------
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund sells
securities in the current month for delivery and simultaneously contracts with
the same counterparty to repurchase similar (same type, coupon and maturity) but
not identical securities on a specified future date. For financial reporting and
tax reporting purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale.
D. Foreign Currency Translations
- ---------------------------------
The books and records of the Company are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; (ii) purchases and sales of
foreign investments,
- --------------------------------------------------------------------------------
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
income and expenses are converted into U.S. dollars based on currency exchange
rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and holdings
of foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
E. Forward Foreign Currency Exchange Contracts
- -----------------------------------------------
Certain of the Funds are authorized to enter into forward foreign currency
exchange contracts for the purchase of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The International Equity and Asia Growth
Funds may enter into such contracts to seek to increase total return. All
commitments are "marked-to-market" daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded in the funds' financial
statements. The Funds record realized gains or losses at the time the forward
contract is offset by entry into a closing transaction or extinguished by
delivery of the currency. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
F. Short Securities Positions
- ------------------------------
The Funds (other than the Select Equity Fund) may enter into covered short
sales. Short securities positions are accounted for at cost and subsequently
marked to market to reflect the current market value of the position. The market
value of the short position is recorded as a liability on the fund's records and
any difference between this market value and cash received is reported as
unrealized gain or loss. Gains and losses are realized when a short
- --------------------------------------------------------------------------------
position is closed out by delivering securities back to the broker.
At January 31, 1997, the Balanced Fund had the following covered short positions
open:
- -------------------------------------------------------------------------------
Short Position
Issuer Par Value Market Value
- --------------------------- --------------- --------------------
FNMA TBA 15-Year $900,000 $938,808
- -------------------------------------------------------------------------------
G. Federal Taxes
- -----------------
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their investment company taxable income and capital gains
to their shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
- ----------------------------------
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
I. Expenses
- ------------
Expenses incurred by the Company which do not specifically relate to an
individual fund of the Company are allocated to the Funds based on each Fund's
relative
- --------------------------------------------------------------------------------
65
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
average net assets for the period.
Class A and Class B shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses which
are directly attributable to such shares. Each class of Shares separately bears
their respective class-specific transfer agency fees. Service Shares separately
bear a service fee.
J. Option Accounting Principles
- --------------------------------
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When a written call option is exercised, the funds
realize a gain or loss from the sale of the underlying security, and the
proceeds of the sale are increased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the funds purchase upon exercise.
There is a risk of loss from a change in value of such options which may exceed
the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds
the premium paid is recorded as an investment and subsequently marked-to-market
to reflect the current market value of the option. If an option which the Funds
have purchased expires on the stipulated expiration date, the funds will realize
a loss in the amount of the cost of the option. If the funds enter into a
closing sale transaction, the funds will realize a gain or loss, depending on
whether the sale proceeds from the closing sale transaction are greater or less
than the cost of the option. If the Funds exercise a purchased put option, the
funds will realize a gain or loss from the sale of the underlying security, and
the proceeds from such sale will be decreased by the premium originally paid. If
the Funds exercise a purchased call option, the cost of the security which the
funds purchase upon exercise will be increased by the premium originally paid.
K. Futures Contracts
- ---------------------
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The Select Equity Fund may enter into such transactions
only with respect to the S&P 500 Index. A Fund will engage in futures
transactions only for bona fide hedging purposes as defined in regulations of
the CFTC or to seek to increase total return (except with respect to
transactions by the Balanced, Growth and Income, Select Equity, Capital Growth
and Small Cap Equity Funds, in futures on foreign currencies) to the extent
permitted by such regulations. The use of futures contracts involve, to varying
degrees, elements of market risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities.
Upon entering into a futures contract, the Funds are required to deposit
with a broker an amount of cash or securities equal to the minimum "initial
margin" requirement of the futures exchange on which the contract is traded.
Subsequent payments ("variation margin") are made or received by the Funds each
day, dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss equal
to the difference between the value of the futures contract to sell and the
futures contract to buy. Futures contracts are valued at the most recent price,
unless such price does not reflect the fair market value of the contract, in
which case the position will be valued using methods approved by the Board of
Directors of the Company.
Certain risks may arise upon entering into futures contracts. The
predominant risk is that the changes in the value of the futures contract may
not directly correlate with changes in the value of the underlying securities.
This risk may decrease the effectiveness of the Funds'
- --------------------------------------------------------------------------------
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
hedging strategies and may also result in a loss to the Funds.
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser to the
Balanced, Growth and Income, Small Cap Equity and International Equity Funds;
Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs,
acts as investment adviser to the Select Equity and Capital Growth Funds; and
Goldman Sachs Asset Management International ("GSAM International") acts as
investment adviser to the Asia Growth Fund and subadviser to the International
Equity Fund. Under the Investment Advisory and Subadvisory Agreements, GSAM,
GSFM and GSAM International (the "Investment Advisors"), subject to the general
supervision of the Company's Board of Directors, manage the Company's
portfolios. As compensation for the services rendered under the Investment
Advisory Agreements and the assumption of the expenses related thereto, GSAM is
entitled to a fee, computed daily and payable monthly, at an annual rate equal
to .50%, .55%, .75% and .25% of the average daily net assets of the Balanced,
Growth and Income, Small Cap Equity and International Equity Funds,
respectively. GSFM is entitled to a fee of .50% and .75% of the average daily
net assets of the Select Equity and Capital Growth Funds, respectively. GSAM
International is entitled to an advisory fee for the Asia Growth Fund and a
subadvisory fee for the International Equity Fund of .75% and .50% of the
average daily net assets for those funds, respectively.
GSAM also acts as the Funds' administrator pursuant to Administration
Agreements. Under these Administration Agreements, GSAM administers the Funds'
business affairs, including providing facilities. As compensation for the
services rendered pursuant to the Administration Agreements, GSAM is entitled to
a fee of .15% of the average daily net assets of the Balanced and Growth and
Income Funds, and .25% of the average daily net assets of the Select Equity,
Capital Growth, Small Cap Equity, International Equity and Asia Growth Funds.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, Select Equity, Growth and Income, International
Equity and Asia Growth Funds (excluding advisory, administration, service,
distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced Fund, transfer agent fees) until
further notice to the extent such expenses exceed .10%, .06%, .11%, .20% and
..24% of the average daily net assets of the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
salesload and Class B back-end salesload imposed and has advised the Company
that it retained approximately $94,000, $380,000, $555,000, $323,000, $219,000,
$1,563,000 and $1,397,000 during the year ended January 31, 1997 for the
Balanced, Select Equity, Growth and Income, Capital Growth, Small Cap Equity,
International Equity and Asia Growth Funds, respectively.
The Company, on behalf of each Fund, has adopted a Distribution Plan (the
"Distribution Plan") pursuant to Rule 12b-1. Under the Distribution Plan,
Goldman Sachs is entitled to a quarterly fee from each Fund for distribution
services equal, on an annual basis, to .25% and .75% of a Fund's average daily
net assets attributable to Class A and Class B shares, respectively.
The Company, on behalf of each Fund, has adopted an Authorized Dealer
Service Plan (the "Service Plan") pursuant to which Goldman Sachs and Authorized
Dealers are compensated for providing personal and account maintenance services.
Each Fund pays a fee under its Service Plan equal, on an annual basis, to .25%
of its average daily net assets attributable to Class A and Class B shares.
Goldman Sachs also serves as the Transfer Agent of the funds for a fee.
For the year ended January 31, 1997, the Advisors, Administrator and
Distributor have voluntarily agreed to waive certain fees and reimburse other
expenses as follows (in thousands):
- --------------------------------------------------------------------------------
67
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Waivers
------- Reimburse-
Admin- Class A Reimburse- ment
Fund Adviser istrator 12b-1 ment Outstanding
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ -- $ -- $ 153 $ 320 $ 88
Select Equity 170 282 69 105 3
Growth and
Income -- -- 1,113 -- --
Capital
Growth -- -- 2,171 -- --
Small Cap
Equity -- -- 530 -- --
International
Equity 50 464 171 145 --
Asia Growth 103 259 100 50 --
</TABLE>
The Investment Advisors, Administrator and Distributor may discontinue or
modify such waivers and limitations in the future at their discretion.
At January 31, 1997, the amounts owed to affiliates were as follows(in
thousands):
<TABLE>
<CAPTION>
Authorized
Admin- Distri- Dealer Transfer
Fund Adviser istrator butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balanced $ 33 $ 10 $ 2 $ 15 $ 38 $ 98
Select Equity 143 49 56 57 84 389
Growth and
Income 284 78 28 119 207 716
Capital
Growth 568 190 2 190 210 1,160
Small Cap
Equity 134 45 2 45 120 346
International
Equity 391 78 105 116 143 833
Asia Growth 171 36 50 53 90 400
</TABLE>
4. Portfolio Securities Transactions
Purchases and proceeds of sales or maturities of securities (excluding
short-term investments, futures and options) for the year ended January 31,
1997, were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- --------- --------------- -------------
<S> <C> <C>
Balanced $146,297,709 $123,056,708
Select Equity 242,635,637 102,479,847
Growth and Income 330,177,173 256,802,366
Capital Growth 436,178,218 569,122,643
Small Cap Equity 202,036,820 256,627,457
International Equity 400,682,323 166,164,906
Asia Growth 192,125,629 118,802,040
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$99,727,748 and $91,845,598, respectively.
For the year ended January 31, 1997, written put option transactions in the
Balanced Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 32 5,416
Options repurchased (32) (5,416)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
For the year ended January 31, 1997, written call option transactions in the
Growth and Income Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 438 73,608
Options repurchased (438) (73,608)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended January 31, 1997, written put option transactions in the
Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- ---------------------- ------------- -------------
<S> <C> <C>
Balance outstanding at
beginning of year 0 $ 0
Options written 2,100 575,871
Options expired (9) (2,026)
Options exercised (1,091) (238,096)
Options repurchased (1,000) (335,749)
--------------- ---------------
Balance outstanding,
end of year 0 $ 0
=============== ===============
</TABLE>
Certain risks arise related to call and put options from the possible
inability of counterparties to meet the terms of their contracts.
At January 31, 1997, the Balanced Fund had the following outstanding forward
foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain
- --------------------------------------------------------------------
<S> <C> <C> <C>
Australian Dollar
expiring 3/14/97 $777,277 $770,585 $6,692
- --------------------------------------------------------------------
Total Foreign
Currency Sale
Contracts $777,277 $770,585 $6,692
- --------------------------------------------------------------------
</TABLE>
At January 31, 1997, the International Equity Fund had the following
outstanding forward foreign currency exchange contracts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Sale Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Swiss Franc
expiring 4/28/97 $39,343,000 $39,665,062 $ (322,062)
Deutsche Mark
expiring 2/27/97 22,305,725 22,183,180 122,545
Hong Kong Dollar
expiring 8/8/97 38,565,981 38,530,005 35,976
Japanese Yen
expiring 4/24/97 122,316,352 119,792,909 2,523,443
- --------------------------------------------------------------------
Total Foreign Currency
Sale Contracts $222,531,058 $220,171,156 $2,359,902
- --------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Foreign Currency Value on Unrealized
Purchase Contracts Settlement Date Current Value Gain (Loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Hong Kong Dollar
expiring 2/3/97 $35,454 $35,454 $--
- --------------------------------------------------------------------
Total Foreign Currency
Purchase Contracts $35,454 $35,454 $--
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At January 31,
1997, the Balanced and International Equity Fund's had sufficient cash and
securities to cover any commitments under these contracts.
The Balanced and International Equity Funds have recorded a "Receivable for
forward foreign currency exchange contracts" and "Payable for forward foreign
currency exchange contracts" resulting from open and closed but not settled
forward foreign currency exchange contracts of $6,692 and $0, and $2,684,757 and
$3,434,535, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$2,793 and $3,112,473, respectively, related to forward contracts closed but not
settled as of January 31, 1997.
For the year ended January 31, 1997, Goldman Sachs earned approximately
$5,000, $78,000, $304,000, $36,000, $11,000 and $66,000 of brokerage commissions
from portfolio transactions executed on behalf of the Balanced, Growth and
Income, Capital Growth, Small Cap Equity, International Equity and Asia Growth
Funds, respectively.
5. Repurchase Agreements
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
- --------------------------------------------------------------------------------
69
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
6. Joint Repurchase Agreement Account
The Funds, together with other registered investment companies having advisory
agreements with GSAM or GSFM, transfer uninvested cash balances into joint
accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At January 31, 1997, the Balanced,
Select Equity, Growth and Income, Capital Growth and Small Cap Equity Funds had
undivided interests in the repurchase agreements in the following joint account
which equaled $9,200,000, $3,600,000, $26,800,000, $18,300,000 and $16,600,000,
respectively, in principal amount. At January 31, 1997, the repurchase
agreements held in this joint account, along with the corresponding underlying
securities (including the type of security, market value, interest rate and
maturity date) were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------
Bear Stearns Securities, Inc., dated 01/31/97, repurchase
price $800,375,333 (GNMA: $26,604,837, 7.50%, 10/15/26;
FNMA: $720,411,516, 5.50%-8.00%, 02/01/09-09/01/26;
FHLMC: $77,372,676, 6.00%-8.00%, 04/01/98-07/01/26)
<S> <C> <C> <C>
$800,000,000 5.63% 02/03/97 $ 800,000,000
<CAPTION>
Nomura Securities, Inc. dated 01/31/97, repurchase price
$100,047,083 (GNMA: $102,007,864, 5.50%-10.25%
01/15/20-01/20/27)
<S> <C> <C> <C>
100,000,000 5.65 02/03/97 100,000,000
<CAPTION>
Lehman Government Securities, dated 01/31/97, repurchase
price $201,894,173 (U.S. Treasury Notes: $191,656,654,
6.38%, 01/15/00-08/15/02; U.S. Treasury Stripped
Securities: $14,095,535, 05/15/02-11/15/03)
<S> <C> <C> <C>
201,800,000 5.60 02/03/97 201,800,000
</TABLE>
- --------------------------------------------------------------------
Total Joint Repurchase Agreement Account $ 1,101,800,000
- --------------------------------------------------------------------
7. Line of Credit Facility
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line of
credit facility. In addition, the Funds, except the Select Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the year ended January 31, 1997,
the Funds did not have any borrowings under these facilities.
8. Transactions With Affiliated Companies
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the year ended January 31, 1997 which are considered to be
affiliates of Small Cap Equity are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
American Safety
Razor $ -- $5,751 $ 289 $ -- $ --
- --------------------------------------------------------------------
Alpine Lace
Brands, Inc. 7,790 -- -- -- 2,341
- --------------------------------------------------------------------
APS Holding
Corp. 10,305 654 290 -- 7,869
- --------------------------------------------------------------------
J. Baker, Inc. 1,591 1,349 (1,090) 60 7,565
- --------------------------------------------------------------------
Black Box, Inc. -- 23,013 14,149 -- --
- --------------------------------------------------------------------
Brookstone, Inc. -- 2,722 (758) -- 5,939
- --------------------------------------------------------------------
Congoleum Corp. -- 2,323 (102) -- 3,156
- --------------------------------------------------------------------
Hollinger
International
Corp. -- 10,903 (1,311) 112 --
- --------------------------------------------------------------------
International Post
Ltd. -- 2,215 (3,933) -- 1,729
- --------------------------------------------------------------------
Morningstar
Group Inc. -- 12,216 6,346 -- --
- --------------------------------------------------------------------
Mortons
Restaurant
Group, Inc. -- 4,106 1,625 -- 6,439
- --------------------------------------------------------------------
Opinion Research
Corp. -- -- -- -- 2,022
- --------------------------------------------------------------------
Pegasus
Communications
Corp. 3,697 -- -- -- 3,224
- --------------------------------------------------------------------
Platinum
Entertainment
Corp. 3,354 -- -- -- 2,675
- --------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
70
<PAGE>
9. Other Matters
As of January 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 14% of the
outstanding shares of the Select Equity Fund.
10. Certain Reclassifications
In accordance with Statement of Position 93-2, the Balanced, Select Equity,
Growth and Income, International Equity and Asia Growth Funds have reclassified
$13,068, $9,549, $18,764, $302,042 and $31,712, respectively, from paid-in
capital to accumulated undistributed net investment income. Additionally, the
Small Cap Equity Fund has reclassified $1,532,848 from accumulated net realized
gains on investments to accumulated net investment loss and $18,742 from paid-in
capital to accumulated net investment loss. The Select Equity Fund reclassified
$40,540 from accumulated net realized gains on investments to distributions in
excess of net investment income. The International Equity Fund and the Asia
Growth Fund have reclassified $205,942 and $338,857 from accumulated net
realized foreign currency loss to distributions in excess of net investment
income, respectively. The Asia Growth Fund also reclassified $377,435 from
accumulated net realized gains on investments to distributions in excess of net
investment income. These reclassifications have no impact on the net asset value
of the Funds and are designed to present the Funds' capital accounts on a tax
basis.
71
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
January 31, 1997
- --------------------------------------------------------------------------------
11. Summary of Share Transactions
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Growth and Income Fund
- ------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 1,529,469 $27,172,279 3,862,697 $81,642,386 5,616,082 $121,074,992
Reinvestment of dividends
and distributions 310,437 5,598,883 370,586 8,175,333 2,390,917 52,287,188
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) (3,328,038) (72,163,062)
-------------------------------------------------------------------------------------
1,393,371 25,237,890 3,124,081 65,994,573 4,678,961 101,199,118
-------------------------------------------------------------------------------------
Class B shares
Shares sold 109,171 2,001,768 733,802 15,946,016 729,877 16,222,639
Reinvestment of dividends
and distributions 5,284 95,768 24,314 535,407 35,976 787,421
Shares repurchased (1,795) (32,396) (13,894) (310,118) (14,764) (340,546)
-------------------------------------------------------------------------------------
112,660 2,065,140 744,222 16,171,305 751,089 16,669,514
-------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,151,881 66,277,175 8,228 186,173
Reinvestment of dividends
and distributions -- -- 275,197 6,102,331 92 2,020
Shares repurchased -- -- (363,536) (7,991,198) -- --
-------------------------------------------------------------------------------------
-- -- 3,063,542 64,388,308 8,321 188,193
-------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 154,590 3,344,141 134,652 2,879,042
Reinvestment of dividends
and distributions -- -- 4,126 91,166 12,587 276,180
Shares repurchased -- -- (1,252) (28,032) (10,262) (227,331)
-------------------------------------------------------------------------------------
-- -- 157,464 3,407,275 136,977 2,927,891
-------------------------------------------------------------------------------------
Net increase (decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 5,575,348 $120,984,716
=====================================================================================
<CAPTION>
Capital Growth Fund
- -------------------------------------------------------
Shares Dollars
--------------------------
<S> <C> <C>
Class A shares
Shares sold 4,677,047 $73,029,007
Reinvestment of dividends
and distributions 5,870,272 89,898,521
Shares repurchased (14,635,348) (229,277,58)
----------------------------
(4,088,029) (66,350,058)
----------------------------
Class B shares
Shares sold 188,331 2,979,890
Reinvestment of dividends
and distributions 12,408 190,353
Shares repurchased (7,499) (122,231)
----------------------------
193,240 3,048,012
----------------------------
Institutional shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
----------------------------
Service shares
Shares sold -- --
Reinvestment of dividends
and distributions -- --
Shares repurchased -- --
----------------------------
-- --
----------------------------
Net increase (decrease) in
shares (3,894,789) $(63,302,046)
============================
</TABLE>
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- ----------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares
Shares sold 2,508,268 $52,353,524 12,103,239 $230,847,197 7,588,351 $124,281,405
Reinvestment of dividends
and distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
------------------------------------------------------------------------------------
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
------------------------------------------------------------------------------------
Class B shares
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of dividends
and distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
------------------------------------------------------------------------------------
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
------------------------------------------------------------------------------------
Institutional shares
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of dividends
and distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
------------------------------------------------------------------------------------
-- -- 3,524,169 68,046,277 815,499 13,114,475
------------------------------------------------------------------------------------
Service shares
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of dividends
and distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
------------------------------------------------------------------------------------
-- -- 34,830 676,729 -- --
------------------------------------------------------------------------------------
Net increase (decrease) in
shares (1,537,835) $(29,029,111) 13,081,265 $251,377,416 4,676,292 $77,219,094
=====================================================================================
<CAPTION>
Share activity for the year ended January 31, 1996 is as follows:
Select Equity Fund
- -------------------------------------------------------------
Shares Dollars
------------- ---------------
<S> <C> <C>
Class A shares
Shares sold 2,479,285 $44,569,920
Reinvestment of dividends and 161,481
distributions 3,032,597
Shares repurchased (2,578,247) (45,692,944)
------------- ---------------
62,519 1,909,573
------------- ---------------
Institutional shares
Shares sold 3,220,915 57,579,398
Reinvestment of dividends and
distributions 97,993 1,847,978
Shares repurchased (30,492) (567,188)
------------- ----------------
3,288,416 $58,860,188
------------- ----------------
Net increase 3,350,935 $60,769,761
============= ================
</TABLE>
- --------------------------------------------------------------------------------
73
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/h/ shareholders
------------------------------- ------------------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
-----------------------------------------------------------------------------------------
BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $17.31 $0.66 $2.47 $(0.66) $(1.00) --
1997 - Class B Shares/b/............. 17.46 0.42 2.34 (0.42) (1.00) (0.07)
1996 - Class A Shares................ 14.22 0.51 3.43 (0.50) (0.35) --
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 14.18 0.10 0.02 (0.08) -- --
<CAPTION>
Net asset
Net increase value, Portfolio Average
in net end of Total turnover commission
asset value period return/a/ rate rate/g/
---------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $1.47 $18.78 18.59% 208.11/f/ $.0587
1997 - Class B Shares(b)............. 1.27 18.73 16.22/c/ 208.11/f/ .0587
1996 - Class A Shares................ 3.09 17.31 28.10 197.10/f/ --
For the Period Ended January 31,
- -------------------------------------
1995 - Class A Shares/d/............. 0.04 14.22 0.87/c/ 14.71/c/ --
<CAPTION>
Ratio assuming no
voluntary waiver of fees
or expense limitations
-------------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
end of expenses to income to expenses to income (loss)
period average net average net average to average
(in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................ $81,410 1.00% 3.76% 1.77% 2.99%
1997 - Class B Shares/b/............. 2,110 1.75/e/ 2.59/e/ 2.27/e/ 2.07/e/
1996 - Class A Shares................ 50,928 1.00 3.65 1.90 2.75
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/d/............. 7,510 1.00/e/ 3.39/e/ 8.29/e/ (3.90)/e/
</TABLE>
- --------------------------
/a/ Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/b/ For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/c/ Not annualized.
/d/ For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
/e/ Annualized.
/f/ Includes the effect of mortgage dollar roll transactions.
/g/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/h/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
(The accompanying notes are an integral part of these financial statements.)
74
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from Distributions to
investment operations/(h)/ shareholders
========================== ====================================
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess
value, Net investments, net investment of net
beginning investment options and investment and futures investment
of period income futures income transactions income
============================================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
==============================
1997 - Class A Shares ........................ 19.66 $0.16 $4.46 $(0.16) $(0.80) --
1997 - Class B Shares/(f)/.................... 20.44 0.04 3.70 (0.04) (0.80) (0.16)
1997 - Institutional Shares .................. 19.71 0.30 4.51 (0.28) (0.80) --
1997 - Service Shares/(f)/.................... 21.02 0.13 3.15 (0.13) (0.80) (0.10)
1996 - Class A Shares ........................ 14.61 0.19 5.43 (0.16) (0.41) --
1996 - Institutional Shares/(d)/.............. 16.97 0.16 3.23 (0.24) (0.41) --
1995 - Class A Shares ........................ 15.93 0.20 (0.38) (0.20) (0.94) --
1994 - Class A Shares ........................ 15.46 0.17 2.08 (0.17) (1.61) --
1993 - Class A Shares ........................ 15.05 0.22 0.41 (0.22) -- --
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 14.17 0.11 0.88 (0.11) -- --
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Net Net
increase asset assets
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(g)/ (in 000s)
======================================================================
SELECT EQUITY FUND
- ------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares .............. $3.66 $23.32 23.75% 37.28% $.0417 $225,968
1997 - Class B Shares/(f)/.......... 2.74 23.18 18.59/(b)/ 37.28 .0417 17,258
1997 - Institutional Shares ........ 3.73 23.44 24.63 37.28 .0417 148,942
1997 - Service Shares/(f)/.......... 2.25 23.27 15.92/(b)/ 37.28 .0417 3,666
1996 - Class A Shares .............. 5.05 19.66 38.63 39.35 -- 129,045
1996 - Institutional Shares/(d)/.... 2.74 19.71 20.14/(b)/ 39.35/(b)/ -- 64,829
1995 - Class A Shares .............. (1.32) 14.61 (1.10) 56.18 -- 94,968
1994 - Class A Shares .............. 0.47 15.93 15.12 87.73 -- 92,769
1993 - Class A Shares .............. 0.41 15.46 4.30 144.93 -- 117,757
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/............ 0.88 15.05 7.01/(b)/ 135.02(c) -- 151,142
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses income to expenses to income
to average average net average to average
assets assets net assets net assets
==================================================
SELECT EQUITY FUND
- -----------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares ........................ 1.29% 0.91% 1.53% 0.67%
1997 - Class B Shares/(f)/.................... 1.83/(c)/ 0.06/(c)/ 2.00/(c)/ (0.11)/(c)/
1997 - Institutional Shares .................. 0.65 1.52 0.85 1.32
1997 - Service Shares/(f)/.................... 1.15/(c)/ 0.69/(c)/ 1.35/(c)/ 0.49/(c)/
1996 - Class A Shares ........................ 1.25 1.01 1.55 0.71
1996 - Institutional Shares/(d)/.............. 0.65/(c)/ 1.49/(c)/ 0.96/(c)/ 1.18/(c)/
1995 - Class A Shares ........................ 1.38 1.33 1.63 1.08
1994 - Class A Shares ........................ 1.42 0.92 1.67 0.67
1993 - Class A Shares ........................ 1.28 1.30 1.53 1.05
For the Period Ended January 31,
================================
1992 - Class A Shares/(e)/.................... 1.57/(c)/ 1.24/(c)/ 1.82/(c)/ 0.99/(c)/
</TABLE>
- --------------
/(a)/ Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales or redemption charges. Total return would be reduced if
a sales or redemption charge were taken into account.
/(b)/ Not annualized.
/(c)/ Annualized.
/(d)/ For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
/(e)/ For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
/(f)/ For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
/(g)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/ Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment
operations/(h)/ Distributions to shareholders
====================== =====================================
Net
realized
and From net
Net unrealized realized
asset gain(loss) gain In Net
value, on on excess Increase
beginning Net investments From net investment of net Additional in net
of investment and investment and option investment paid-in asset
period income options income transactions income capital value
===============================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $19.98 $0.35 $5.18 $(0.35) $(1.97) $ (0.01) $ -- $3.20
1997 - Class B Shares/(f)/ ........ 20.82 0.17 4.31 (0.17) (1.97) (0.06) -- 2.28
1997 - Institutional Shares/(f)/ .. 21.25 0.29 3.96 (0.30) (1.97) (0.04) -- 1.94
1997 - Service Shares/(f)/ ........ 20.71 0.28 4.50 (0.28) (1.97) (0.07) -- 2.46
1996 - Class A Shares ............. 15.80 0.33 4.75 (0.30) (0.60) -- -- 4.18
1995 - Class A Shares ............. 15.79 0.20/(b)/ 0.30/(b)/ (0.20) (0.33) (0.07) 0.11/(b)/ 0.01
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 14.18 0.15 1.68 (0.15) (0.06) (0.01) -- 1.61
</TABLE>
<TABLE>
<CAPTION>
Ratio of Ratio of
Net net net
Net assets expenses investment
asset at to income to
value Total Portfolio Average end of average average
end of return turnover commission period net net
period /(a)/ rate rate/(g)/ (in 000s) assets assets
===================================================================================
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $23.18 28.42% 53.03% $.0586 $615,103 1.22% 1.60%
1997 - Class B Shares/(f)/ ........ 23.10 22.23/(d)/ 53.03 .0586 17,346 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 23.19 20.77/(d)/ 53.03 .0586 193 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 23.17 23.87/(d)/ 53.03 .0586 3,174 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 19.98 32.45 57.93 -- 436,757 1.20 1.67
1995 - Class A Shares ............. 15.80 3.97 71.80 -- 193,772 1.25 1.28
<CAPTION>
For the Period Ended January 31,
==================================
<S> <C> <C> <C> <C> <C> <C> <C>
1994 - Class A Shares/(c)/......... 15.79 13.08/(d)/102.23/(d)/ -- 41,528 1.25/(e)/ 1.23/(e)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
=================================
Ratio of
Ratio of net investment
expenses income (loss)
to average to average
net assets net assets
=================================
GROWTH AND INCOME FUND
- -----------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C>
1997 - Class A Shares ............. 1.43% 1.39%
1997 - Class B Shares/(f/) ........ 1.93/(e)/ 0.15/(e)/
1997 - Institutional Shares/(f)/ .. 0.82/(e)/ 1.36/(e)/
1997 - Service Shares/(f)/ ........ 1.32/(e)/ 0.94/(e)/
1996 - Class A Shares ............. 1.45 1.42
1995 - Class A Shares ............. 1.58 0.95
<CAPTION>
For the Period Ended January 31,
==================================
<S>
1994 - Class A Shares/(c)/......... 3.24/(e)/ (0.76)/(e)/
</TABLE>
- ----------------------------------
/(a)/Assumes investment at the net asset v alue at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/Calculated based on the average shares outstanding methodology.
/(c)/For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For the period from March 6, May 1 and June 3, 1996 (commencement of
operations) to January 31, 1997 for Service, Class B and Institutional
shares, respectively.
/(g)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(h)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations/(g)/ Distributions to shareholders
=========================== =============================================
Net realized
and unrealized From net
Net asset gain (loss) on realized gain In excess
value, Net investments, From net on investments, of net
beginning investment options and investment options investment
of period income futures income and futures income
=======================================================================================
CAPITAL GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $14.91 $0.10 $3.56 $ (0.10) $ (1.72) $(0.02)
1997 - Class B Shares(b)................. 15.67 0.01 2.81 (0.01) (1.72) (0.09)
1996 - Class A Shares.................... 13.67 0.12 3.93 (0.12) (2.69) --
1995 - Class A Shares.................... 15.96 0.03 (0.69) (0.01) (1.62) --
1994 - Class A Shares.................... 14.64 0.02 2.40 (0.01) (1.07) (0.02)
1993 - Class A Shares.................... 13.65 0.06 2.28 (0.07) (1.28) --
1992 - Class A Shares.................... 11.10 0.28 2.90 (0.31) (0.32) --
For the Period Ended January 31,
================================
1991 - Class A Shares/(c)/............... 11.34 0.34 (0.27) (0.31) -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Net increase Net asset assets at
(decrease) value, Portfolio Average end of
in net end of Total turnover commission period
asset value period return/(a)/ rate rate/(f)/ (in 000s)
=======================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares.................... $1.82 $16.73 25.97% 52.92% $.0563 $920,646
1997 - Class B Shares(b)................. 1.00 16.67 19.39/(d)/ 52.92 .0563 3,221
1996 - Class A Shares.................... 1.24 14.91 30.45 63.90 -- 881,056
1995 - Class A Shares.................... (2.29) 13.67 (4.38) 38.36 -- 862,105
1994 - Class A Shares.................... 1.32 15.96 16.89 36.12 -- 833,682
1993 - Class A Shares.................... 0.99 14.64 18.01 58.93 -- 665,976
1992 - Class A Shares.................... 2.55 13.65 29.31 48.93 -- 500,307
For the Period Ended January 31,
================================
1991 - Class A Shares(c)................. (0.24) 11.10 0.84/(d)/ 35.63/(d)/ -- 437,533
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
=============================
Ratio of Ratio of net Ratio of net
net investment Ratio of investment
expenses to income (loss) to expenses to income (loss)
average net average average to average
assets net assets net assets net assets
====================================================================
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
==============================
<S> <C> <C> <C> <C>
1997 - Class A Shares.................... 1.40% 0.62% 1.65% 0.37%
1997 - Class B Shares/(b)/................. 2.15/(e)/ (0.39)/(e)/ 2.15/(e)/ (0.39)/(e)/
1996 - Class A Shares.................... 1.36 0.65 1.61 0.40
1995 - Class A Shares.................... 1.38 0.16 1.63 (0.09)
1994 - Class A Shares.................... 1.38 0.13 1.63 (0.12)
1993 - Class A Shares.................... 1.41 0.42 1.66 0.17
1992 - Class A Shares.................... 1.53 2.09 1.78 1.84
For the Period Ended January 31,
- --------------------------------
1991 - Class A Shares/(c)/............... 1.27/(d)/ 3.24/(d)/ 1.47/(d)/ 3.04/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to
January 31, 1997.
/(c)/For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations/(g)/ shareholders
=========================== =======================================
From In excess
net of
Net realized realized realized Net
and unrealized gain on gains on increase
Net asset Net gain (loss) on From investment, investment (decrease)
value, investment investments, net option and option and in net
beginning income options and investment futures futures asset
of period (loss) futures income transactions transactions value
==============================================================================================
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $17.29 $(0.21) $4.92 $ - $(1.09) $ - $3.62
1997 - Class B Shares/(b)/......... 20.79 (0.11) 1.21 - (1.09) - 0.01
1996 - Class A Shares ............. 16.14 (0.23) 1.39 - (0.01) - 1.15
1995 - Class A Shares ............. 20.67 (0.07) (3.53) - (0.69) (0.24) (4.53)
1994 - Class A Shares ............. 16.68 (0.04) 5.03 - (1.00) - 3.99
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 14.18 0.03 2.50 (0.03) - - 2.50
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Net asset Net assets
value, Portfolio Average at end of
end of Total turnover commission period
period return/(a)/ rate rate/(f)/ (in 000s)
================================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares ............. $20.91 27.28% 99.46% $.0461 $212,061
1997 - Class B Shares/(b)/......... 20.80 5.39/(d)/ 99.46 .0461 3,674
1996 - Class A Shares ............. 17.29 7.20 57.58 - 204,994
1995 - Class A Shares ............. 16.14 (17.53) 43.67 - 319,487
1994 - Class A Shares ............. 20.67 30.13 56.81 - 261,074
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 16.68 17.86/(d)/ 7.12/( e)/ - 59,339
<CAPTION>
- ---------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
Ratio of ===========================
Ratio of net Ratio of
net investment Ratio of net
expenses income expenses investment
to average (loss) to to average loss to
net average net net average net
assets assets assets assets
=======================================================
SMALL CAP EQUITY FUND
- ---------------------------------------------------------------------------------------------
For the Year Ended January 31,
===================================
<S> <C> <C> <C> <C>
1997 - Class A Shares ............. 1.60% (0.72)% 1.85% (0.97)%
1997 - Class B Shares/(b)/......... 2.35/(e)/ (1.63)/(e)/ 2.35/(e)/ (1.63)/(e)/
1996 - Class A Shares ............. 1.41 (0.59) 1.66 (0.84)
1995 - Class A Shares ............. 1.53 (0.53) 1.78 (0.78)
1994 - Class A Shares ............. 1.60 (0.45) 1.85 (0.70)
For the Period Ended January 31,
===================================
1993 - Class A Shares/(c)/......... 1.65/(e)/ 0.62/(e)/ 2.70/(e)/ (0.43)/(e)/
- ------------------
</TABLE>
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from May 1, 1996 (commencement of operations) to January 31,
1997.
/(c)/For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
/(d)/Not annualized.
/(e)/Annualized.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions
investment operations/(g)/ to shareholders
================================================= ==============================
Net Net realized From net
realized and unrealized realized
and unrealized gain (loss) gain on
Net asset gain (loss) on on foreign From investment,
value, Net investments, currency net option and
beginning investment options related investment futures
of period income (loss) and futures transactions income transactions
============================================================================================
INTERNATIONAL EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
=====================================
1997 - Class A Shares............... $17.20 $0.10 $3.51 $(1.28) $ -- $(0.21)
1997 - Class B Shares/(e)/.......... 18.91 (0.06) 0.94 (0.34) -- (0.21)
1997 - Institutional Shares/(e)/.... 17.45 0.04 3.39 (1.24) (0.03) (0.21)
1997 - Service Shares/(e)/.......... 17.70 (0.02) 2.95 (1.08) -- (0.21)
1996 - Class A Shares .............. 14.52 0.13 2.58 1.42 (0.58) (0.87)
1995 - Class A Shares............... 18.10 0.06 (3.04) (0.01) -- (0.59)
1994 - Class A Shares............... 14.35 0.05 4.08 (0.38) -- --
For the Period Ended January 31,
=====================================
1993 - Class A Shares/(b)/.......... 14.18 (0.01) 0.29 (0.11) -- --
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Net
increase Net asset
(decrease) value, Portfolio Average Net assets at
in net asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (in 000s)
==================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... $ 2.12 $19.32 13.48% 38.01% $.0318 $536,283
1997 - Class B Shares/(e)/.............. 0.33 19.24 2.83/(c)/ 38.01 .0318 19,198
1997 - Institutional Shares/(e)/........ 1.95 19.40 12.53/(c)/ 38.01 .0318 68,374
1997 - Service Shares/(e)/.............. 1.64 19.34 10.42/(c)/ 38.01 .0318 674
1996 - Class A Shares .................. 2.68 17.20 28.68 68.48 -- 330,860
1995 - Class A Shares................... (3.58) 14.52 (16.65) 84.54 -- 275,086
1994 - Class A Shares................... 3.75 18.10 26.13 60.04 -- 269,091
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 0.17 14.35 1.23/(c)/ 0.00 -- 66,063
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees or
expense limitations
===============================
Ratio of net Ratio of
Ratio of investment net investment
net income Ratio of income
expenses to (loss) to expenses (loss)
average net average net to average to average
assets assets net assets net assets
=============================================================
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended January 31,
========================================
1997 - Class A Shares................... 1.69% (0.07)% 1.88% (0.26)%
1997 - Class B Shares/(e)/.............. 2.23/(d)/ (0.97)/(d)/ 2.38/(d)/ (1.12)/(d)/
1997 - Institutional Shares/(e)/........ 1.10/(d)/ 0.43/(d)/ 1.25/(d)/ 0.28/(d)/
1997 - Service Shares/(e)/.............. 1.60/(d)/ (0.40)/(d)/ 1.75/(d)/ (0.55)/(d)/
1996 - Class A Shares .................. 1.52 0.26 1.77 0.01
1995 - Class A Shares................... 1.73 0.40 1.98 0.15
1994 - Class A Shares................... 1.76 0.51 2.01 0.26
For the Period Ended January 31,
========================================
1993 - Class A Shares/(b)/.............. 1.80/(d)/ (0.42)/(d)/ 2.58/(d)/ (1.20)/(d)/
</TABLE>
- --------------------------
/(a)/Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
/(b)/For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
/(c)/Not annualized.
/(d)/Annualized.
/(e)/For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
/(f)/For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
/(g)/Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Equity Portfolios, Inc.
- --------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) Distributions to
from investment operations /(g)/ shareholders
--------------------------------------------- ------------------------------
Net
realized and
unrealized
Net Net gain on
asset Net realized and foreign
value, investment unrealized currency From net In excess
beginning income gain(loss) on related investment of net investment
of period (loss) investments transactions income income
----------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $16.49 $ 0.06 $(0.11) $(0.12) $(0.01) $ --
1997 - Class B Shares/(e)/................ 17.31 (0.05) (0.48) (0.51) -- (0.03)
1997 - Institutional Shares/(e)/.......... 16.61 0.04 (0.11) (0.11) (0.04) (0.06)
1996 - Class A Shares..................... 13.31 0.17 3.44 (0.12) (0.17) (0.14)
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ 14.18 0.11 (0.89) 0.01 (0.10) --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Net
increase Net
(decrease) asset
in net value, Portfolio Average Net assets at
asset end of Total turnover commission end of period
value period return/(a)/ rate rate/(f)/ (000s)
------------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 - Class A Shares..................... $(0.18) $16.31 (1.01)% 48.40% $.0151 $263,014
1997 - Class B Shares/(e)/................ (1.07) 16.24 (6.02)/(c)/ 48.40 .0151 3,354
1997 - Institutional Shares/(e)/.......... (0.28) 16.33 (1.09)/(c)/ 48.40 .0151 13,322
1996 - Class A Shares..................... 3.18 16.49 26.49 88.80 -- 205,539
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/................ (0.87) 13.31 (5.46)/(c)/ 36.08/(c)/ -- 124,298
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio Ratio Ratio
of net of net Ratio of of net
expenses to investment expenses investment
Net assets at average income(loss) to average income(loss)
end of period net to average net to average
(000s) assets net assets assets net assets
-------------------------------------------------------------------------------
ASIA GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 - Class A Shares................................ $263,014 1.67% 0.20% 1.87% 0.00%
1997 - Class B Shares/(e)/........................... 3,354 2.21/(d)/ (0.56)/(d)/ 2.37/(d)/ (0.72)/(d)/
1997 - Institutional Shares/(e)/..................... 13,322 1.10/(d)/ 0.54/(d)/ 1.26/(d)/ 0.38/(d)/
1996 - Class A Shares................................ 205,539 1.77 1.05 2.02 0.80
For the Period Ended January 31,
- --------------------------------
1995 - Class A Shares/(b)/........................... 124,298 1.90/(d)/ 1.83/(d)/ 2.38/(d)/ 1.35/(d)/
</TABLE>
- --------------------------
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January 31,
1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of operations)
to January 31, 1997 for Institutional and Class B shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate on security transactions on which
commissions are charged. This rate may vary due to various types of
transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the
Goldman Sachs Equity Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Equity Portfolios, Inc. (a Maryland Corporation), comprising the
Balanced Fund, Select Equity Fund, Growth and Income Fund, Capital Growth Fund,
Small Cap Equity Fund, International Equity Fund and Asia Growth Fund, including
the statements of investments, as of January 31, 1997 and the related statements
of operations, the statements of changes in net assets and the financial
highlights for each of the periods presented. These financial statements and the
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Goldman Sachs Equity
Portfolios, Inc. as of January 31, 1997 the results of their operations and the
changes in their net assets and the financial highlights for the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1997
- --------------------------------------------------------------------------------
81
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------- ----------------------------------------
[This Page Intentionally Left Blank]
- -------------------------------------- ----------------------------------------
82
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Equity Portfolios, Inc.
Prospectus which contains facts concerning the Fund's objectives and policies,
management, expenses and other information.
- --------------------------------------------------------------------------------
83
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------- ---------------------------------------------
DEAR SHAREHOLDERS:
The U.S. stock market handsomely rewarded investors during the six-month
period ended July 31, 1997. Despite predictions that the rally's momentum would
falter following robust gains in 1995 and 1996, the market defied expectations
by continuing its dramatic push into previously unexplored heights. Investors
in most European markets also fared well, while the performance of several
Asian markets was dampened by regional issues.
U.S. STOCK MARKET REACHED RECORD LEVELS AS VOLATILITY INCREASED
The U.S. stock market soared during the period under review, achieving an
impressive 22.6% gain, as measured by the Standard & Poor's 500 stock index. As
was the case for much of last year, the market was led by "mega-cap" stocks,
the largest capitalization stocks in the index. To a significant extent, the
market's rally was attributable to highly favorable economic conditions: low
inflation, low unemployment, strong productivity gains and healthy profits. As
the market extended its advance, however, volatility increased. This trend was
particularly evident during the first half of the period, when stronger-than-
expected economic data prompted Federal Reserve policy makers to raise the
Federal funds rate by a quarter-percentage point in March to 5.50%. The Fed's
increase--its first since February 1995--fanned fears of a series of rate
hikes, and caused the market to sell off sharply from mid-March through mid-
April.
By the end of April, however, newly released data reassured investors that
the market-friendly environment remained intact: Moderating growth made further
rate hikes appear less likely, inflation remained subdued and most companies
continued to report strong earnings. These favorable factors helped the market
quickly recoup its losses and propelled indexes to record highs throughout the
latter half of the period. By mid-July, the Dow Jones Industrial Average closed
above 8000 for the first time, only five months after it hit the 7000
milestone.
ECONOMIC ACTIVITY MODERATED DURING THE SPRING, FOLLOWING A ROBUST FIRST QUARTER
Real GDP surged at a 4.9% annualized rate during the first quarter of 1997,
spurred by an upswing in consumer spending, rising factory output and buoyant
construction outlays. During the second quarter, however, real GDP eased to a
somewhat more moderate 3.6% growth rate (annualized), partly because a cool
spring impacted weather-sensitive areas such as retail sales and construction.
In July, most economic data pointed toward strengthening growth, as indicated
by a tightening labor market, a rebound in consumer purchases and an increase
in home sales.
OUTLOOK: ECONOMIC GROWTH IS EXPECTED TO ACCELERATE DURING THE REMAINDER OF THE
YEAR
Despite slowing economic activity during the second quarter, Goldman Sachs'
economists expect above-average growth to resume later in the year. If growth
does accelerate, increasing pressure on labor resources is likely to cause wage
inflation to climb and trigger further
- -------------------------------- ---------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction/Market Overview......... 1
Goldman Sachs Balanced Fund.......... 3
Goldman Sachs CORE U.S. Equity Fund.. 12
Goldman Sachs CORE Large Cap Growth
Fund................................ 20
Goldman Sachs Capital Growth Fund.... 26
Goldman Sachs Mid Cap Equity Fund.... 32
</TABLE>
<TABLE>
<S> <C>
Goldman Sachs International Equity
Fund................................ 36
Goldman Sachs Small Cap Equity Fund.. 43
Goldman Sachs Asia Growth Fund....... 48
Financial Statements................. 54
Notes to Financial Statements........ 62
Financial Highlights................. 73
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Fed monetary tightening by year-end. While the stock market's recent gains have
been impressive, additional rate hikes could affect equity performance. As
always, it is important to maintain realistic expectations regarding your
equity investments' returns.
We appreciate your investment in Goldman Sachs equity funds and look forward
to continuing to serve your investment needs in the future.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Goldman Sachs
Asset Management Asset Management
August 29, 1997
2
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Balanced Fund seeks to provide investors with a combination
of long-term growth of capital and current income by investing in a diversified
portfolio that includes both equity and fixed income securities. Under normal
market conditions, the fund is expected to maintain an asset mix of 45% to 65%
in equity securities, with the remainder (at a minimum 25%) in fixed income
senior securities. The fund's portfolio management team reviews its asset mix
on a regular basis and adjusts it to reflect changes in the economic
environment.
Stocks are selected using a value style, focusing on those stocks judged to
be inexpensive relative to their expected long-term earnings and ability to pay
dividends. We also consider the degree to which a company's management is
committed to increasing value for shareholders.
In the fixed income portion of the portfolio, the portfolio is actively
managed within a risk-controlled framework. We seek to minimize interest rate
risk relative to the portfolio's benchmark, and focus on seeking to add value
through sector selection, security selection and yield curve strategies.
PERFORMANCE REVIEW: SUCCESSFUL EQUITY AND FIXED INCOME INVESTMENTS
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET BENCHMARK
ASSET VALUE) TOTAL RETURN+
----------------- -------------
<S> <C> <C>
Class A* 15.42% 14.71%
Class B* 15.01% 14.71%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
+ The benchmark is a combination of the S&P 500 stock index (weighted at 55%)
and the Lehman Brothers Aggregate Bond Index (weighted at 45%) assuming
reinvestment of all dividends and interest.
During the period under review, both of the fund's share classes outperformed
the benchmark, as the accompanying table demonstrates. The equity and fixed
income portions of the fund both achieved favorable results, with equity
investments contributing most to relative outperformance. In addition, the
fund's asset mix yielded positive results. As of July 31, 1997, 56.4% of the
fund's net assets was invested in equities, 40.6% in fixed income and the
remainder in cash equivalents.
We are pleased to note that the fund fared well relative to its peers.
According to Lipper Analytical Services, Inc., Class A and B shares placed
within the top 15% of balanced funds (35th and 46th out of 317 funds for Class
A and B, respectively) for the 12-month period ended July 31, 1997. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results.)
HEALTHCARE, CONSUMER GOODS AND AIRLINE STOCKS WERE AMONG THE FUND'S BEST
PERFORMERS
The fund's top-performing stocks came from a diverse range of sectors,
including healthcare, consumer goods and airlines. AETNA, INC., a leading
healthcare provider, benefited from a friendlier regulatory environment and
consolidation in the healthcare industry. SUNBEAM CORP., INC., a consumer
products company, achieved strong results as investors responded positively to
its recent reforms, including major asset sales, improved distribution and a
new line of feature-laden products. CONTINENTAL AIRLINES, INC. performed well
as its improved service enabled it to continue to increase its share of
business traffic, which is typically more profitable than leisure travel. In
contrast, FRUIT OF THE LOOM, INC. was a disappointing performer as it was
impacted by a price war in screenprint tee shirts but held its prices steady in
order to maintain margins.
During the period, we significantly increased the fund's weighting in
technology stocks. New investments in the sector included two computer hardware
manufacturers: BAY NETWORKS, INC. (networking and
3
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
connectivity products) and QUANTUM CORP. (disk drives and other information
storage products).
TOP 10 EQUITY HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
Lear Corp. Autoparts/Original 2.6%
Equipment
Sunbeam Corp., 2.1
Inc. Appliances
Aetna, Inc. Healthcare 2.1
Management
Quantum Corp. Computer Component 2.1
Manufacturer
Unicom Corp. Electric Utility 2.0
Tosco Corp. Oil Refining and 2.0
Marketing
Lockheed Martin 2.0
Corp. Defense
Cigna Corp. Insurance 2.0
Morgan Stanley Financial Services 1.8
Dean Witter,
Discover & Co.
Avnet, Inc. Electronic 1.8
Components
Distributor
</TABLE>
FIXED INCOME HOLDINGS PERFORMED WELL AMID FAVORABLE CONDITIONS
Mortgage-backed securities (MBS) continued to account for the fund's largest
fixed income allocation at 13.7% of the portfolio's total net assets. The MBS
sector was one of the strongest performers during the period, benefiting from
declining volatility and stable mortgage prepayments. Corporate bonds, a 10.1%
allocation, also performed well as spreads continued to tighten amid positive
earnings growth and continued structural consolidation (e.g., mergers and
acquisitions activity, restructuring). Asset-backed securities (ABS) (6.0%)
experienced selling pressure early in the year, and then strengthened as
concerns regarding general credit deterioration and potentially vulnerable
insurance guarantees diminished. Emerging market debt was one of the smaller
portfolio allocations (3.0%), but significantly contributed to performance due
to a combination of positive emerging market country credit trends and global
liquidity. The remainder of the fixed income allocation was invested in U.S.
Treasuries (6.9%) to manage the fund's interest rate risk.
OUTLOOK
We remain committed to our strategy of identifying and purchasing stocks that
trade at a discount to their long-term earnings power and dividend-yielding
ability. In a market that has been characterized by speculation and momentum at
different times since the beginning of 1995, we believe that a value approach
is well suited to weather the ups and downs associated with a turbulent market.
In the fixed income markets, we are generally maintaining a neutral posture
as most sectors are currently trading at tight spreads. Regarding specific
sectors, support remains strong in the MBS market, but we believe spreads could
widen should volatility increase or investor demand diminish. In the ABS
sector, we expect spreads to stabilize or tighten modestly as new issuance
subsides and bargain hunters emerge, and will continue to emphasize issues with
tight underwriting standards and strong servicing capabilities. We have a
neutral view for the corporate sector, which is unlikely to experience much
further compression despite an anticipated reacceleration in economic activity
during the second half of the year. Finally, we are moderately optimistic
regarding the emerging debt sector, where we expect to shift the fund's
allocations among the different countries as we identify attractive investment
opportunities.
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
We will continue to carefully monitor the fund's asset allocation and adjust
its equity and fixed income weightings as economic and market conditions
change.
/s/ Ronald E. Gutfleish
Ronald E. Gutfleish
Senior Portfolio Manager,
U.S. Active Equity Value
/s/ G. Lee Anderson
G. Lee Anderson
Portfolio Manager,
U.S. Active Equity Value
/s/ Eileen A. Aptman
Eileen A. Aptman
Portfolio Manager,
U.S. Active Equity Value
August 29, 1997
/s/ Jonathan A. Beinner
Jonathan A. Beinner
Co-Head,
U.S. Fixed Income
/s/ C. Richard Lucy
C. Richard Lucy
Co-Head,
U.S. Fixed Income
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--56.2%
AEROSPACE/DEFENSE--2.0%
25,100 Lockheed Martin Corp. $ 2,673,150
- ------------------------------------------------------
AIRLINES--2.4%
16,100 AMR Corp.* 1,731,756
39,000 Continental Airlines, Inc.* 1,462,500
- ------------------------------------------------------
3,194,256
- ------------------------------------------------------
APPLIANCE MANUFACTURER--2.1%
73,000 Sunbeam Corp. 2,856,125
- ------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--2.6%
71,700 Lear Corp.* 3,432,638
- ------------------------------------------------------
AUTO/VEHICLE--1.6%
51,600 Ford Motor Co. 2,109,150
- ------------------------------------------------------
BANKS--5.2%
20,600 BankAmerica Corp. 1,555,300
20,700 Chase Manhattan Corp. 2,350,744
12,500 Fleet Financial Group, Inc. 848,438
9,000 NationsBank Corp. 640,688
13,400 Republic of New York Corp. 1,547,700
- ------------------------------------------------------
6,942,870
- ------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION--0.8%
32,300 Owens Illinois Corp.* 1,114,350
- ------------------------------------------------------
CHEMICAL PRODUCTS--1.6%
31,200 Union Carbide Corp. 1,727,700
22,200 Geon Co. 427,350
- ------------------------------------------------------
2,155,050
- ------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--0.5%
19,600 MCI Communications, Inc. 692,125
- ------------------------------------------------------
DATACOM EQUIPMENT--1.2%
51,300 Bay Networks, Inc.* 1,564,650
- ------------------------------------------------------
DEFENSE--1.0%
17,300 McDonnell Douglas Corp. 1,323,450
- ------------------------------------------------------
ELECTRIC UTILITIES--2.8%
41,200 Long Island Lighting Co. 1,011,975
120,600 Unicom Corp. 2,736,113
- ------------------------------------------------------
3,748,088
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE--0.8%
26,100 Royal Caribbean Cruise Lines $1,035,844
- --------------------------------------------------
FOREST PRODUCTS--2.5%
18,600 Georgia Pacific Corp. 1,756,538
90,500 Stone Container Corp.* 1,504,563
- --------------------------------------------------
3,261,101
- --------------------------------------------------
HEALTHCARE MANAGEMENT--6.3%
24,200 Aetna Inc. 2,757,288
54,200 Columbia HCA Healthcare 1,747,950
46,000 Foundation Health Systems* 1,489,250
79,400 Tenet Healthcare Corp.* 2,377,038
- --------------------------------------------------
8,371,526
- --------------------------------------------------
HOME BUILDERS--2.4%
22,600 Centex Corp. 1,259,950
51,000 Lennar Corp. 1,899,750
- --------------------------------------------------
3,159,700
- --------------------------------------------------
INSURANCE BROKERS--0.3%
4,200 Loews Corp. 454,125
- --------------------------------------------------
INSURANCE-LIFE--2.0%
13,300 Cigna Corp. 2,653,350
- --------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--0.3%
9,200 Allmerica Financial Corp. 407,100
- --------------------------------------------------
INTEGRATED OIL--1.7%
15,600 Atlantic Richfield Co. 1,167,075
9,900 Texaco, Inc. 1,149,019
- --------------------------------------------------
2,316,094
- --------------------------------------------------
LOGISTICS/RAIL--0.7%
29,200 Canadian Pacific Ltd. 881,475
- --------------------------------------------------
OIL REFINING & MARKETING--2.0%
85,600 Tosco Corp. 2,680,350
- --------------------------------------------------
PERSONAL COMPUTERS-PERIPHERALS--2.1%
94,600 Quantum Corp* 2,749,313
- --------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND
SERVICES--1.8%
47,000 Morgan Stanley Dean Witter 2,458,688
- --------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS--1.8%
36,800 Avnet, Inc. $ 2,421,900
- -----------------------------------------------------
STEEL--1.0%
29,800 AK Steel Holding Corp. 1,367,075
- -----------------------------------------------------
SUPERMARKETS--2.1%
70,300 Fleming Companies, Inc. 1,120,406
41,200 Supervalu, Inc. 1,668,600
- -----------------------------------------------------
2,789,006
- -----------------------------------------------------
TEXTILES--1.3%
65,000 Fruit of the Loom, Inc.* 1,779,375
- -----------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--1.6%
33,500 Goodyear Tire & Rubber Co. 2,162,844
- -----------------------------------------------------
TOBACCO--0.8%
24,800 Philip Morris Companies, Inc. 1,119,100
- -----------------------------------------------------
TRANSPORTATION-MISCELLANEOUS--0.9%
33,400 CNF Transportation Inc. 1,164,825
- -----------------------------------------------------
TOTAL COMMON STOCKS
(COST $58,220,390) $ 75,038,693
- -----------------------------------------------------
PREFERRED STOCKS--0.2%
ENTERTAINMENT AND LEISURE--0.2%
3,000 Royal Caribbean Cruise Lines* $ 204,000
- -----------------------------------------------------
MEDIA/ENTERTAINMENT--0.0%
69 Time Warner, Inc. 78,853
- -----------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $210,450) $ 282,853
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--6.0%
Airplanes Pass Through Trust Series 1, Class C
$ 100,000 8.15% 03/15/19 $ 106,351
Asset Securitization Corp., Series 1996, Class A1
250,000 6.88 11/13/26 256,758
Case Equipment Loan Trust, Series 1995-A, Class A
51,206 7.30 03/15/02 51,581
Chemical Bank Master Credit Card Trust, Series 1995-2, Class A
140,000 6.23 06/15/06 140,612
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Chevy Chase Auto Receivables Trust, Series 1995-2, Class A
$ 55,501 5.80% 06/15/02 $ 55,449
Discover Card Master Trust 1994-2, Class A
70,000 6.03 10/06/04 70,568
Discover Card Master Trust 1996-4, Class A
740,000 6.05 10/16/13 749,479
Discover Card Master Trust 1996-4, Class B
420,000 6.23 10/16/13 421,575
DVI Equipment Lease
391,239 6.55 07/10/04 393,136
Fasco Auto Trust, Series 1996-1, Class A
211,701 6.65 11/15/01 215,935
Fingerhut Master Trust, Series 1996-1, Class A
200,000 6.45 02/20/02 201,686
First USA Credit Card Master Trust
350,000 5.77 04/17/00 350,000
JP Morgan Commercial Mortgage Finance Corp., Series 1997-C4
400,000 7.32 12/26/28 416,562
MBNA Credit Card Master Trust
1,050,000 5.94 04/15/09 1,046,388
Mid-State Trust, Series 4, Class A
898,191 8.33 04/01/30 982,558
Morgan Stanley Capital Commercial Mortgage, Inc., Series 1997-C1
400,000 7.46 05/15/06 417,422
Mortgage Capital Funding Inc., Series 1997, Class A3
500,000 7.29 03/20/07 522,895
Navistar Financial Trust, Series 1995-A, Class A2
97,049 6.55 11/20/01 97,656
Navistar Financial Trust, Series 1995-B, Class A3
96,077 6.05 04/15/02 96,256
PXRE Capital Trust I
65,000 8.85 02/01/27 70,185
Sears Credit Account Master Trust, Series 1995-2, Class A
700,000 8.10 06/15/04 728,217
Sears Credit Card Master Trust, Series 1995-3, Class A
70,000 7.00 10/15/04 71,640
Standard Credit Card Master Trust, Series 1994-4, Class A
110,000 8.25 11/07/03 118,077
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES (CONTINUED)
Standard Credit Card Master Trust, Series 1995-1, Class A
$ 360,000 8.25% 01/07/07 $ 395,773
- --------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $7,865,244) $ 7,976,759
- --------------------------------------------------------------------------------------------------
CORPORATE BONDS--10.1%
FINANCE BONDS--3.7%
Asia Pulp and Paper International Finance Co.
$ 250,000 8.30% 06/28/99 $ 249,373
100,000 10.25 10/01/00 103,678
BankAmerica Corp.
1,000,000 7.75 07/15/02 1,058,620
Capital One Bank
150,000 6.90 04/15/99 151,664
290,000 6.88 04/24/00 294,539
900,000 6.60 08/20/01 898,083
Conseco, Inc.
160,000 10.50 12/15/04 192,754
Conseco Finance
200,000 8.70 11/15/26 215,468
Continental Bank
100,000 12.50 04/01/01 119,738
Countrywide Funding Corp.
150,000 8.00 12/15/26 159,333
100,000 6.08 07/14/99 100,009
200,000 7.73 08/09/01 209,930
Edison Mission Energy Funding Corp.
94,758 6.77 09/15/03 95,689
Fleet Mortgage Group, Inc.
250,000 6.50 06/15/00 252,110
Golden West Financial Corp.
200,000 10.25 12/01/00 223,420
Meditrust, Inc.
120,000 7.82 09/10/26 129,162
Signet Banking Corp.
500,000 9.63 06/01/99 528,390
Washington Real Estate
55,000 7.13 08/13/03 56,170
- --------------------------------------------------------------------------------------------------
TOTAL FINANCE BONDS
(COST $4,993,688) $ 5,038,130
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INDUSTRIAL BONDS--5.9%
360 Communications Co.
$ 255,000 7.13% 03/01/03 $ 260,138
Auburn Hills Trust
50,000 12.00 05/01/20 78,081
Blockbuster Entertainment
50,000 6.63 02/15/98 50,072
Chelsea GCA Realty
226,000 7.75 01/26/01 233,024
Chrysler Corp.
60,000 7.45 02/01/97 62,490
Ford Motor Credit Co.
40,000 8.38 01/15/00 42,050
General Motors Acceptance Corp.
170,000 7.13 05/10/00 174,072
210,000 5.63 02/05/01 205,945
H + T Master Trust
220,000 8.18 08/15/02 220,000
Health & Retirement
250,000 6.20 07/09/07 250,000
Hertz Corp.
305,000 6.00 01/15/03 298,845
K Mart Corp.
40,000 9.55 06/30/98 40,570
40,000 9.60 09/15/98 40,500
Loewen Group International
200,000 7.75 10/15/01 203,500
Northwest Airlines
216,108 8.97 01/02/15 233,327
NWA Trust, Series A
66,300 8.26 03/10/06 71,090
NWCG Holding Corp.
450,000 6.81 06/15/99 400,721
Oryx Energy Co.
245,000 9.50 11/01/99 258,928
Owens-Illinois, Inc.
45,000 10.00 08/01/02 47,475
RJR Nabisco, Inc.
240,000 8.63 12/01/02 253,406
135,000 8.00 07/15/01 138,803
Rogers Cablesystems, Inc.
115,000 9.63 08/01/02 123,625
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
INDUSTRIAL BONDS (CONTINUED)
Taubman Realty Group, Inc.
$ 230,000 8.00% 07/30/01 $ 241,155
TCI Communications, Inc.
20,000 6.82 09/15/10 20,043
Tele-Communications, Inc.
805,000 6.28 09/15/03 804,598
125,000 9.65 10/01/03 134,944
Tenet Healthcare Corp.
60,000 9.63 09/01/02 66,150
Time Warner, Inc.
375,000 7.45 02/01/98 377,149
750,000 7.95 02/01/00 777,878
250,000 7.98 08/15/04 265,603
445,000 9.63 05/01/02 501,092
Tosco Corp.
110,000 7.00 07/15/00 112,069
U.S. Home Corp.
170,000 7.95 03/01/01 169,575
US Air Inc.
327,134 8.93 04/15/08 366,184
USI American Holdings
60,000 7.25 12/01/06 60,838
Viacom International
95,000 10.25 09/15/01 104,025
160,000 9.13 08/15/99 163,800
- --------------------------------------------------------------------------------------------------
TOTAL INDUSTRIAL BONDS
(COST $7,707,711) $ 7,851,765
- --------------------------------------------------------------------------------------------------
UTILITY BONDS--0.4%
Arkla, Inc.
$ 250,000 9.20% 12/18/97 $ 252,398
Central Maine Power Co.
100,000 7.38 01/01/99 101,742
160,000 7.45 08/30/99 161,925
- --------------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS
(COST $521,661) $ 516,065
- --------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $13,223,060) $ 13,405,960
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT--3.0%
Argentina Bocon
$ 124,502 5.70% 04/01/01 $ 120,232
Argentina Bontes
10,000 8.00 12/13/98 10,115
50,000 8.75 05/09/02 50,950
Asia Pulp and Paper International Finance Co.
40,000 10.25 10/01/00 41,200
Banco Nacional de Obras
20,000 9.63 11/15/03 21,383
Banco de Colombia
30,000 8.63 06/02/00 31,354
BCO de Colombia
110,000 8.63 06/02/00 114,963
Bridas Corp.
90,000 12.50 11/15/99 99,788
60,000 9.50 06/17/99 61,061
Cemex S.A.
50,000 12.75 07/15/06 59,948
Cemex S.A. + Tolmex
20,000 10.00 11/05/99 20,926
City of Moscow
120,000 9.50 05/31/00 122,400
Comision Federal Electric
360,000 8.00 08/04/97 360,011
Corp. Andina de Fomento
100,000 7.25 04/30/98 100,898
80,000 8.38 07/29/01 83,215
DGS International Finance
100,000 10.00 06/01/07 106,200
Emp Ica Soc Contro
110,000 9.75 02/11/98 111,430
Empresa Col Petroleos
80,000 7.25 07/08/98 80,729
Financiera Energy Nacional
220,000 9.38 06/15/06 263,822
230,000 5.88 02/17/98 228,445
200,000 8.46 06/19/98 202,590
Groupo Iusacell
80,000 10.00 07/15/04 80,870
Grupo Industrial Durango
90,000 12.00 07/15/01 99,675
30,000 12.63 08/01/03 34,418
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS BALANCED FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMERGING MARKET DEBT (CONTINUED)
Guangdong Enterprises
$ 100,000 8.88% 05/22/07 $ 105,562
Inst Fomento Industrial
210,000 8.38 07/29/01 218,440
Poland Communications, Inc.
90,000 9.88 11/01/03 91,532
Republic of Argentina
51,000 8.63 04/04/98 51,401
63,000 8.63 04/06/98 63,496
Republic of Croatia
80,000 7.00 02/27/02 79,477
Republic of Panama
446,158 7.03 05/10/02 446,171
Russian Federation
80,000 10.00 06/26/07 81,231
Sampoerna International Finance Co.
110,000 8.38 06/15/06 114,256
Trikem SA
100,000 10.63 07/24/07 101,241
YPF Sociedad Anonima
103,577 7.50 10/26/02 106,125
- ------------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(COST $3,890,452) $ 3,965,555
- ------------------------------------------------------------------------------------------------
MORTGAGE BACKED OBLIGATIONS--13.7%
Asset Securitization Corp.
$ 450,000 7.49% 04/14/27 $ 479,444
Collateralized Mortgage Obligation Trust Series 64, Class Z
457,920 9.00 11/20/20 513,905
Federal Home Loan Mortgage Corp.(FHLMC)
1,000,000 7.50 TBA-15yr(a) 2,009,430
1,000,000 6.35 03/25/18 1,000,310
Federal National Mortgage Association (FNMA)
1,000,000 6.50 TBA-30yr(a) 1,000,930
1,000,000 7.50 TBA-30yr(a) 1,016,250
4,000,000 7.00 TBA-30yr(a) 3,993,720
1,000,000 8.50 TBA-30yr(a) 1,041,870
1,000,000 6.55 10/25/20 1,003,430
279,391 6.50 09/01/25 273,630
329,685 6.50 10/01/25 322,887
383,168 6.50 11/01/25 376,462
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MORTGAGE BACKED OBLIGATIONS (CONTINUED)
First Union 1997C1 A2
$ 300,000 7.30% 04/18/29 $ 313,887
Government National Mortgage Association (GNMA)
3,000,000 8.00 TBA-30yr(a) 3,097,500
953,398 7.00 07/15/23 958,165
896,622 7.50 05/15/23 915,389
- ---------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(COST $18,087,031) $ 18,317,209
- ---------------------------------------------------------------------------------------------
SOVEREIGN CREDIT--0.8%
Province of Quebec
$ 200,000 13.25% 09/15/14 $ 235,528
Republic of Colombia
160,000 7.13 05/11/98 160,946
Republic of Croatia
100,000 7.00 02/27/02 100,554
State of Israel
190,000 6.38 12/15/05 184,399
United Mexican States
190,000 7.88 08/06/01 191,849
Republic of Argentina
JPY20,000,000 8.77 09/06/00 180,279
- ---------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(COST $1,051,516) $ 1,053,555
- ---------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--6.8%
United States Treasury Bonds
$ 470,000 12.00% 08/15/13(d) $ 685,246
250,000 8.88 08/15/17 320,548
1,760,000 8.75 05/15/20(d) 2,256,654
170,000 7.88 02/15/21 200,573
280,000 7.63 02/15/25 325,674
United States Treasury Notes
450,000 6.88 08/31/99(d) 459,914
180,000 7.88 11/15/04(d) 199,715
1,250,000 6.13 07/31/00(d) 1,260,938
800,000 5.63 11/30/00 795,248
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (CONTINUED)
United States Treasury Principal Only Stripped Securities(b)
$ 80,000 5.75% 08/15/99 $ 71,279
2,520,000 6.11 05/15/05 1,578,805
1,990,000 6.52 05/15/20 461,700
2,290,000 6.52 08/15/20 522,830
- -----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $8,747,169) $ 9,139,124
- -----------------------------------------------------------------------------------------------
YANKEE BONDS--0.1%
Korea Electric Power
$ 92,815 7.40% 04/01/16 $ 98,403
- -----------------------------------------------------------------------------------------------
TOTAL YANKEE BONDS
(COST $89,749) $ 98,403
- -----------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS--0.1%
Argentina Treasury Bill
$ 80,000 6.17%(b) 10/17/97 $ 79,721
Republic of Argentina
90,000 5.36(b) 08/15/97 89,933
- -----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $168,673) $ 169,654
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--12.1%
Joint Repurchase Agreement Account(d)
$16,200,000 5.84% 08/01/97 $ 16,200,000
- -----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $16,200,000) $ 16,200,000
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $127,753,734)(C) $145,647,765
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $18,844,921
Gross unrealized loss for investments in which
cost exceeds value (965,456)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain $17,879,465
- -----------------------------------------------------------------------------------------------------
</TABLE>
Futures contracts open at July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(e) Month Gain
- -------------------------- --------- ---------- ----------
<S> <C> <C> <C>
September
2-Year U.S. Treasury Note 10 1997 $ 19,375
September
5-Year U.S. Treasury Note 6 1997 13,874
September
10-Year U.S. Treasury Bond 13 1997 32,158
September
30-Year U.S. Treasury Bond 12 1997 67,689
--------
$133,096
- -----------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally + /-2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
(b) The interest rate disclosed for these securities represents effective
yields to maturity.
(c) The aggregate cost for federal income tax purposes is $127,768,300.
(d) Portions of these securities are being segregated as collateral for futures
contracts, TBA securities and mortgage dollar rolls.
(e) Each 2-Year U.S. Treasury Note contract represents $200,000 in notional par
value. Each 5-Year U.S. Treasury Note, 10-Year and 30-Year Treasury Bond
represents $100,000 in notional par value. The total net notional amount
and market value at risk are $5,100,000 and $5,567,000, respectively. The
determination of notional amounts does not consider market risk factors and
therefore notional amounts as presented here are indicative only of volume
of activity and not a measure of market risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs CORE U.S. Equity Fund is designed to provide investors with
a broadly diversified portfolio that can be used as a core holding within an
overall investment program. The fund's investment objective is to provide
investors with long-term growth of capital and dividend income through
investment in a broadly diversified portfolio of large-cap and blue-chip equity
securities representing all major sectors of the U.S. economy. The fund's
mandate is to remain fully invested while maintaining risk, style,
capitalization and industry characteristics similar to the aggregate U.S. stock
market as represented by the S&P 500 stock index. Therefore, the fund's
performance relative to the market should result almost exclusively from stock
selection within sectors. We believe the fund offers investors an attractive
combination of value and growth, while seeking not to assume more risk than the
broad market.
The fund employs a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Global Investment Research Department
with quantitative analysis generated by a proprietary multifactor model
developed by the Asset Management Division. The model evaluates each stock
using many different criteria including valuation, momentum and safety. It also
objectively analyzes the impact of current economic conditions on different
types of stocks. Those stocks ranked highly by both the multifactor model and
by Goldman Sachs research are considered for the fund's portfolio.
NAME CHANGE
The name of the Goldman Sachs Select Equity Fund was changed in May to the
Goldman Sachs CORE U.S. Equity Fund. CORE stands for "Computer-Optimized,
Research-Enhanced," which, compared with its previous name, better describes
our strategy of using quantitative and fundamental research to pick stocks for
a diversified and risk-controlled portfolio. The fund's investment focus and
process remain the same.
PERFORMANCE REVIEW: SUCCESSFUL STOCK SELECTION DROVE THE FUND'S PERFORMANCE
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET S&P 500
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 22.08% 22.55%
Class B* 21.74% 22.55%
Institutional* 22.48% 22.55%
Service* 22.17% 22.55%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge.
We are pleased to report that the fund fared well compared with its peers.
For the five-year period ended July 31, 1997, the fund's Class A shares were
rated "four stars" (in a universe of 1,146 domestic equity funds) by
Morningstar, Inc., an independent mutual fund rating agency./1/
In addition, the fund's Institutional shares ranked within the top quartile
of the Lipper growth fund category (172 of 764) for the 12-month period ended
July 31, 1997, according to Lipper Analytical Services, Inc.
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five-, and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The fund's Class A shares received four stars and were rated among
2,040 domestic equity funds for the three-year period. The Morningstar rating
applies only to the fund's Class A shares; the fund's Class B, Institutional
and Service shares have not been rated. Class B, Institutional and Service
shares are subject to additional fees and expenses that may have the effect of
lowering performance and may affect any future Morningstar rating. Morningstar
rates funds against peers in the same category. In all, there are four
Morningstar categories (domestic equity, international equity, taxable bond and
municipal). Morningstar ratings range from five stars (highest) to one star
(lowest). Funds with five-star ratings are in the top 10% of their category,
four-star ratings in the next 22.5%, three stars the next 35%, two stars the
next 22.5% and one star the lowest 10% of their categories.
12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
(Please note that Lipper rankings do not take sales charges into account and
that past performance is not a guarantee of future results.) Class A, B and
Service shares also fared well, and they all ranked within the top third of the
Lipper growth fund category. (Class A, B and Service shares ranked 211, 240 and
197, respectively, out of 764 growth funds.)
Successful stock selection drove the fund's performance during the period.
During the first half of the period, the fund particularly benefited from the
direction set by our proprietary mutifactor model. Of the three investment
themes considered by the model--value, momentum, and safety--the portfolio had
an above-average tilt toward safety. This strategy worked in the fund's favor
as defensive value stocks generally outperformed volatile growth stocks beyond
the largest capitalization tier of the S&P 500. In addition, the qualitative
stock recommendations produced by the Goldman Sachs Global Investment Research
Department achieved strong results during the second quarter.
The fund's best performers came from a wide range of sectors, including
technology (MICROSOFT CORP., INTERNATIONAL BUSINESS MACHINES INC.), electrical
equipment (GENERAL ELECTRIC CO.), retailing (DAYTON HUDSON CORP.) and machinery
(CATERPILLAR, INC.).
PORTFOLIO COMPOSITION: THE FUND FAVORED DEFENSIVE, VALUE STOCKS
In general, the fund's sector exposures approximated that of the S&P 500
stock index, although its current tilt toward defensive, value stocks resulted
in a slight overweighting in "cheap" sectors (e.g., consumer durables) and less
volatile sectors (e.g., utilities and energy) and a slight underweighting in
"pricey" sectors (e.g., consumer nondurables) and cyclical sectors (e.g., basic
industries). These differences, as shown in Table II, stemmed from the fund's
bottom-up stock selection process, not from an economic forecast for specific
sectors.
The fund's valuation characteristics were slightly more attractive than those
of the benchmark. For example, the fund had a lower price/earnings ratio based
on 1997 estimated earnings than the S&P 500 (18.7x versus 20.8x) and a lower
price/book ratio (3.8x versus 4.0x). In other respects, the fund maintained
growth and risk characteristics in line with the S&P 500.
TABLE I
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
General Electric
Co. Electronics 4.2%
Exxon Corp. Petroleum and 2.8
Natural Gas
Intel Corp. Semiconductors and 2.2
Electronics
Microsoft Corp. Computer Software 1.8
Coca Cola Co. Beverages 1.7
General Motors Automobile 1.7
Corp. Manufacturer
Merck & Co.,
Inc. Pharmaceuticals 1.6
GTE Corporation Telecommunications 1.6
Mobil Petroleum and 1.5
Corporation Natural Gas
Bristol-Myers
Squibb Co. Pharmaceuticals 1.5
</TABLE>
TABLE II
SECTOR BREAKOUT AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
INDUSTRY SECTORS PORTFOLIO S&P 500 INDEX DIFFERENCE
---------------- ------------- ------------- ----------
<S> <C> <C> <C>
Capital Spending 17.8% 18.6% -0.8%
Consumer 17.5 19.9 -2.4
Nondurables
Finance 15.9 17.1 -1.2
Consumer
Services 10.9 11.7 -0.8
Utilities 9.3 8.5 0.8
Energy 9.1 8.1 1.0
Basic Industry 5.9 6.9 -1.0
Miscellaneous 4.5 5.5 -1.0
Consumer
Durables 4.2 2.4 1.8
Cash (Equitized 3.0 0.0 3.0
with S&P 500
futures)
Transportation 1.9 1.3 0.6
</TABLE>
13
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OUTLOOK
We intend to maintain a balanced approach by considering each of our
investment themes (value, momentum and safety) when making investment
decisions. In the near term, however, recent cautionary signals--such as
increasing stock market volatility and record-low dividend yields--have led us
to adopt a more defensive posture. As a result, we are focusing primarily on
low-risk stocks with attractive valuations, while slightly reducing our weight
on momentum.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
August 29, 1997
14
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.6%
ADVERTISING--0.3%
27,400 Omnicom Group $ 1,912,863
- -----------------------------------------------------
AEROSPACE--0.7%
42,600 United Technologies Corp. 3,602,363
- -----------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT--1.2%
24,500 Case Corp. 1,529,719
43,100 Conagra, Inc. 3,030,469
47,800 Tenneco, Inc. 2,228,675
- -----------------------------------------------------
6,788,863
- -----------------------------------------------------
AIRLINES--1.1%
23,400 AMR Corp.* 2,516,963
36,600 Delta Air Lines, Inc. 3,252,825
- -----------------------------------------------------
5,769,788
- -----------------------------------------------------
APPLIANCE MANUFACTURER--0.5%
76,500 Sunbeam Corp. 2,993,063
- -----------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--0.3%
22,600 Cummins Engine, Inc. 1,774,100
- -----------------------------------------------------
AUTO/VEHICLE--2.5%
112,900 Ford Motor Co. 4,614,788
150,400 General Motors Corp. 9,306,000
- -----------------------------------------------------
13,920,788
- -----------------------------------------------------
AUTOMOBILES & AUTOMOBILE PARTS--0.3%
42,500 Genuine Parts Co. 1,386,563
- -----------------------------------------------------
BANK HOLDING COMPANIES--0.4%
25,400 Comerica, Inc. 1,920,875
- -----------------------------------------------------
BANKS--4.8%
32,750 Banc One Corp. 1,838,094
46,900 Bank of New York, Inc. 2,277,581
41,500 Chase Manhattan Corp. 4,712,844
25,200 Citicorp. 3,420,900
27,800 First Bank System, Inc. 2,474,200
33,600 First Chicago Corp. 2,549,400
94,600 NationsBank Corp. 6,734,338
10,000 Wells Fargo & Company 2,749,375
- -----------------------------------------------------
26,756,732
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
BEVERAGES--2.5%
135,800 Coca Cola Co. $ 9,404,150
112,700 Pepsico, Inc. 4,317,819
- -----------------------------------------------------------
13,721,969
- -----------------------------------------------------------
BIOTECHNOLOGY--0.2%
14,700 Amgen, Inc.* 864,544
- -----------------------------------------------------------
BUILDING MATERIALS--0.3%
38,000 USG Corp.* 1,786,000
- -----------------------------------------------------------
BUSINESS SERVICES--0.5%
53,500 Automatic Data Processing, Inc. 2,648,250
- -----------------------------------------------------------
CHEMICAL PRODUCTS--0.7%
40,300 Du Pont (E.I.) de Nemours & Co. 2,697,581
44,500 IMC Global, Inc. 1,404,531
- -----------------------------------------------------------
4,102,112
- -----------------------------------------------------------
CHEMICALS-COMMODITY--1.4%
44,900 Dow Chemicals Co. 4,265,500
67,300 Monsanto Co. 3,352,381
- -----------------------------------------------------------
7,617,881
- -----------------------------------------------------------
COMMERCIAL SERVICES--0.3%
31,800 Interim Services, Inc.* 1,448,888
- -----------------------------------------------------------
COMMUNICATIONS SERVICES COMPANIES--0.4%
73,800 Airtouch Communications, Inc.* 2,430,788
- -----------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--3.6%
52,400 Ameritech Corp. 3,533,725
48,500 Bellsouth Corp. 2,297,688
185,100 GTE Corp. 8,607,150
49,900 Sprint Corp. 2,470,050
87,200 Worldcom, Inc.* 3,046,550
- -----------------------------------------------------------
19,955,163
- -----------------------------------------------------------
CONSUMER GOODS--0.5%
42,000 Nike, Inc. 2,617,125
- -----------------------------------------------------------
CONSUMER STAPLES--1.7%
50,500 American Home Products Corp. 4,163,094
32,600 Procter & Gamble Co. 4,959,275
- -----------------------------------------------------------
9,122,369
- -----------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
15
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
DEFENSE--1.7%
75,000 Boeing Co. $ 4,410,938
36,200 Textron, Inc. 2,536,263
36,000 TRW, Inc. 2,106,000
- --------------------------------------------------------------
9,053,201
- --------------------------------------------------------------
DEPARTMENT STORES--3.6%
105,300 Dayton Hudson Corp. 6,805,013
37,100 Federated Department Stores, Inc.* 1,625,444
27,300 Fred Meyer, Inc.* 1,564,631
64,200 Sears Roebuck & Co. 4,064,663
150,700 Walmart Stores, Inc. 5,660,669
- --------------------------------------------------------------
19,720,420
- --------------------------------------------------------------
DIVERSIFIED MANUFACTURING--0.6%
36,900 Allied Signal, Inc. 3,404,025
- --------------------------------------------------------------
ELECTRIC UTILITIES--2.6%
74,600 Duke Power Co. 3,781,288
125,800 Edison International, Inc. 3,176,450
21,300 Empresa Nacional de Electric ADR 1,797,188
42,900 Teco Energy, Inc. 1,088,588
90,700 Texas Utilities Co. 3,214,181
57,600 Unicom Corp. 1,306,800
- --------------------------------------------------------------
14,364,495
- --------------------------------------------------------------
ELECTRICAL--0.3%
51,200 Cinergy Corp. 1,721,600
- --------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--4.6%
37,300 Emerson Electric Co. 2,200,700
327,000 General Electric Co. 22,951,313
- --------------------------------------------------------------
25,152,013
- --------------------------------------------------------------
ENTERPRISE SYSTEMS--3.2%
76,000 Compaq Computer Corp.* 4,341,500
63,700 Hewlett Packard Co. 4,462,981
65,300 International Business Machines 6,905,475
49,900 Sun Microsystems, Inc.* 2,279,806
- --------------------------------------------------------------
17,989,762
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE--0.8%
53,642 Walt Disney, Co. $ 4,334,944
- -----------------------------------------------------------------
FINANCIAL SERVICES--4.0%
25,700 American Express Co. 2,152,375
33,000 American Financial Group 1,575,750
90,700 BankAmerica Corp. 6,847,850
91,700 Federal National Mortgage Association 4,338,556
76,600 Providian Financial Corp. 3,001,763
60,033 Travelers Group, Inc. 4,318,624
- -----------------------------------------------------------------
22,234,918
- -----------------------------------------------------------------
FOOD--0.7%
35,100 Interstate Bakeries Corp. 2,141,100
7,800 Unilever, Inc. 1,700,400
- -----------------------------------------------------------------
3,841,500
- -----------------------------------------------------------------
FOOD PRODUCERS--0.6%
33,500 Dean Foods Co. 1,614,281
16,000 Ralston Purina Co. 1,444,000
- -----------------------------------------------------------------
3,058,281
- -----------------------------------------------------------------
FOREST PRODUCTS--1.4%
80,000 Avery Dennison Corp. 3,530,000
28,000 Georgia Pacific Corp. 2,644,250
26,600 Kimberly Clark Corp. 1,348,288
- -----------------------------------------------------------------
7,522,538
- -----------------------------------------------------------------
GAS DISTRIBUTION & PIPELINE--0.6%
45,100 Columbia Gas Systems, Inc. 3,100,625
- -----------------------------------------------------------------
GROCERY PRODUCTS--0.4%
97,500 IBP, Inc. 2,218,125
- -----------------------------------------------------------------
HEALTH & MEDICAL SERVICES--2.0%
62,800 Abbott Laboratories 4,109,475
85,400 Johnson & Johnson 5,321,488
28,900 Lincare Holdings, Inc.* 1,416,100
- -----------------------------------------------------------------
10,847,063
- -----------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES--0.2%
31,900 Alberto Culver Co. Class B 895,194
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTHCARE MANAGEMENT--0.8%
62,600 Columbia HCA Healthcare $ 2,018,850
51,800 Wellpoint Health Networks* 2,551,150
- --------------------------------------------------------------
4,570,000
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.1%
58,800 Gillette Co. 5,821,200
- --------------------------------------------------------------
INDUSTRIAL--0.7%
61,400 Corning, Inc. 3,795,288
- --------------------------------------------------------------
INDUSTRIAL MACHINERY--0.7%
70,800 Caterpillar, Inc. 3,964,800
- --------------------------------------------------------------
INFORMATION MANAGEMENT--0.9%
189,700 Dun & Bradstreet Corp. 5,121,900
- --------------------------------------------------------------
INSURANCE--0.3%
12,900 MBIA, Inc. 1,522,200
- --------------------------------------------------------------
INSURANCE SERVICES--0.3%
35,600 Protective Life Corp. 1,811,150
- --------------------------------------------------------------
INSURANCE SPECIALTY--0.3%
40,900 Everest Reinsurance Holdings 1,584,875
- --------------------------------------------------------------
INSURANCE-LIFE--0.7%
18,300 Cigna Corp. 3,650,850
- --------------------------------------------------------------
INSURANCE-MULTI-LINE--0.3%
22,654 Aegon N V Amer Reg 1,718,872
- --------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.4%
25,356 Allstate Corp. 2,003,124
54,075 American International Group, Inc. 5,758,988
- --------------------------------------------------------------
7,762,112
- --------------------------------------------------------------
INTEGRATED OIL--6.5%
21,600 Amoco Corp. 2,030,400
41,800 Atlantic Richfield Co. 3,127,163
240,500 Exxon Corp. 15,452,125
82,200 Phillips Petroleum Co. 3,786,338
104,000 Royal Dutch Petroleum 5,817,500
27,200 Texaco, Inc. 3,156,900
55,000 Unocal Corp. 2,200,000
- --------------------------------------------------------------
35,570,426
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INVESTMENT BROKERS & MANAGERS--1.1%
49,200 Merrill Lynch Co. $ 3,465,525
40,800 Salomon, Inc. 2,588,250
- ---------------------------------------------------------
6,053,775
- ---------------------------------------------------------
LOGISTICS/RAIL--0.8%
37,900 Norfolk Southern Corp. 4,197,425
- ---------------------------------------------------------
MACHINERY AND EQUIPMENT--0.4%
28,600 Ingersoll-Rand Co. 1,946,588
- ---------------------------------------------------------
MEDIA/ENTERTAINMENT--0.6%
40,500 King World Productions, Inc.* 1,635,188
52,600 Meredith Corp. 1,456,363
- ---------------------------------------------------------
3,091,551
- ---------------------------------------------------------
MISCELLANEOUS MANUFACTURER--0.3%
79,200 Coltec Industries, Inc.* 1,742,400
- ---------------------------------------------------------
NONFERROUS METALS--0.6%
47,200 Alumax, Inc.* 2,000,100
15,500 Phelps Dodge Corp. 1,318,469
- ---------------------------------------------------------
3,318,569
- ---------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.9%
42,000 Miller Herman, Inc. 2,084,250
35,600 Xerox Corp. 2,928,100
- ---------------------------------------------------------
5,012,350
- ---------------------------------------------------------
OIL & GAS--2.6%
58,600 Ensco International, Inc.* 3,874,925
106,700 Mobil Corp. 8,162,550
60,100 Rowan Companies, Inc.* 1,975,788
- ---------------------------------------------------------
14,013,263
- ---------------------------------------------------------
OIL & GAS EXPLORATION--0.5%
101,900 Marine Drilling Companies* 2,528,394
- ---------------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--1.6%
63,000 Creative Technology* 1,283,625
29,700 Eastman Kodak Co. 1,989,900
74,400 Quantum Corp.* 2,162,250
90,200 Western Digital Corp.* 3,472,700
- ---------------------------------------------------------
8,908,475
- ---------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE U.S. EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS--5.7%
103,800 Bristol-Myers Squibb $ 8,141,813
18,200 Eli Lilly & Co. 2,056,600
43,900 Forest Laboratories, Inc.* 1,997,450
84,000 Merck & Co., Inc. 8,730,750
56,000 Pfizer, Inc. 3,339,000
93,000 Schering Plough Corp. 5,074,313
13,500 Warner Lambert Co. 1,885,781
- --------------------------------------------------------------
31,225,707
- --------------------------------------------------------------
PRINTING--0.3%
51,400 Lexmark International Group, Inc.* 1,673,713
- --------------------------------------------------------------
RESTAURANTS--0.3%
28,000 McDonalds Corp. 1,505,000
- --------------------------------------------------------------
RESTAURANTS & HOTELS--0.3%
23,800 HFS, Inc.* 1,386,350
- --------------------------------------------------------------
RETAIL--1.5%
65,000 American Stores Co. 1,641,250
87,600 Best Buy Co., Inc.* 1,138,800
49,950 Home Depot, Inc. 2,491,256
44,800 Ross Stores, Inc. 1,416,800
58,400 TJX Companies, Inc. 1,744,700
- --------------------------------------------------------------
8,432,806
- --------------------------------------------------------------
RETAIL TRADE--0.4%
47,100 Gap, Inc. 2,093,006
- --------------------------------------------------------------
SAVINGS AND LOANS--0.6%
60,600 HF Ahmanson & Co. 3,223,163
- --------------------------------------------------------------
SECURITY--0.5%
30,400 Tyco International Ltd. 2,462,400
- --------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES--0.1%
13,800 Morgan Stanley Dean Witter 721,913
- --------------------------------------------------------------
SEMICONDUCTORS--3.9%
32,800 Advanced Micro Devices, Inc.* 1,150,050
132,400 Intel Corp. 12,155,975
33,700 Micron Technology, Inc.* 1,640,769
58,400 Motorola, Inc. 4,690,250
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS (CONTINUED)
48,100 National Semiconductor Corp.* $ 1,515,150
- -----------------------------------------------------------
21,152,194
- -----------------------------------------------------------
SOFTWARE & SERVICES--2.0%
68,700 Microsoft Corp.* 9,721,050
24,000 Oracle Corp.* 1,306,500
- -----------------------------------------------------------
11,027,550
- -----------------------------------------------------------
SPECIALTY RETAIL--0.3%
34,700 Tiffany & Co. 1,568,006
- -----------------------------------------------------------
SUPERMARKETS--0.6%
58,567 Safeway, Inc.* 3,140,655
- -----------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--0.7%
43,303 Lucent Technologies, Inc. 3,678,049
- -----------------------------------------------------------
TEXTILES--0.3%
32,400 Sara Lee Corp. 1,419,525
- -----------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--0.3%
29,100 Goodyear Tire & Rubber Co. 1,878,769
- -----------------------------------------------------------
TOBACCO--1.9%
176,500 Philip Morris Companies, Inc. 7,964,563
75,300 RJR Nabisco, Inc. 2,470,781
- -----------------------------------------------------------
10,435,344
- -----------------------------------------------------------
TRANSPORTATION--0.4%
52,400 Shell Transport & Trading PLC 2,338,350
- -----------------------------------------------------------
UTILITIES--1.6%
38,200 Cia de Telecomunicaciones Chile 1,258,213
94,900 Dominion Resources, Inc. 3,487,575
42,100 DQE, Inc. 1,328,781
50,700 Telecom Argentina ADR 2,931,076
- -----------------------------------------------------------
9,005,645
- -----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $364,176,160) $528,674,399
- -----------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS(B)--0.1%
$ 150,000 U.S. Treasury Bill
4.81%, 08/28/97 $ 149,459
145,000 U.S. Treasury Bill
4.91%, 09/18/97 144,926
50,000 U.S. Treasury Bill
4.93%, 09/18/97 49,971
65,000 U.S. Treasury Bill
4.86%, 09/18/97 64,780
115,000 U.S. Treasury Bill
5.03%, 9/18/97 114,863
- ---------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $521,989) $ 523,999
- ---------------------------------------------------------------
REPURCHASE AGREEMENT--2.4%
$12,900,000 Joint Repurchase Agreement Account
5.84%, 08/01/97(b) $ 12,900,000
- ---------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $12,900,000) $ 12,900,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS
(COST $377,598,149)(A) $542,098,398
- ---------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $166,979,947
Gross unrealized loss for investments in which
cost exceeds value (2,842,693)
- ---------------------------------------------------------------
Net unrealized gain $164,497,254
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Futures contracts open at July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Type Long(c) Month Gain
- ------------------- --------- ---------- ----------
<S> <C> <C> <C>
September
S&P 500 Stock Index 25 1997 364,677
- ----------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $377,601,144.
(b) Portion of this security is being segregated as collateral for futures
contracts.
(c) Each S&P 500 Stock Index represents $50,000 in notional par value. The
total net notional amount and market value at risk are $1,250,000 and
$11,974,375, respectively. The determination of notional amounts does not
consider market risk factors and therefore notional amounts as presented
here are indicative only of volume of activity and not a measure of market
risk.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder
in the Goldman Sachs CORE Large Cap Growth Fund. In the future, we will be
sending you annual and semiannual reports that describe the fund's performance,
as well as information regarding specific holdings. This semiannual report
covers the abbreviated period from May 1, 1997, when the fund began operations,
through July 31, 1997.
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs CORE Large Cap Growth Fund is designed to provide investors
with a broadly diversified portfolio of growth-oriented equity securities of
large-cap U.S. issuers. The selected securities typically have higher
prospective growth rates than the general domestic economy. The fund's
portfolio is designed to maintain risk, style, capitalization and industry
characteristics similar to the Russell 1000 Growth Index. Therefore, the fund's
performance relative to the Growth Index comes primarily from stock selection
within sectors.
The fund employs a disciplined approach that combines fundamental investment
research provided by the Goldman Sachs Global Investment Research Department
with quantitative analysis generated by a proprietary multifactor model
developed by the Asset Management Division. The model evaluates each stock
using many different criteria including valuation, momentum and safety. It also
objectively analyzes the impact of current economic conditions on different
types of stocks. Those stocks ranked highly by both the multifactor model and
by Goldman Sachs research are considered for the fund's portfolio.
PERFORMANCE REVIEW: STOCK SELECTION BENEFITED PERFORMANCE, BUT RESULTS WERE
DAMPENED BY DEFENSIVE POSTURE
PERFORMANCE SUMMARY: MAY 1, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN RUSSELL 1000
(BASED ON NET GROWTH INDEX
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 19.50% 21.37%
Class B* 19.40% 21.37%
Institutional* 19.50% 21.37%
Service* 19.40% 21.37%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge. Performance for Class A, B, Institutional and Service
shares is from their inception through the end of the period.
The fund's performance during the period was primarily driven by specific
stock selection. Within the growth universe, the fund focused on more stable
companies trading at reasonable valuations, as our proprietary multifactor
model emphasized stocks with lower price/earnings ratios and less potential for
earnings disappointments. In addition, qualitative stock recommendations
produced by the Goldman Sachs Global Investment Research Department also
benefited the fund's performance.
Given cautionary market conditions (i.e., increasing volatility and record-
low dividend yields), we maintained a "safety-first" stock-selection bias. This
approach led us to seek stocks with relatively stable characteristics (i.e.,
predictable earnings and less volatile prices) relative to the large-cap growth
universe. ALTHOUGH DEFENSIVE STOCKS OUTPERFORMED, AIDING OUR "STOCK-SELECTION"
RETURNS, OUR IMPLICIT CAUTION (OR LOWER BETA) HURT THE PORTFOLIO'S RELATIVE
PERFORMANCE. Additionally, May proved to be a difficult month for momentum
strategies, which led the fund to trail the benchmark for the period despite
achieving healthy gains in June.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
The fund's best performing stocks during the period came from a wide range of
sectors. These included financial holdings such as AMERICAN INTERNATIONAL
GROUP, INC., TRAVELERS, INC. and MERRILL LYNCH & CO., INC., pharmaceutical
companies such as PFIZER INC. and WARNER LAMBERT CO., and computer manufacturer
COMPAQ COMPUTER CORP.
PORTFOLIO COMPOSITION
As of July 31, 1997, the fund held 139 stocks. The fund's fundamental
characteristics were generally more attractive than those of the benchmark. For
example, within the growth universe, the fund had a lower price/earnings ratio
based on 1997 estimated earnings than the Russell 1000 Growth Index (20.1x
versus 25.5x) and a lower price/book ratio (4.1x versus 6.4x), while having a
higher five-year earnings-per-share growth projection (26% versus 24%).
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY LINE OF BUSINESS TOTAL NET ASSETS
------- ---------------- ----------------
<S> <C> <C>
Intel Corp. Semiconductors 4.2%
and Electronics
Microsoft Corp. Computer Software 3.5
Dayton Hudson Department Stores 2.8
Corp.
General Electric
Co. Electronics 2.8
American Property/Casualty 2.8
International Insurance
Group, Inc.
Corning Inc. Glass Products 2.2
Manufacturer
Pfizer Inc. Pharmaceuticals 2.0
Philip Morris Tobacco and Food 1.9
Companies, Inc. Products
Gillette Co. Cosmetics and 1.9
Toiletries
Abbott Health & Medical 1.9
Laboratories Services
</TABLE>
OUTLOOK
We intend to maintain a balanced approach by considering all of our
investment themes (value, momentum and safety) when making investment
decisions. In the near term, however, recent cautionary signals such as
increasing market volatility and record-low dividend yields have led us to
adopt a slightly more defensive posture. Therefore, we are currently favoring
less volatile stocks selling at reasonable valuations, while avoiding stocks
whose primary attractions are strong prior earnings and price momentum. Despite
these near-term preferences, we continue to adhere to our primary investment
style as defined by the Russell 1000 Growth Index. As a result, we will
continue to have a significant growth tilt relative to the overall market.
/s/ Robert C. Jones
Robert C. Jones
Senior Portfolio Manager,
Quantitative Equity
/s/ Kent A. Clark
Kent A. Clark
Portfolio Manager,
Quantitative Equity
/s/ Victor H. Pinter
Victor H. Pinter
Portfolio Manager,
Quantitative Equity
August 29, 1997
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------
<C> <S> <C>
COMMON STOCKS--95.8%
AEROSPACE--0.2%
600 United Technologies Corp. $ 50,738
- ---------------------------------------------------
AEROSPACE/DEFENSE--0.6%
1,700 Gulfstream Aerospace Corp.* 45,263
5,700 Rohr Inc.* 135,375
- ---------------------------------------------------
180,638
- ---------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT--0.9%
6,100 Tenneco, Inc. 284,413
- ---------------------------------------------------
AIRLINES--1.6%
2,000 Delta Air Lines, Inc. 177,750
4,200 UAL Corp.* 344,663
- ---------------------------------------------------
522,413
- ---------------------------------------------------
APPLIANCE MANUFACTURER--0.9%
2,900 Creative Technology* 59,088
5,500 Sunbeam Corp. 215,188
- ---------------------------------------------------
274,276
- ---------------------------------------------------
BANKS--0.5%
2,500 NationsBank Corp. 177,969
- ---------------------------------------------------
BEVERAGES--0.8%
3,800 Coca Cola Co. 263,150
- ---------------------------------------------------
BIOTECHNOLOGY--0.4%
2,200 Amgen, Inc.* 129,388
- ---------------------------------------------------
BROADCAST MEDIA--0.1%
900 Belo A H Corp 40,050
- ---------------------------------------------------
BUILDING MATERIALS--0.4%
2,500 USG Corp.* 117,500
- ---------------------------------------------------
BUSINESS SERVICES--0.5%
17,000 Medaphis Corp.* 153,000
- ---------------------------------------------------
CHEMICAL PRODUCTS--0.6%
1,900 Cytec Industries, Inc.* 75,050
3,900 IMC Global Inc. 123,094
- ---------------------------------------------------
198,144
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CHEMICALS-COMMODITY--0.9%
1,700 Dow Chemicals Co. $ 161,500
2,700 Monsanto Co. 134,494
- -----------------------------------------------
295,994
- -----------------------------------------------
COMMERCIAL SERVICES--0.3%
2,500 Interim Services, Inc.* 113,906
- -----------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--2.4%
13,100 GTE Corp. 609,150
2,000 Tellabs Inc.* 119,750
1,900 Worldcom, Inc.* 66,381
- -----------------------------------------------
795,281
- -----------------------------------------------
CONSUMER GOODS--0.5%
2,900 Nike, Inc. 180,706
- -----------------------------------------------
CONSUMER PRODUCTS--0.5%
4,300 Blyth Industries Inc* 154,531
- -----------------------------------------------
CONSUMER STAPLES--1.6%
3,600 Procter & Gamble Co. 547,650
- -----------------------------------------------
DATACOM EQUIPMENT--0.8%
3,300 Cisco Systems, Inc.* 262,556
- -----------------------------------------------
DEPARTMENT STORES--4.4%
14,600 Dayton Hudson Corp. 943,525
3,400 Fred Meyer Inc.* 194,863
2,000 Sears Roebuck & Co. 126,625
4,900 Walmart Stores, Inc. 184,056
- -----------------------------------------------
1,449,069
- -----------------------------------------------
DIVERSIFIED MANUFACTURING--0.8%
5,700 Acx Technologies Inc.* 144,281
1,800 Dover Corp. 128,475
- -----------------------------------------------
272,756
- -----------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--
3.6%
13,300 General Electric Co. 933,494
3,300 Jabil Circuit Inc.* 160,669
1,500 Linear Technology Corp. 100,313
- -----------------------------------------------
1,194,476
- -----------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERPRISE SYSTEMS--2.0%
2,300 Avid Technology Inc.* $ 79,063
4,600 Hewlett Packard Co. 322,288
6,600 Silicon Graphics Inc.* 165,000
2,500 Sun Microsystems, Inc.* 114,219
- -------------------------------------------------------------
680,570
- -------------------------------------------------------------
ENTERTAINMENT AND LEISURE--2.6%
9,400 Carnival Cruise Lines Corp. Class A 395,975
4,100 Hollywood Entertainment Co.* 76,875
5,000 Walt Disney, Co. 404,063
- -------------------------------------------------------------
876,913
- -------------------------------------------------------------
FINANCIAL SERVICES--2.6%
1,200 American Express Co. 100,500
2,100 BankAmerica Corp. 158,550
1,500 CMAC Investment Corp. 70,781
3,500 Federal National Mortgage Association 165,594
4,900 Travelers Group, Inc. 352,494
- -------------------------------------------------------------
847,919
- -------------------------------------------------------------
FOOD--0.5%
2,800 Interstate Bakeries Corp. 170,800
- -------------------------------------------------------------
FOREST PRODUCTS--0.5%
4,100 Avery Dennison Corp. 180,913
- -------------------------------------------------------------
GAS DISTRIBUTION & PIPELINE--0.6%
2,700 Columbia Gas Systems, Inc. 185,625
- -------------------------------------------------------------
HEALTH & MEDICAL SERVICES--4.3%
9,500 Abbott Laboratories 621,656
1,200 Biomet Inc. 23,925
4,400 Dura Pharmaceuticals Inc.* 171,600
2,600 Health Management Association* 83,038
5,300 Johnson & Johnson 330,256
2,400 Lincare Holdings Inc.* 117,600
3,800 Prime Hospitality Corp.* 69,825
- -------------------------------------------------------------
1,417,900
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH SUPPLIERS/SERVICES--0.7%
4,900 Alberto Culver Co., Class B $ 137,506
900 Medtronic Inc. 78,525
- -----------------------------------------------------
216,031
- -----------------------------------------------------
HEALTHCARE MANAGEMENT--1.3%
5,800 Columbia HCA Healthcare 187,050
3,200 Quest Diagnostics Inc.* 55,600
4,100 Wellpoint Health Networks* 201,925
- -----------------------------------------------------
444,575
- -----------------------------------------------------
HOUSEHOLD DURABLES--0.5%
3,000 Ethan Allen Interiors Inc. 159,000
- -----------------------------------------------------
HOUSEHOLD PRODUCTS--2.2%
6,300 Gillette Co. 623,700
3,500 Premark International Inc. 110,469
- -----------------------------------------------------
734,169
- -----------------------------------------------------
INDUSTRIAL--2.2%
11,700 Corning Inc. 723,206
- -----------------------------------------------------
INDUSTRIAL MACHINERY--1.6%
6,800 Caterpillar, Inc. 380,800
2,700 Tecumseh Products Co. Class A 151,875
- -----------------------------------------------------
532,675
- -----------------------------------------------------
INFORMATION MANAGEMENT--1.1%
13,100 Dun & Bradstreet Corp. 353,700
- -----------------------------------------------------
INSURANCE SERVICES--1.9%
2,000 AMBAC Inc. 170,375
2,500 Conseco, Inc. 101,875
3,000 MGIC Investment Corp. 157,688
2,700 Protective Life Corp. 137,363
1,300 SunAmerica, Inc. 78,650
- -----------------------------------------------------
645,951
- -----------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CORE LARGE CAP GROWTH FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE-PROPERTY AND CASUALTY--2.8%
8,700 American International Group, Inc. $ 926,550
- -----------------------------------------------------------
INTEGRATED OIL--1.2%
3,700 Exxon Corp. 237,725
2,000 Norsk Hydro ADR 104,500
600 Phillips Petroleum Co. 27,638
1,000 Unocal Corp. 40,000
- -----------------------------------------------------------
409,863
- -----------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.5%
4,400 Banctec Inc.* 107,525
800 Pitney-Bowes Inc. 60,100
- -----------------------------------------------------------
167,625
- -----------------------------------------------------------
OIL & GAS--2.8%
5,400 El Paso Natural Gas Co. 312,188
3,800 Ensco International Inc.* 251,275
4,900 Mobil Corp. 374,850
- -----------------------------------------------------------
938,313
- -----------------------------------------------------------
OIL & GAS EXPLORATION--1.3%
16,000 Marine Drilling Companies* 397,000
1,800 Union Texas Petroleum Holdings Inc. 37,463
- -----------------------------------------------------------
434,463
- -----------------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--5.2%
7,500 Compaq Computer Corp.* 428,438
2,200 Dell Computer Corporation* 188,100
7,400 Komag Inc.* 154,013
2,400 Quantum Corp.* 69,750
14,500 Read Rite Corp.* 375,188
13,300 Western Digital Corp.* 512,050
- -----------------------------------------------------------
1,727,539
- -----------------------------------------------------------
PHARMACEUTICALS--3.8%
1,400 Merck & Co. 145,513
11,100 Pfizer, Inc. 661,838
3,000 Schering Plough Corp. 163,688
2,200 Warner Lambert Co. 307,313
- -----------------------------------------------------------
1,278,352
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
RECREATIONAL PRODUCTS--0.3%
3,200 Mattel, Inc. $ 111,200
- ---------------------------------------------------------------
RESTAURANTS & HOTELS--0.4%
2,507 HFS, Inc.* 146,033
- ---------------------------------------------------------------
RETAIL--3.3%
22,200 Best Buy Co. Inc.* 288,600
4,059 CVS Corporation 230,856
10,000 Ross Stores, Inc. 316,250
8,800 TJX Companies, Inc. 262,900
- ---------------------------------------------------------------
1,098,606
- ---------------------------------------------------------------
SECURITY--1.4%
5,600 Tyco International Ltd. 453,600
- ---------------------------------------------------------------
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES--1.9%
2,800 Bear Stearns Companies Inc. 114,275
2,400 Merrill Lynch Co. 169,050
5,500 Salomon, Inc. 348,906
- ---------------------------------------------------------------
632,231
- ---------------------------------------------------------------
SEMICONDUCTORS--5.9%
7,400 Advanced Micro Devices Inc.* 259,463
15,200 Intel Corp. 1,395,550
2,000 Microchip Technology* 74,500
1,100 Micron Technology 53,556
5,900 National Semiconductor Corp.* 185,850
- ---------------------------------------------------------------
1,968,919
- ---------------------------------------------------------------
SOFTWARE & SERVICES--5.5%
4,600 Cadence Design Systems, Inc.* 204,413
1,500 Computer Associates International, Inc. 102,094
3,100 Electronic Data Systems 134,075
8,200 Microsoft Corp.* 1,160,300
3,200 Oracle Corp. 174,200
4,000 Sybase Inc.* 59,000
- ---------------------------------------------------------------
1,834,082
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL--2.8%
9,600 Footstar Inc.* $ 256,800
2,700 Gap, Inc. 119,981
2,700 Limited Inc. 60,244
9,000 Pier 1 Imports Inc. 158,625
4,000 Tiffany & Co. 180,750
7,800 Zale Corp.* 169,650
- -----------------------------------------------------
946,050
- -----------------------------------------------------
STEEL--0.5%
2,800 AK Steel Holding Corp. 128,450
1,900 British Steel PLC ADR 52,844
- -----------------------------------------------------
181,294
- -----------------------------------------------------
SUPERMARKETS--1.7%
4,100 Kroger Company* 121,206
6,400 Safeway, Inc.* 343,200
1,500 Smith's Food & Drug Center* 89,063
- -----------------------------------------------------
553,469
- -----------------------------------------------------
TECHNICAL SERVICES--0.4%
2,400 3Com Corp.* 131,250
- -----------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--1.1%
4,600 Motorola Inc. 369,438
- -----------------------------------------------------
TEXTILES--0.8%
4,100 Burlington Industries, Inc.* 53,044
4,000 Jones Apparel Group Inc* 207,750
- -----------------------------------------------------
260,794
- -----------------------------------------------------
TOBACCO--2.7%
14,300 Philip Morris Companies, Inc. 645,288
7,800 RJR Nabisco, Inc. 255,938
- -----------------------------------------------------
901,226
- -----------------------------------------------------
UTILITIES--0.7%
7,600 DQE Inc. 239,875
- -----------------------------------------------------
WASTE MANAGEMENT--0.1%
1,000 U.S.A. Waste Services Inc* 40,313
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ----------------------------------------------------------------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
WHOLESALE TRADE--0.8%
7,000 Tech Data Corp* $ 259,859
- ----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $28,026,861) $31,839,495
- ----------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ----------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT--2.4%
$800,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 800,000
- ----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $800,000) $ 800,000
- ----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $28,826,861)(A) $32,639,495
- ----------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in
which value exceeds cost $ 3,958,026
Gross unrealized loss for investments in
which cost exceeds value (155,914)
- ----------------------------------------------------------------
Net unrealized gain $ 3,802,112
- ----------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $28,837,383.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
25
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Capital Growth Fund seeks long-term growth of capital
primarily through investments in large-capitalization growth stocks. To meet
its objective, the fund is managed with a "growth at a reasonable price"
investment style, which means we utilize extensive fundamental research to
identify companies in a diversified range of industries that we believe offer
attractive growth potential at a reasonable price.
The fund's investment management team believes that wealth is created through
the long-term ownership of growing businesses. We view each stock purchase as
if we were buying the entire business. To implement this investment strategy,
we focus on growing companies with characteristics such as strong brand
franchises, dominant market share, recurring revenue, product pricing
flexibility, long product life cycles, high returns on invested capital, high
profit margins, strong free cash flow, excellent management and favorable long-
term prospects. Finally, we will buy a stock meeting our rigorous criteria only
if it trades at a reasonable discount to the company's intrinsic value.
PERFORMANCE REVIEW: BOTH SHARE CLASSES OUTPERFORMED THE BENCHMARK
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET S&P 500
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 23.25% 22.55%
Class B* 22.74% 22.55%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
We are pleased to note that the fund continued to perform well compared with
its peers. For the five- and one-year periods ended July 31, 1997, the fund's
Class A shares were rated "four stars" (in universes of 1,146 and 2,040
domestic equity funds for the five- and one-year periods, respectively) by
Morningstar, Inc., an independent mutual fund rating agency./1/ The fund also
fared well versus its peers in the Lipper growth fund category, placing in the
top 15% (83 and 101 out of 764 funds for Class A and B shares, respectively)
for the 12-month period and in the top quartile (70 out of 286 funds for Class
A shares) for the five-year period, as of July 31, 1997, according to Lipper
Analytical Services, Inc. (Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of future
results. Class B shares were not ranked for the five-year period because they
did not exist during the entire period.)
INVESTMENTS IN PHARMACEUTICAL, FINANCIAL AND CONSUMER PRODUCTS COMPANIES
BENEFITED PERFORMANCE
The strongest contributors to the fund's performance included pharmaceutical
companies BRISTOL-MYERS SQUIBB CO. and PFIZER INC. These stocks were buoyed by
a number of positive factors, including new product introductions, a benign
political environment, a more accommodative FDA, strong unit growth, powerful
free cash flow and reasonable valuations. Over the coming decades, we believe
these companies are positioned to
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The one-year rating is calculated using the same methodology, but is
not a component of the overall rating. The fund's Class A shares received three
stars for the three-year period and were rated among 2,040 domestic equity
funds. The Morningstar rating applies only to the fund's Class A shares; the
fund's Class B shares have not been rated. Class B shares are subject to
additional fees and expenses that may have the effect of lowering performance
and may affect any future Morningstar rating. Morningstar rates funds against
peers in the same category. In all, there are four Morningstar categories
(domestic equity, international equity, taxable bond and municipal).
Morningstar ratings range from five stars (highest) to one star (lowest). Funds
with five-star ratings are in the top 10% of their category, four-star ratings
in the next 22.5%, three stars the next 35%, two stars the next 22.5% and one
star the lowest 10% of their categories.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
benefit as the baby boomers age and require more health-related products and
services.
In the financial sector, two of the fund's commercial bank holdings,
BANKAMERICA CORP. and NATIONSBANK CORP., were prime beneficiaries of the
"Goldilocks" economy. This favorable environment, which has been characterized
by steady economic growth, modest loan demand, low inflation and stable
interest rates, contributed to strong earnings gains for both banks. In
addition, MBNA CORP., the second largest credit card lender in the world,
appreciated due to surging growth in credit card accounts, new affiliations
with sponsoring organizations for its affinity cards and the rapid growth of
its U.K. business.
Several producers of household products also performed well. These included
companies with world-class franchises and/or strong brand names such as PROCTER
& GAMBLE CO., GILLETTE CO. and COLGATE-PALMOLIVE CO., all of which reported
solid earnings gains and high returns on equity. These companies are benefiting
from strong international growth as capitalism spreads throughout the world and
per capita income rises.
An investment that lagged during the period was GAYLORD ENTERTAINMENT CO., a
diversified entertainment and communications company, as investors responded
negatively to the sale of its two cable channels (The Nashville Network and
Country Music Television) to Westinghouse Electric Corp. Under terms of the
agreement, Gaylord will receive a fixed dollar amount of Westinghouse stock,
which minimized the company's risk but also limited its upside potential in the
surging stock market. We continue to believe Gaylord is attractively valued.
NEW POSITIONS IN SEVERAL MEDIA STOCKS
Among the new positions added during the period were media stocks such as
GANNETT CO., INC., TRIBUNE CO. and NEW YORK TIMES CO., all of which have
dominant local franchises in newspapers and broadcasting. These companies have
reported strong year-to-date earnings gains as they have benefited from healthy
advertising revenue and reduced newsprint costs. Sales included FISHER
SCIENTIFIC INTERNATIONAL, INC., a maker of scientific instruments, supplies and
equipment, after it appreciated strongly due to takeover rumors.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY LINE OF BUSINESS TOTAL NET ASSETS
------- ---------------- ----------------
<S> <C> <C>
BankAmerica
Corp. Commercial Bank 3.4%
Banc One Corp. Commercial Bank 3.1
Intel Corp. Semiconductors and 3.0
Electronics
General Electric
Co. Electronics 2.9
Pfizer Inc. Pharmaceuticals 2.9
Bristol-Myers Pharmaceuticals 2.9
Squibb Co.
NationsBank
Corp. Commercial Bank 2.8
MBNA Corp. Specialty Finance 2.6
and Agencies
Lucent 2.4
Technologies Telecommunications
Co. Equipment
Texaco Inc. International 2.3
Integrated Oil
Company
</TABLE>
OUTLOOK
In our opinion, the outlook for the economy and the stock market appears
attractive, with low inflation, stable interest rates and modest economic
growth expected to help the fund's holdings produce favorable earnings gains.
However, we do expect increased volatility in the stock market as a result of
options and futures expirations, as well as investors' perceptions of inflation
and interest rate fluctuations.
During the past six months, we increased the fund's diversification among
industry sectors and increased its holdings of large-cap growth stocks. We
believe the fund is currently well positioned to benefit from the positive
investing climate that we anticipate.
27
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
/s/ Herbert E. Ehlers
Herbert E. Ehlers
Senior Portfolio Manager,
U.S. Active Equity Growth
/s/ George D. Adler
George D. Adler
Portfolio Manager,
U.S. Active Equity Growth
/s/ Robert G. Collins
Robert G. Collins
Portfolio Manager,
U.S. Active Equity Growth
August 29, 1997
/s/ Gregory H. Ekizian
Gregory H. Ekizian
Portfolio Manager,
U.S. Active Equity Growth
/s/ Ernest C. Segundo, Jr.
Ernest C. Segundo, Jr.
Portfolio Manager,
U.S. Active Equity Growth
/s/ David G. Shell
David G. Shell
Portfolio Manager,
U.S. Active Equity Growth
28
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--98.1%
ADVERTISING & MARKETING--1.7%
711,580 Valassis Communications, Inc.* $ 19,968,714
- --------------------------------------------------------------------
ALCOHOL--0.7%
207,700 Anheuser Busch Companies, Inc. 8,918,119
- --------------------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--0.8%
206,600 Lear Corp.* 9,890,975
- --------------------------------------------------------------------
BANKS--7.2%
649,522 Banc One Corp. 36,454,422
468,700 NationsBank Corp. 33,365,581
253,400 State Street Bank Corp. 14,206,238
- --------------------------------------------------------------------
84,026,241
- --------------------------------------------------------------------
BEVERAGES--2.7%
234,500 Coca Cola Co. 16,239,125
408,100 Pepsico Inc. 15,635,331
- --------------------------------------------------------------------
31,874,456
- --------------------------------------------------------------------
BUILDING MATERIALS & CONSTRUCTION--0.3%
99,700 Sherwin Williams Co. 3,196,631
- --------------------------------------------------------------------
BUSINESS SERVICES--1.0%
289,400 First Data Corp. 12,625,075
- --------------------------------------------------------------------
CABLE/TELEVISION COMMUNICATIONS--0.3%
69,000 Cablevision Systems Corp. Class A* 4,096,875
- --------------------------------------------------------------------
CHEMICAL PRODUCTS--0.5%
86,100 Du Pont (E.I.) de Nemours & Co. 5,763,319
- --------------------------------------------------------------------
CHEMICALS-COMMODITY--0.4%
88,700 Monsanto Co. 4,418,369
- --------------------------------------------------------------------
CHEMICALS-SPECIALTY--1.0%
26,900 Betzdearbon, Inc. 1,761,950
101,200 Minnesota Mining and Manufacturing Co. 9,588,700
- --------------------------------------------------------------------
11,350,650
- --------------------------------------------------------------------
COMMERCIAL SERVICES--0.9%
226,500 Ecolab Inc. 10,574,719
- --------------------------------------------------------------------
COMMUNICATIONS SERVICES COMPANIES--0.2%
56,900 Airtouch Communications, Inc.* 1,874,144
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONSUMER STAPLES--3.8%
143,700 American Home Products Corp. $ 11,846,269
49,200 Amway Asia Pacific Ltd. 1,891,125
44,400 Clorox Co. 6,199,350
160,940 Procter & Gamble Co. 24,482,998
- -------------------------------------------------------------
44,419,742
- -------------------------------------------------------------
COMMUNICATIONS & MEDIA SERVICES--1.2%
530,700 Tele-Communications, Inc.* 13,566,019
- -------------------------------------------------------------
COSMETICS--1.0%
168,100 Avon Products Inc. 12,197,756
- -------------------------------------------------------------
DATACOM EQUIPMENT--0.4%
62,100 Cisco Systems, Inc.* 4,940,831
- -------------------------------------------------------------
DEFENSE--1.5%
226,800 McDonnell Douglas Corp. 17,350,200
- -------------------------------------------------------------
DEPARTMENT STORES--1.3%
69,900 Federated Dept. Stores, Inc.* 3,062,494
329,500 Walmart Stores, Inc. 12,376,844
- -------------------------------------------------------------
15,439,338
- -------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.5%
107,400 American Standard Companies* 5,336,438
- -------------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--5.9%
485,100 General Electric Co. 34,047,956
386,400 Intel Corp. 35,476,350
- -------------------------------------------------------------
69,524,306
- -------------------------------------------------------------
ENTERPRISE SYSTEMS--1.3%
87,400 Hewlett Packard Co. 6,123,463
79,100 International Business Machines 8,364,825
- -------------------------------------------------------------
14,488,288
- -------------------------------------------------------------
ENTERTAINMENT AND LEISURE--1.2%
112,100 Mirage Resorts, Inc.* 2,998,675
130,400 Walt Disney, Co. 10,537,950
- -------------------------------------------------------------
13,536,625
- -------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
29
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS CAPITAL GROWTH FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES--6.2%
527,400 BankAmerica Corp. $ 39,818,700
453,000 Federal Home Loan Mortgage Corp. 16,336,313
345,300 Federal National Mortgage Association 16,337,006
- -------------------------------------------------------------------
72,492,019
- -------------------------------------------------------------------
FOOD--3.4%
111,600 Campbell Soup Co. 5,789,250
133,100 Kellogg Company 12,228,563
218,900 Nabisco Holdings Corp. 9,303,250
160,480 William Wrigley Jr. Co. 12,346,930
- -------------------------------------------------------------------
39,667,993
- -------------------------------------------------------------------
FOOD PRODUCERS--0.5%
64,800 Ralston Purina Co. 5,848,200
- -------------------------------------------------------------------
FOREST PRODUCTS--0.8%
97,300 Georgia Pacific Corp. 9,188,769
- -------------------------------------------------------------------
FUNERAL SERVICES--1.1%
379,500 Service Corp. International 12,903,000
- -------------------------------------------------------------------
HEALTH & MEDICAL SERVICES--1.8%
331,900 Johnson & Johnson 20,681,519
- -------------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES--0.5%
35,470 Perkin-Elmer Corp. 2,895,239
64,500 U.S. Surgical Corp. 2,394,563
- -------------------------------------------------------------------
5,289,802
- -------------------------------------------------------------------
HEALTHCARE MANAGEMENT--2.0%
104,720 Aetna Inc. 11,931,535
164,950 Columbia HCA Healthcare 5,319,638
219,000 Tenet Healthcare Corp.* 6,556,313
- -------------------------------------------------------------------
23,807,486
- -------------------------------------------------------------------
HOTELS & RESTAURANTS--1.2%
202,220 Marriott International, Inc. 13,902,625
- -------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.2%
118,100 Colgate Palmolive Co. 8,946,075
173,100 Gillette Co. 17,136,900
- -------------------------------------------------------------------
26,082,975
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INDUSTRIAL--0.5%
97,900 Corning Inc. $ 6,051,444
- -----------------------------------------------------------------
INFORMATION MANAGEMENT--1.0%
180,770 Reuters Holdings PLC 11,682,261
- -----------------------------------------------------------------
INSURANCE SERVICES--1.1%
4,800 AMBAC Financial Group, Inc. 408,900
214,100 SunAmerica, Inc. 12,953,050
- -----------------------------------------------------------------
13,361,950
- -----------------------------------------------------------------
INSURANCE-LIFE--0.5%
210,100 Nationwide Financial Services, Inc. 6,355,525
- -----------------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--0.8%
90,000 American International Group, Inc. 9,585,000
- -----------------------------------------------------------------
INTEGRATED OIL--4.4%
52,200 Amoco Corp. 4,906,800
47,400 Atlantic Richfield Co. 3,546,113
74,300 Exxon Corp. 4,773,775
164,800 Royal Dutch Petroleum 9,218,500
227,900 Texaco, Inc. 26,450,644
76,200 Unocal Corp. 3,048,000
- -----------------------------------------------------------------
51,943,832
- -----------------------------------------------------------------
LOGISTICS/RAIL--0.3%
31,800 Norfolk Southern Corp. 3,521,850
- -----------------------------------------------------------------
MANUFACTURING--0.2%
53,400 Millipore Corp. 2,359,613
- -----------------------------------------------------------------
MEDIA--0.2%
154,200 Tele Communications Inc.* 2,640,675
- -----------------------------------------------------------------
MEDIA/ENTERTAINMENT--3.8%
54,500 Central Newspapers, Inc. 3,804,781
106,900 Gannett Co. 10,616,506
166,200 Gaylord Entertainment Co. 3,853,763
133,100 New York Times Co. 6,688,275
237,610 Time Warner Inc. 12,964,596
114,300 Tribune Co. 6,050,756
- -----------------------------------------------------------------
43,978,677
- -----------------------------------------------------------------
MISCELLANEOUS-CONSUMER--0.5%
76,800 HBO & Company 5,942,400
- -----------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
NONFERROUS METALS--0.3%
42,400 Aluminum Company of America $ 3,752,400
- ---------------------------------------------------------
OFFICE & BUSINESS EQUIPMENT--0.3%
49,000 Xerox Corp. 4,030,250
- ---------------------------------------------------------
OIL & GAS--1.6%
181,800 Mobil Corp. 13,907,700
71,400 Schlumberger Ltd. 5,453,175
- ---------------------------------------------------------
19,360,875
- ---------------------------------------------------------
PACKAGING--0.3%
105,500 Owens Illinois Corp.* 3,639,750
- ---------------------------------------------------------
PHARMACEUTICALS--10.5%
428,800 Bristol-Myers Squibb 33,634,000
159,340 Eli Lilly & Co. 18,005,420
143,200 Merck & Co. 14,883,850
565,820 Pfizer, Inc. 33,737,018
237,800 Schering Plough Corp. 12,974,963
60,400 Sigma Aldrich Corp. 2,091,350
55,800 Warner Lambert Co. 7,794,563
- ---------------------------------------------------------
123,121,164
- ---------------------------------------------------------
RECREATIONAL PRODUCTS--0.3%
97,300 Hasbro Inc. 2,985,894
- ---------------------------------------------------------
RESTAURANTS--0.2%
54,300 McDonalds Corp. 2,918,625
- ---------------------------------------------------------
RETAIL--0.9%
82,300 CVS Corporation 4,680,813
122,200 Home Depot, Inc. 6,094,725
- ---------------------------------------------------------
10,775,538
- ---------------------------------------------------------
RETAIL TRADE--1.2%
259,230 Walgreen Co. 14,646,495
- ---------------------------------------------------------
SEMICONDUCTORS--0.7%
124,800 Avnet Inc. 8,213,400
- ---------------------------------------------------------
SOFTWARE & SERVICES--3.4%
76,900 Autodesk Inc. 3,258,638
58,600 Intuit Inc.* 1,475,988
147,700 Microsoft Corp.* 20,899,550
148,900 Oracle Corp.* 8,105,744
36,100 Peoplesoft, Inc.* 2,111,850
102,500 Sterling Commerce, Inc.* 3,862,969
- ---------------------------------------------------------
39,714,739
- ---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY FINANCE--2.6%
683,925 MBNA Corp. $ 30,776,625
- -----------------------------------------------------------------
SPECIALTY RETAIL--1.8%
90,100 Autozone, Inc.* 2,579,113
205,800 Tandy Corp. 12,232,238
174,300 Toys R US Inc.* 5,937,094
- -----------------------------------------------------------------
20,748,445
- -----------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT--2.4%
335,960 Lucent Technologies, Inc. 28,535,603
- -----------------------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--0.5%
86,300 Goodyear Tire & Rubber Co. 5,571,731
- -----------------------------------------------------------------
TOBACCO--1.8%
336,800 Philip Morris Companies, Inc. 15,198,100
202,000 UST Inc. 5,870,625
- -----------------------------------------------------------------
21,068,725
- -----------------------------------------------------------------
UTILITIES--0.5%
79,300 Aes Corp.* 6,264,700
- -----------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $798,962,978) $1,152,790,404
- -----------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- -----------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--2.3%
$27,500,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 27,500,000
- -----------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $27,500,000) $ 27,500,000
- -----------------------------------------------------------------
TOTAL INVESTMENTS
(COST $826,462,978)(A) $1,180,290,404
- -----------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 354,450,568
Gross unrealized loss for investments in which
cost exceeds value (1,068,462)
- -----------------------------------------------------------------
Net unrealized gain $ 353,382,106
- -----------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $826,908,298.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
31
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Mid Cap Equity Fund seeks long-term capital appreciation
primarily by investing at least 65% of its total assets in equities with market
capitalizations of between $500 million and $10 billion at the time of
investment. However, the fund currently intends to emphasize investments in
companies with market capitalizations of under $5 billion at the time of
investment. The fund is managed with a value style, which means we focus on
companies whose stocks we believe are inexpensive relative to their expected
long-term earnings growth and their asset value. Investments may include well-
known companies that are temporarily out of favor due to cyclical economic
conditions or are experiencing near-term difficulties the portfolio managers
judge to be temporary in nature. In-depth fundamental research of a company's
financial structure, its competitive position in the market and its
management's commitment to increasing shareholder value are all critical parts
of the fund's investment approach. Though we are not sector investors, we
closely monitor the fund's sector and industry exposures compared with the
benchmark in an effort to avoid unintentional over- or underweightings.
PERFORMANCE REVIEW: FUND ACHIEVED STRONG RESULTS
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
FUND TOTAL RUSSELL
RETURN MIDCAP
(BASED ON NET INDEX TOTAL
ASSET VALUE) RETURN
------------- -----------
<S> <C> <C>
Institutional* (1/31/97-7/31/97) 26.37% 17.63%
Service* (7/18/97-7/31/97) 2.87% N/A
</TABLE>
* Institutional and Service share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge. Performance for Service shares is from their inception date through the
end of the period.
WE ARE PLEASED TO NOTE THAT IN ADDITION TO SIGNIFICANTLY OUTPERFORMING THE
MID-CAP BENCHMARK DURING THE PERIOD, THE FUND'S INSTITUTIONAL SHARES ALSO
OUTPERFORMED THE BROADER LARGE-CAP MARKET, AS REPRESENTED BY THE S&P 500.
During the period, the market rally continued to be led by the largest, most
liquid stocks, which many investors perceived to be the most convenient vehicle
for rapid investment. As a result, the S&P 500 stock index, which is heavily
weighted toward large-cap stocks, returned 22.6%. In contrast, the mid-cap
sector of the market returned 17.6% (as measured by the Russell Midcap Index)
and small caps returned 13.1% (as measured by the Russell 2000 index).
FUND PERFORMED WELL RELATIVE TO ITS PEERS
The fund also fared very well compared with its peers. For the 12-month
period ended July 31, 1997, the fund's Institutional shares ranked second out
of 198 mid-cap funds, according to Lipper Analytical Services, Inc. (Please
note that Lipper rankings do not take sales charges into account and that past
performance is not a guarantee of future results. The fund's Service shares
were not ranked because they did not exist during the entire 12-month period.)
TOP PERFORMERS INCLUDED COMPANIES BENEFITING FROM RESTRUCTURING PROGRAMS AND
ACQUISITIONS
The fund's best performers during the period included several companies that
benefited from major restructuring initiatives. INTERNATIONAL MULTIFOODS CORP.,
a distributor of specialty foods, appreciated due to its new management's focus
on turning around its vending distribution business and the proposed sale of
its Canada Frozen bakery products unit. SUNBEAM CORP., INC., a leading consumer
products company, performed well as investors responded positively to its
dramatic reforms, which included major asset sales, improved distribution and a
new line of products. LENNAR CORP., a diversified homebuilder, announced its
intention to spin off its commercial real estate business and merge its
homebuilding operations with a major California builder. SHOPKO STORES, INC., a
leading regional retailer, decided to end its ownership by SuperValu, Inc. by
repurchasing
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
approximately 8.2 million shares of its common stock, which helped the market
focus on ShopKo's competitive strengths.
Other holdings contributed to the fund's positive results when they initiated
or accepted takeover offers. ROYAL CARIBBEAN CRUISE LINES LTD., the second
largest cruise operator, appreciated when it agreed to acquire Celebrity Cruise
Lines, and AMERICAN STATES FINANCIAL CORP., a property/casualty insurer, was
acquired by Safeco Corp. at a premium.
SPECIFIC ENERGY- AND UTILITY-RELATED STOCKS LAGGED
Not all of the fund's holdings fulfilled our expectations. UNICOM CORP., an
electric utility, was impacted by negative press and regulatory rulings, but we
believe the market has overreacted to these issues and continue to have
confidence in the company's fundamentals. In addition, we expect Unicom to
benefit from a recent change in senior management and an improving operating
environment. TOSCO CORP., an oil refiner and marketer, suffered from soft
margins in its West Coast refining operations due to excess supply during the
first half of the year. However, we are optimistic that the long-term supply-
and-demand situation will improve.
PORTFOLIO CHANGES
New positions included LEAR CORP., the world's largest supplier of automotive
interior systems, which appears to be well positioned to benefit from
automakers' trend toward outsourcing, and two computer hardware manufacturers:
BAY NETWORKS, INC., (networking and connectivity products) and QUANTUM CORP.
(disk drives and other information storage products).
During the period, we sold TERADYNE, INC., a manufacturer of semiconductor
testing equipment, and DECISIONONE CORP., the leading independent provider of
computer support services to U.S. companies, after they appreciated and reached
our price targets.
OUTLOOK
We remain committed to our strategy of identifying and purchasing stocks that
trade at a discount to their
TOP 10 EQUITY HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL NET
COMPANY LINE OF BUSINESS ASSETS
------- ---------------- ------------
<S> <C> <C>
Lear Corp. Autoparts/Original 3.9%
Equipment
Tosco Corp. Oil Refining and 3.2
Marketing
ShopKo Stores,
Inc. Discount Retailer 3.1
Quantum Corp. Computer Component 3.0
Manufacturer
Sunbeam Corp.,
Inc. Appliances 2.8
Darden 2.8
Restaurants Restaurants and
Inc. Hotels
Owens & Minor Health 2.7
Inc. Suppliers/Services
Goodyear Tire & Tire and Rubber 2.6
Rubber Co. Products
Quest
Diagnostics, Clinical
Inc. Laboratories 2.5
Republic New 2.5
York Corp. Banks
</TABLE>
intrinsic value. In a market that has been characterized by speculation and
momentum at different times since the beginning of 1995, we believe that a
value approach is well suited to weather the ups and downs associated with a
turbulent market.
/s/ Eileen A. Aptman /s/ Ronald E. Gutfleish
Eileen A. Aptman Ronald E. Gutfleish
Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
/s/ G. Lee Anderson
G. Lee Anderson
Portfolio Manager,
U.S. Active Equity Value
August 29, 1997
33
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.2%
AIRLINES--2.0%
102,400 Continental Airlines, Inc.* $ 3,840,000
- -------------------------------------------------------
APPLIANCE MANUFACTURER--2.8%
138,200 Sunbeam Corp. 5,407,075
- -------------------------------------------------------
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--3.9%
154,800 Lear Corp.* 7,411,050
- -------------------------------------------------------
BANKS--3.7%
176,400 National Bank of Canada 2,297,706
40,700 Republic of New York Corp. 4,700,850
- -------------------------------------------------------
6,998,556
- -------------------------------------------------------
CHEMICAL PRODUCTS--1.7%
60,800 Union Carbide Corp. 3,366,800
- -------------------------------------------------------
CHEMICALS-COMMODITY--0.8%
75,600 Geon Co. 1,455,300
- -------------------------------------------------------
DATACOM EQUIPMENT--4.6%
132,600 Bay Networks Inc* 4,044,300
271,200 Quest Diagnostics Inc.* 4,712,100
- -------------------------------------------------------
8,756,400
- -------------------------------------------------------
DEPARTMENT STORES--3.1%
199,900 ShopKo Stores Inc.* 5,772,113
- -------------------------------------------------------
ELECTRIC UTILITIES--5.8%
242,100 Central Maine Power Co. 3,268,350
125,400 Long Island Lighting Co. 3,080,138
201,200 Unicom Corp. 4,564,725
- -------------------------------------------------------
10,913,213
- -------------------------------------------------------
ENTERTAINMENT AND LEISURE--2.0%
96,400 Royal Caribbean Cruise Lines 3,825,875
- -------------------------------------------------------
FINANCIAL SERVICES--1.9%
75,800 American States Financial Corp. 3,519,963
- -------------------------------------------------------
FOOD--2.1%
142,000 International Multifoods Corp. 4,011,500
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FOREST PRODUCTS--3.4%
31,000 Georgia Pacific Corp. $ 2,927,563
208,300 Stone Container Corp.* 3,462,988
- -----------------------------------------------------
6,390,551
- -----------------------------------------------------
HEALTH & MEDICAL SERVICES--2.1%
297,700 Perrigo Co.* 3,870,100
- -----------------------------------------------------
HEALTHCARE MANAGEMENT--5.2%
118,700 Foundation Health Systems* 3,842,913
85,000 Sierra Health Services, Inc.* 2,794,375
105,200 Tenet Healthcare Corp.* 3,149,425
- -----------------------------------------------------
9,786,713
- -----------------------------------------------------
HOME BUILDERS--3.4%
44,900 Centex Corp. 2,503,175
104,600 Lennar Corp. 3,896,350
- -----------------------------------------------------
6,399,525
- -----------------------------------------------------
INSURANCE SPECIALTY--1.5%
80,900 Old Rep International Corp. 2,831,500
- -----------------------------------------------------
INSURANCE-LIFE--3.4%
68,849 American General Corp. 3,666,209
36,900 Reliastar Financial Corp. 2,829,769
- -----------------------------------------------------
6,495,978
- -----------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--1.8%
74,800 Allmerica Financial Corp. 3,309,900
- -----------------------------------------------------
MEDIA/ENTERTAINMENT--1.3%
78,200 Carmike Cinemas* 2,473,075
- -----------------------------------------------------
MEDICAL PRODUCTS AND SUPPLIES--4.8%
160,700 Imation Corporation* 3,947,194
347,200 Owens & Minor Inc. 5,164,600
- -----------------------------------------------------
9,111,794
- -----------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES--2.2%
52,300 Unionbancal Corporation 4,066,325
- -----------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- -----------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
OIL REFINING & MARKETING--6.3%
415,100 Groupe AB SA ADR* $ 3,242,969
192,400 Tosco Corp. 6,024,525
60,500 Valero Energy Corp.* 2,601,500
- -----------------------------------------------------
11,868,994
- -----------------------------------------------------
PACKAGING--1.5%
83,200 Owens Illinois Corp.* 2,870,400
- -----------------------------------------------------
PERSONAL COMPUTERS & PERIPHERALS--3.0%
196,400 Quantum Corp* 5,707,875
- -----------------------------------------------------
PHARMACEUTICALS--1.7%
65,935 Block Drug Co. 3,115,429
- -----------------------------------------------------
RESTAURANTS--2.8%
560,300 Darden Restaurants, Inc. 5,357,869
- -----------------------------------------------------
SEMICONDUCTORS--4.0%
62,600 Avnet Inc. 4,119,863
130,462 Vishay Intertechnology, Inc.* 3,489,859
- -----------------------------------------------------
7,609,722
- -----------------------------------------------------
STEEL--1.7%
70,300 AK Steel Holding Corp. 3,225,013
- -----------------------------------------------------
SUPERMARKETS--3.4%
168,800 Fleming Companies, Inc. 2,690,250
90,600 Supervalu, Inc. 3,669,300
- -----------------------------------------------------
6,359,550
- -----------------------------------------------------
TEXTILES--4.0%
168,000 Angelica Corp. 3,234,000
161,200 Fruit of The Loom, Inc.* 4,412,850
- -----------------------------------------------------
7,646,850
- -----------------------------------------------------
TIRE & OTHER RELATED RUBBER PRODUCTS--2.6%
76,200 Goodyear Tire & Rubber Co. 4,919,663
- -----------------------------------------------------
TRANSPORTATION-MISCELLANEOUS--1.7%
89,800 CNF Transportation Inc. 3,131,769
- -----------------------------------------------------
TOTAL COMMON STOCKS
(COST $136,678,430) $181,826,440
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Description Value
- --------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT--2.9%
$5,600,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 5,600,000
- --------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $5,600,000) $ 5,600,000
- --------------------------------------------------------------
TOTAL INVESTMENTS
(COST $142,278,430)(A) $187,426,440
- --------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 48,533,786
Gross unrealized loss for investments in which
cost exceeds value (3,408,004)
- --------------------------------------------------------------
Net unrealized gain $ 45,125,782
- --------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $142,300,658.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
35
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs International Equity Fund seeks long-term capital
appreciation by investing in equity securities of companies organized or traded
outside the U.S. that we believe have the potential to appreciate over the long
term. The fund focuses on growing companies that are attractively valued and
have strong, competitive positions in their respective industries. The fund's
portfolio managers are based in London, Tokyo and Singapore and their knowledge
of local markets plays an important role in uncovering investment
opportunities. While the fund does not allocate assets across specific
countries based on top-down economic or market forecasts, the portfolio
managers strive to manage risk by remaining diversified by country and industry
sector and by closely monitoring economic and political events in countries in
which the fund does invest.
MARKET OVERVIEW: EUROPEAN MARKETS PERFORMED BEST WHILE ASIA LAGGED
During the six-month period under review, slower than expected economic
growth persisted in several European and Asian countries while growth in other
countries, such as the U.K., accelerated. Most European equity markets
continued to perform very well, buoyed by healthy earnings and an increased
focus on improving shareholder value. In Asia, several markets posted strong
results while others were impacted by a variety of regional and country-
specific issues.
..Europe. Europe's overall economic recovery continued, but growth for specific
countries was mixed. The economies of the U.K., Spain, the Netherlands and
parts of Scandinavia showed the most improvement, while those of Germany and
France were disappointing despite signs of a moderate upturn. The climate for
equities in continental Europe remained positive, as stocks continued to
benefit from loose monetary policies, subdued inflation and the strong U.S.
dollar. During the period under review, the European equity markets climbed
26.1%, as measured by the FT/S&P Actuaries Europe Index in terms of local
currencies. However, the performance of U.K. equities lagged most European
markets as the strong pound sterling impacted the profitability of export-
dependent companies. In addition, investors feared further monetary tightening
would be necessary to rein in the U.K.'s rising inflationary pressures.
..Japan. For the six-month period ended July 31, Japanese stocks (as measured by
the TOPIX index in yen without dividends reinvested) rose 12.5%,
underperforming most other equity markets. Though Japan's economy strengthened,
the recovery remained fragile and investors lacked confidence in the
sustainability of corporate profits. With future earnings uncertain, investors
focused on international blue-chip stocks that benefited from the weakness of
the yen, and shied away from the rest of the market. Despite these concerns,
the market strengthened during the second half of the period, when healthy
demand from pension plans and foreign investors helped support equity prices.
..Asia (ex-Japan). The Asian stock markets returned 1.3% during the period, as
measured by the Morgan Stanley Capital International All Country Asia Free
(Ex Japan) Index (without dividends reinvested). The weak performance indicated
by the Index masks the extreme divergence of performance among the individual
Asian markets. For example, India rose 26.1%, Hong Kong returned 17.3%,
Thailand fell 7.4% and the Philippines dropped 22.7% (all in local currency
terms). Among the key events affecting the Asian markets during the period were
the July handover of Hong Kong to China and the devaluation of the Thai baht.
Though investor optimism regarding the handover helped buoy the region's
performance, the Thai devaluation sparked currency turmoil that impacted
several markets, such as the Philippines.
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
PERFORMANCE REVIEW: FUND OUTPERFORMED THE BENCHMARK PRIMARILY DUE TO SUCCESSFUL
STOCK SELECTION
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN FT/S&P ACTUARIES
(BASED ON NET EUROPE & PACIFIC
ASSET VALUE) INDEX TOTAL RETURN
----------------- ------------------
<S> <C> <C>
Class A* 20.81% 16.72%
Class B* 20.48% 16.72%
Institutional* 21.19% 16.72%
Service* 20.89% 16.72%
</TABLE>
* Class A, B, Institutional and Service share performance assumes reinvestment
of all dividends and distributions, a complete redemption at the net asset
value at the end of the period and no initial sales charge or contingent
deferred sales charge.
During the period, all of the fund's share classes outperformed the
benchmark, the Financial Times/S&P Actuaries Europe & Pacific Index ("Europac")
unhedged. (Europac is a capitalization-weighted composite of approximately
1,500 stocks from 23 countries in Europe and the Asia-Pacific region and is
calculated on a monthly basis.) We are also pleased to note that the fund
continued to perform well compared with its peers. For the three-year period
ended July 31, 1997, the fund's Class A shares were rated "four stars" (in a
universe of 555 international equity funds) by Morningstar, Inc., an
independent mutual fund rating agency./1/
- --------
/1/ Source: (C) 1997 Morningstar, Inc. All rights reserved. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of 7/31/97.
The ratings are subject to change every month. Past performance is no guarantee
of future results. Morningstar ratings are calculated from a fund's three-,
five- and ten-year average annual returns (where applicable) in excess of 90-
day Treasury bill returns with appropriate fee and sales charge adjustments and
a risk factor that reflects fund performance below 90-day Treasury bill
returns. The Morningstar rating applies only to the fund's Class A shares; the
fund's Class B, Institutional and Service shares have not been rated. Class B,
Institutional and Service shares are subject to additional fees and expenses
that may have the effect of lowering performance and may affect any future
Morningstar rating. Morningstar rates funds against peers in the same category.
In all, there are four Morningstar categories (domestic equity, international
equity, taxable bond and municipal). Morningstar ratings range from five stars
(highest) to one star (lowest). Funds with five-star ratings are in the top 10%
of their category, four-star ratings in the next 22.5%, three stars the next
35%, two stars the next 22.5% and one star the lowest 10% of their categories.
The fund's strong performance can primarily be attributed to successful stock
selection across regions. In addition, several of the fund's country weightings
favorably contributed to its results. These included an overweighting in
Europe, which performed well during the period, and a relative underweighting
in Japan and other Asian markets, which were generally weaker.
Europe. As of July 31, the fund was overweighted in European stocks relative
to the Index, 56.8% versus 53.0%. Two of the fund's best performers in the
region were temporary employment agencies ADECCO (Switzerland) and RANDSTAD
HOLDINGS (Netherlands), which appreciated due to earnings upgrades and a
cyclical upturn in the temporary employment industry. A number of technology-
related holdings also achieved strong results, including ASM LITHOGRAPHY (Dutch
manufacturer of wafer steppers), SGS THOMSON (French semiconductor
manufacturer), MISYS (British software manufacturer) and ERICSSON (Swedish
supplier of mobile handsets and infrastructure). In contrast, RENTOKIL GROUP
(British environmental services) suffered when the strong pound sterling
translated into weaker foreign earnings, which fueled concerns regarding the
company's ability to match its prior 20% annualized earnings growth record.
New European investments included ASM Lithography, one of only three volume
manufacturers of wafer stepper machines used in the manufacturing of
semiconductors. This stock performed very well since it was added, as noted.
Sales during the period included Randstad Holdings, which reached our price
target.
Japan. As of July 31, the fund's 30.5% allocation in Japan was underweighted
compared with the benchmark (32.6%). The Japanese portion of the fund
significantly outperformed the TOPIX index, as it held a large number of
internationally competitive export-oriented companies that fared well during
the period. SMC CORP., a manufacturer of pneumatic control devices used in
automated assembly lines, continued to benefit from its dominant market share
in Japan and successful
37
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
expansion of its overseas operations. CANON, INC., a manufacturer of office
equipment, cameras and computer peripherals, performed well due to good
earnings results and a bright outlook for PC peripherals. TDK CORP., an
electronic components manufacturer, continued to surprise the market with
better than expected profits resulting from its strong market position in
"magneto-resistive" type of hard disk drive heads. However, the performance of
MITSUBISHI HEAVY INDUSTRIES LTD. was disappointing due to a difficult pricing
outlook for the domestic electric power generation market. Japanese positions
initiated during the period include NINTENDO, one of the largest video game
manufacturers, which is positioned to benefit from Nintendo 64, its new game
platform, and ONO PHARMACEUTICAL CO., which introduced a new anti-asthma drug
with substantial market potential.
Asia-Pacific. The portfolio was underweighted in Asia (outside Japan)
compared with the benchmark, 8.7% versus 10.1%. One of the fund's best
performers in the region was ASIA SATELLITE TELECOMMUNICATION HOLDINGS LTD., a
leading satellite owner and operator in the Asia-Pacific region. The company
performed well when satellite utilization and transponder rates remained firm,
which eased market concerns that an impending oversupply of transponders would
impact the profitability of Asian satellite operators. In contrast, COMMERCE
ASSET HOLDINGS, the fifth largest financial group in Malaysia, came under
pressure due to concerns of a slowdown in future earnings growth resulting from
tighter monetary conditions, a more difficult operating environment for its
merchant banking and stockbrokerage businesses, and potential deterioration in
the credit quality of its loan portfolio. A new addition was VILLAGE ROADSHOW,
an Australian media and entertainment company with interests in cinema, radio,
theme park and resort businesses. The company appears to be well positioned to
benefit from aggressive expansion in Europe and Asia, as well as from a number
of partnerships that are expected to give it a competitive advantage.
PORTFOLIO COMPOSITION: DIVERSIFICATION BY COUNTRY AND INDUSTRY
As of July 31, 1997, 96.2% of the fund's net assets were invested in equities
and the remainder (4.8%) was invested in cash equivalents. The fund was widely
diversified by both country and industry, with positions in 60 companies based
in 16 countries. In terms of total net assets, the fund's five largest country
exposures were Japan (30.5%), the U.K. (13.5%), Sweden (7.6%), Switzerland
(7.0%) and Germany (6.9%).
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY (Line of Business) COUNTRY NET ASSETS
-------------------------- ------- ----------
<S> <C> <C>
Novartis Switzerland 3.6%
Pharmaceuticals
Rentokil Group U.K. 3.1
Environmental
Services
ASM Lithography Netherlands 2.9
Manufacturer of
Wafer Steppers
SMC Corp. Japan 2.8
Manufacturer of
Industrial
Controls
Canon, Inc. Japan 2.8
Office Equipment
Manufacturer
Hoechst Germany 2.7
Chemical and Drug
Manufacturer
Mitsubishi Heavy
Industries, Ltd. Japan 2.4
Heavy Machinery
Manufacturer
Bank of Ireland Ireland 2.4
Commercial Bank
Electrocomponents U.K. 2.4
Catalog
Distributor of
Industrial
Components
Adecco SA Switzerland 2.3
Commercial
Services
</TABLE>
38
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
OUTLOOK
We remain optimistic regarding the performance of European equities, given
the current favorable environment of low interest rates, contained
inflationary pressures and improved economic growth prospects. Furthermore,
currency devaluation relative to the U.S. dollar and the British pound is
helping strengthen European corporate competitiveness, while corporate
restructuring and the focus on enhancing shareholder value are trends that we
expect to continue unabated.
In Japan, we believe the market may consolidate in the short term, as
investors have become more cautious regarding the economic outlook due to
indications of economic softening. However, Japanese equities should continue
to benefit from a number of factors: Corporate fundamentals are expected to
remain sound, particularly for manufacturing companies; inflationary pressures
are still virtually nonexistent; and interest rates are unlikely to rise to
levels that would be harmful to the stock market.
We are generally positive on the long-term outlook of other Asian markets.
However, we remain cautious over the near term as the volatility of these
markets will be higher due to uncertainties resulting from the delinking of a
number of currencies from the U.S. dollar. Select Asian equities remain
attractively valued on a historical basis and are expected to benefit from a
pickup in export growth, improved inflation and a modest economic recovery
throughout the region subsequent to the currency devaluations. We will manage
our exposure in a conservative manner as we remain committed to our long-term
investment style.
FORTHCOMING MANAGEMENT TEAM CHANGES
During the period, Goldman Sachs Asset Management International continued to
expand and strengthen its global investment team. With growth comes change,
however, and we are sorry to announce that Messrs. Jack and Jongen, two of the
portfolio managers of the European portion of the fund, will be leaving
Goldman Sachs in September to pursue other opportunities. To ensure decision-
making continuity and a smooth transition, Messrs. Jack and Jongen have taken
an active role in integrating new members into the team. For example, James
Hordern, a specialist in European equities, joined the firm from Mercury Asset
Management in July, and we expect to add another senior European portfolio
manager shortly. The fund's investment process will continue to be based on a
team approach, which enables it to benefit from the contribution of several
viewpoints and a continuity of style, unlike an investment approach that is
dependent on specific individuals.
/s/ Ivor H. Farman
Ivor H. Farman
Portfolio Manager, London
/s/ Alessandro P. G. Lunghi
Alessandro P. G. Lunghi
Portfolio Manager, London
/s/ Shogo Maeda
Shogo Maeda
Portfolio Manager, Tokyo
/s/ Warwick M. Negus
Warwick M. Negus
Portfolio Manager, Singapore
August 29, 1997
39
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------
<C> <S> <C>
COMMON STOCKS--96.2%
AUSTRALIAN DOLLAR--3.0%
1,060,422 Australia & New Zealand
Bank Group (Commercial
Banks) $ 8,479,696
2,982,818 Village Roadshow
(Entertainment
& Leisure) 7,958,141
992,791 Woodside Petroleum, Ltd.
(Oil & Gas) 8,420,543
- ---------------------------------------------------
24,858,380
- ---------------------------------------------------
BRITISH POUND STERLING--13.5%
2,670,475 Electrocomponents
(Electronics) 19,806,549
1,857,248 Farnell Electronics
(Electronics) 15,633,965
754,039 Misys PLC (Business
Services) 18,806,989
7,108,918 Rentokil Group (Business
Services) 25,371,412
819,521 Siebe (Engineering) 14,792,264
1,053,405 Standard Chartered
(Banking) 17,363,097
- ---------------------------------------------------
111,774,276
- ---------------------------------------------------
DEUTSCHE MARK--6.9%
141,131 Adidas AG (Textiles) 16,552,259
88,741 Fresenius AG (Health
Care) 18,213,660
483,530 Hoechst AG (Health Care) 22,670,802
- ---------------------------------------------------
57,436,721
- ---------------------------------------------------
FRENCH FRANC--6.1%
90,735 CLF Dexia France
(Financial Services) 8,976,498
25,428 Comptoirs Modernes
(Retail Trade) 12,291,282
105,352 Credit Local de France
(Financial Services) 10,422,572
208,421 SGS Thomson
Microelectronics
(Electronics) 18,839,444
- ---------------------------------------------------
50,529,796
- ---------------------------------------------------
HONG KONG DOLLAR--3.5%
4,000,037 Asia Satellite Telephone
(Utility) 12,011,735
1,388,900 Dao Heng Bank Group
(Commercial Bank) 8,467,043
692,678 Sun Hung Kai Properties
Co.
(Real Estate) 8,700,411
- ---------------------------------------------------
29,179,189
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
IRISH POUND--2.4%
1,640,114 Bank of Ireland (Commercial Banks) $ 20,028,917
- ---------------------------------------------------------------------------
ITALIAN LIRA--3.9%
2,415,600 Ente Nazionale Idrocarburi (Oil & Gas) 14,097,734
3,811,980 Telecom Italia Mobile (Utility) 12,836,950
3,392,066 Telecom Italia Mobile (Di Risp Shares) (Utility) 5,853,045
- ---------------------------------------------------------------------------
32,787,729
- ---------------------------------------------------------------------------
JAPANESE YEN--30.5%
268,459 Aderans Company Ltd. (Retail Trade) 7,508,232
109,000 Autobachs Seven Co.
(Automobiles & Automobile Parts) 8,141,613
726,265 Canon, Inc.
(Office Equipment Manufacturer) 23,196,295
152,252 Hoya Corp. (Electronics) 7,718,732
285,108 Inaba Denkisangyo
(Electronics) 4,456,694
220,000 Ito En (Beverages) 4,926,067
397,497 Kokuyo Co., Ltd. (Computers/Office) 9,504,997
195,615 Kyocera Corp. (Electronics) 16,859,087
339,776 Max Co. (Office Equipment Manufacturer) 5,655,756
260,750 Mirai Industry Co. (Electronics) 5,177,545
2,853,707 Mitsubishi Heavy Industries Ltd. (Machinery) 20,133,884
2,639,790 Mitsui Marine & Fire (Insurance) 18,133,918
151,642 Nintendo (Toys) 15,375,614
253,000 Ono Pharmaceutical (Pharmaceuticals) 8,807,435
498,354 Santen Pharmaceutical Co. (Pharmaceuticals) 8,674,349
111,323 Sanyo Shinpan Financial (Financial) 6,753,689
357,654 Shimachu Co. (Retail-Furniture) 9,277,547
238,511 SMC Corp. (Machinery) 23,579,033
407,129 Taikisha Ltd. (Machinery) 6,157,675
376,002 Takeda Chemical Industry (Pharmaceuticals) 11,405,552
223,037 TDK Corp. (Consumer Goods) 19,222,453
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
JAPANESE YEN (CONTINUED)
409,835 Tostem Corp. (Building Materials) $ 9,211,331
122,727 York Benimaru (Food-Retailer) 3,411,676
- ------------------------------------------------------------------------
253,289,174
- ------------------------------------------------------------------------
MALAYSIAN RINGGIT--1.0%
1,645,557 Commerce Asset Holdings
(Commercial Banks) 4,117,792
581,000 United Engineers Malaysia (Engineering) 4,053,232
- ------------------------------------------------------------------------
8,171,024
- ------------------------------------------------------------------------
NETHERLANDS GUILDER--6.5%
173,039 Aegon (Insurance) 13,120,017
292,315 ASM Lithography HL
(Electronics-Semiconductors) 23,728,652
131,669 Wolters Kluwer (Publishing) 17,324,701
- ------------------------------------------------------------------------
54,173,370
- ------------------------------------------------------------------------
PHILIPPINE PESO--0.3%
13,746,266 Metro Pacific Corp.
(Wholesale Trade) 2,166,784
- ------------------------------------------------------------------------
PORTUGUESE ESCUDO--1.4%
682,475 Elec de Portugal (Utility) 11,562,336
- ------------------------------------------------------------------------
SINGAPORE DOLLAR--1.0%
1,850,266 Parkway Holdings (Conglomerate) 8,489,767
83 Singapore Land (Real Estate) 409
- ------------------------------------------------------------------------
8,490,176
- ------------------------------------------------------------------------
SPANISH PESETA--1.6%
60,358 Banco Popular (Commercial Banks) 13,357,266
- ------------------------------------------------------------------------
SWEDISH KRONA--7.6%
395,232 Ericsson Telecommunications (Computer/Office) 17,805,028
572,104 Securitas AB (Business Services) 16,632,389
648,000 Sparbanken Sverige (Banking) 14,210,348
4,685,493 Swedish Match AB (Tobacco) 14,854,823
- ------------------------------------------------------------------------
63,502,588
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SWISS FRANC--7.0%
49,797 Adecco SA (Commercial Services) $ 19,371,530
6,384 Cie Financier Richemont AG (Consumer Goods) 9,402,497
18,330 Novartis AG (Pharmaceuticals) 29,381,753
- -------------------------------------------------------------------------
58,155,780
- -------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $634,200,651) $799,463,506
- -------------------------------------------------------------------------
SHORT-TERM OBLIGATION--4.8%
$39,478,820 State Street Bank & Trust Euro-Time Deposit,
5.69%, 08/01/1997 $ 39,478,820
- -------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(COST $39,478,820) $ 39,478,820
- -------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $673,679,471)(A) $838,942,326
- -------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $178,334,650
Gross unrealized loss for investments in which cost
exceeds value (18,650,863)
- -------------------------------------------------------------------------
Net unrealized gain $159,683,787
- -------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $679,258,539.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
41
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS INTERNATIONAL EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
- -------------------------------------------
<S> <C>
COMMON STOCK INDUSTRY CONCENTRATIONS
- -------------------------------------------
Automobiles & Automobile Parts 1.0%
Banking 3.8%
Beverages 0.6%
Building Materials 1.1%
Business Services 7.3%
Commercial Banks 6.6%
Commercial Services 2.3%
Computers/Office 3.3%
Conglomerate 1.0%
Consumer Goods 3.4%
Electronics 10.6%
Electronics-Semiconductors 2.9%
Engineering 2.3%
Entertainment & Leisure 1.0%
Financial 0.8%
Financial Services 2.3%
Food Retailer 0.4%
Health Care 4.8%
Insurance 3.8%
Machinery 6.0%
Office Equipment Manufacturer 3.5%
Oil & Gas 2.7%
Pharmaceuticals 7.0%
Publishing 2.1%
Real Estate 1.0%
Retail-Furniture 1.1%
Retail Trade 2.4%
Textiles 2.0%
Tobacco 1.8%
Toys 1.9%
Utility 5.1%
Wholesale Trade 0.3%
- -------------------------------------------
Total Common Stocks 96.2%
- -------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
42
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Small Cap Equity Fund seeks long-term capital appreciation,
primarily through investments in equity securities of U.S. companies with
market capitalizations of $1 billion or less. The fund is managed according to
a "business value" approach to investing, which means we look for attractive
companies with high or improving returns on capital that we believe can achieve
solid, sustainable growth, as well as generate free cash after investing for
future growth. This approach differs markedly from many emerging growth small-
cap funds that invest in companies with high price-to-earnings multiples solely
on the basis of rapid, but frequently unsustainable, growth rates. Our rigorous
fundamental research includes meeting with a company's management and examining
a company's competitors, customers and suppliers.
NAME CHANGE
To more closely reflect the fund's value investment style, its name was
changed in August from the Goldman Sachs Small Cap Equity Fund to the Goldman
Sachs Small Cap Value Fund. Please note that the fund's objective and
investment focus remain the same.
PERFORMANCE REVIEW: FUND SIGNIFICANTLY OUTPERFORMED THE BENCHMARK
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET RUSSELL 2000
ASSET VALUE) TOTAL RETURN
----------------- ------------
<S> <C> <C>
Class A* 17.65% 13.07%
Class B* 17.26% 13.07%
</TABLE>
* Class A and B share performance assumes reinvestment of all dividends and
distributions, a complete redemption at the net asset value at the end of the
period and no initial sales charge or contingent deferred sales charge.
Overall, small-cap stocks continued to lag large-cap stocks during the
period, primarily due to the relatively weak performance of emerging growth
small caps early in the year. Though the emerging growth sector strengthened
during the second quarter, small-cap stocks with value characteristics, which
the fund emphasizes, significantly outperformed small-cap growth stocks for the
period as a whole. The period was marked by significant volatility, with the
Russell 2000 down nearly 10% toward the end of April, and then rebounding to
close up 13% at the end of July. The turbulence was primarily driven by
concerns over tightening monetary policy in the first quarter, which faded as
more moderate growth was reported in the second quarter.
THE FUND'S CLASS A AND CLASS B SHARES BOTH SIGNIFICANTLY OUTPERFORMED THE
BENCHMARK DURING THE PERIOD, PRIMARILY DUE TO SUCCESSFUL STOCK SELECTION IN A
WIDE RANGE OF INDUSTRIES. In general, the fund's best performers achieved
strong results relative to the benchmark due to several reasons:
..The stock prices of several holdings rebounded when company fundamentals
stabilized and began to improve after previous earnings disappointments or
operational difficulties. These included health-related companies such as
MARINER HEALTH GROUP INC. and SUN HEALTHCARE GROUP INC. (providers of long-term
care services) as well as specialty retailers such as GENERAL NUTRITION COS.
INC. (vitamins and nutrition supplements) and J. BAKER, INC. (men's apparel and
discount licensed shoe departments). The solid performance of Mariner Health
Group and Sun Healthcare Group was particularly notable as the healthcare
sector was among the weakest overall performers in the Russell 2000 over the
period.
..A number of stocks appreciated when their continued strong underlying growth
began to be more widely recognized by the market. These included two of the
fund's restaurant investments, IHOP CORP. and MORTON'S RESTAURANT GROUP, INC.;
financial stocks such as IPC HOLDINGS LTD. (catastrophe reinsurance) and HORACE
MANN EDUCATORS CORP. (property, casualty and life insurance for the educator
market); CARBIDE/GRAPHITE GROUP, INC. (a manufacturer of electrodes for steel
mini-
43
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
mills); and MOVADO GROUP INC. (owner of the Movado, Concord and Esquire watch
brands).
..Some holdings performed well when they received and accepted merger proposals.
These included HERITAGE MEDIA CORP. (in-store marketing products and services),
DECISIONONE CORP. (computer support provider) and LESLIE'S POOLMART, INC.
(swimming pool supplies).
An investment that did not meet our expectations was GROUPE AB, the largest
independent provider of content for French television, which declined due to
concerns over the potential cancellation of a major customer's expected youth
programming orders. We believe the market has overreacted to this news as
Groupe AB has the potential to benefit from the distribution of its library of
youth programming to other television broadcasters. In addition, the company
has large upside opportunity as one of three main providers of direct-to-home
satellite services in the French market.
NEW INVESTMENTS IN HEALTHCARE AND BASIC INDUSTRY, SALES IN SEVERAL HOLDINGS
New investments in healthcare during the period included QUEST DIAGNOSTICS,
INC., one of the top three clinical laboratories in the U.S., which is
positioned to benefit from its turnaround plan, and PHYSICIANS RESOURCE GROUP
INC., the leading provider of physician practice management services to
ophthalmic practices. In basic industry, new investments included FEDDERS
CORP., the largest manufacturer of room air conditioners in North America,
which has exciting international growth opportunities, and REXEL INC., a well-
managed, expanding distributor of electrical products to the construction and
utility industries.
During the period, we sold a number of holdings (e.g., HORACE MANN EDUCATORS
CORP., THE MORNINGSTAR GROUP and AMERICAN SAFETY RAZOR CO.) after they reached
our target prices. Though the fund's cash position increased significantly as a
result of new sales, we are gradually reinvesting the cash as we identify
attractive investments that meet our disciplined selection criteria.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY LINE OF BUSINESS NET ASSETS
------- ---------------- ----------
<S> <C> <C>
Movado Group, Luxury Watch 4.3%
Inc. Distributor
Friedman's, Inc. Jewelry Retailer 3.6
Groupe AB Media Content 3.5
Provider
Heritage Media Media/Marketing 3.2
Corp. Services
J. Baker, Inc. Specialty Apparel 2.8
Landstar System
Inc. Trucking 2.8
Quest
Diagnostics, Clinical
Inc. Laboratories 2.5
Terra Nova 2.5
Bermuda Property/Casualty
Holdings Insurance
Morton's Restaurants 2.5
Restaurant
Group, Inc.
DecisionOne Computer Support 2.5
Corp. Provider
</TABLE>
OUTLOOK
The stock market as a whole has reached historically high valuations as a
result of the most recent rally. However, we believe the outlook for small-cap
stocks is potentially more positive than that of large caps, as small-cap
valuations have remained at relatively modest levels. If the investment
environment becomes more volatile due to a deterioration in sentiment, stock
selection will play an increasingly important role in determining returns. We
remain optimistic that our disciplined, bottom-up investment approach will
enable us to continue to identify attractive opportunities.
/s/ Paul D. Farrell /s/ Matthew B. McLennan
Paul D. Farrell Matthew B. McLennan
Senior Portfolio Manager, Portfolio Manager,
U.S. Active Equity Value U.S. Active Equity Value
August 29, 1997
44
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--83.3%
AUTO/ORIGINAL EQUIPMENT MANUFACTURER--2.0%
889,700 APS Holding Corp.* $ 6,394,719
- ---------------------------------------------------------------
BANKS--0.8%
63,325 Banca U.S.* 1,021,116
94,200 Northwest Savings Bank 1,660,275
- ---------------------------------------------------------------
2,681,391
- ---------------------------------------------------------------
COMMERCIAL PRODUCTS--3.0%
211,000 Figgie International, Inc. Class A* 3,006,750
239,300 Figgie International, Inc. Class B* 3,305,331
194,600 Spartech Corp. 2,991,975
- ---------------------------------------------------------------
9,304,056
- ---------------------------------------------------------------
COMMERCIAL SERVICES--3.1%
151,700 Black Box Corp.* 5,537,050
74,600 Galileo International Inc.* 1,967,575
539,200 Opinion Research Corp.* 2,089,400
- ---------------------------------------------------------------
9,594,025
- ---------------------------------------------------------------
COMMUNICATIONS-MEDIA SERVICES--1.6%
176,700 Rural Cellular Corp.* 1,833,263
78,300 Telephone & Data Systems, Inc. 3,004,763
- ---------------------------------------------------------------
4,838,026
- ---------------------------------------------------------------
DATACOM EQUIPMENT--2.5%
327,700 DecisionOne Corp.* 7,598,544
- ---------------------------------------------------------------
ELECTRIC UTILITIES--2.4%
538,800 Central Maine Power Co. 7,273,800
- ---------------------------------------------------------------
ELECTRICAL EQUIPMENT--4.3%
187,700 Carbide/Graphite Group* 5,443,300
378,300 Fedders Corp Class A* 2,246,156
258,100 Fedders Corp. 1,564,731
214,900 Rexel, Inc.* 3,921,925
- ---------------------------------------------------------------
13,176,112
- ---------------------------------------------------------------
ENGINEERING--0.2%
59,500 RCM Technologies* 654,500
- ---------------------------------------------------------------
ENTERTAINMENT AND LEISURE--1.3%
11,600 CMP Media Inc.* 313,200
70,100 Royal Caribbean Cruise Lines 2,782,094
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENTERTAINMENT AND LEISURE (CONTINUED)
44,700 Silverleaf Resorts, Inc.* $ 877,238
- ---------------------------------------------------------
3,972,532
- ---------------------------------------------------------
FINANCIAL SERVICES--0.9%
118,500 Amerin Corp.* 2,918,063
- ---------------------------------------------------------
FOOD--0.4%
259,900 Cadiz Land Co., Inc.* 1,348,231
- ---------------------------------------------------------
FOOD PRODUCERS--1.0%
374,600 Alpine Lace Brands, Inc.* 3,043,625
- ---------------------------------------------------------
HEALTH & MEDICAL SERVICES--1.9%
82,100 Matria Healthcare, Inc.* 369,450
61,100 Perrigo Co.* 794,300
564,100 Physicians Resource Group I* 4,724,338
- ---------------------------------------------------------
5,888,088
- ---------------------------------------------------------
HEALTHCARE MANAGEMENT--7.3%
443,200 Mariner Health Group, Inc.* 5,955,500
445,300 Quest Diagnostics Inc.* 7,737,088
164,200 Sierra Health Services, Inc.* 5,398,075
168,300 Sun Healthcare Group, Inc.* 3,565,856
- ---------------------------------------------------------
22,656,519
- ---------------------------------------------------------
HOME FURNISHING & SERVICES--0.7%
197,600 Congoleum Corp.* 2,198,300
- ---------------------------------------------------------
INSURANCE-LIFE--0.3%
37,300 ARM Financial Group, Inc.* 773,975
- ---------------------------------------------------------
INSURANCE-PROPERTY AND CASUALTY--7.0%
142,700 IPC Holdings Ltd. 4,245,325
117,700 Scpie Holdings, Inc. 3,104,338
126,600 Seibels Bruce Group* 1,076,100
301,900 Symons International Group* 5,660,625
329,600 Terra Nova Bermuda Holdings 7,663,200
- ---------------------------------------------------------
21,749,588
- ---------------------------------------------------------
JEWELRY--4.3%
458,075 Movado Group, Inc. 13,284,175
- ---------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
45
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS SMALL CAP EQUITY FUND (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
- --------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MEDIA--3.7%
1,369,400 Groupe AB SA ADR* $ 10,698,438
34,400 Scientific Games Holdings, Inc.* 597,270
- --------------------------------------------------------------
11,295,708
- --------------------------------------------------------------
MEDIA/ENTERTAINMENT--1.1%
432,300 International Post Ltd.* 1,296,900
367,400 Platinum Entertainment, Inc.* 2,158,475
- --------------------------------------------------------------
3,455,375
- --------------------------------------------------------------
PACKAGING--0.6%
93,600 Shorewood Packaging Corp.* 1,977,300
- --------------------------------------------------------------
PHARMACEUTICALS--0.5%
87,900 Chirex, Inc.* 1,505,288
- --------------------------------------------------------------
RADIO AND TELEVISION BROADCASTING--4.8%
562,800 Heritage Media Corp.* 9,919,350
370,200 Pegasus Communications, Inc.* 4,905,150
- --------------------------------------------------------------
14,824,500
- --------------------------------------------------------------
REAL ESTATE--1.1%
186,800 Insignia Financial Group, Inc.* 3,549,200
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--1.0%
132,900 Boykin Lodging Trust Inc 3,148,069
- --------------------------------------------------------------
RECREATIONAL PRODUCTS--0.8%
335,800 DSI Toys Inc.* 2,518,500
- --------------------------------------------------------------
RESTAURANTS & HOTELS--3.4%
90,700 IHOP Corp.* 2,879,725
362,000 Mortons Restaurant Group, Inc.* 7,602,000
- --------------------------------------------------------------
10,481,725
- --------------------------------------------------------------
RETAIL HARDGOODS--3.7%
731,000 Brookstone Inc.* 6,487,625
290,700 Finlay Enterprises, Inc.* 4,941,900
- --------------------------------------------------------------
11,429,525
- --------------------------------------------------------------
SPECIALTY FINANCE--1.3%
341,500 Long Beach Financial Corp.* 3,927,250
- --------------------------------------------------------------
SPECIALTY RETAIL--9.5%
720,100 Friedmans, Inc.* 11,071,538
43,100 General Nutrition Companies, Inc.* 1,228,350
</TABLE>
<TABLE>
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SPECIALTY RETAIL (CONTINUED)
67,100 Hibbett Sporting Goods, Inc.* $ 1,526,525
999,300 J. Baker, Inc. 8,743,875
34,900 Linens N'things, Inc.* 981,563
765,300 Loehmann's, Inc.* 5,309,269
125,400 Multiple Zones International, Inc.* 603,488
- ---------------------------------------------------------------
29,464,608
- ---------------------------------------------------------------
STEEL--1.3%
84,400 J & L Specialty Steel, Inc. 1,139,400
153,500 Lukens Inc. 2,935,688
- ---------------------------------------------------------------
4,075,088
- ---------------------------------------------------------------
TEXTILES--1.8%
151,800 Pluma, Inc.* 2,191,613
144,900 Synthetic Industries, Inc.* 3,396,086
- ---------------------------------------------------------------
5,587,699
- ---------------------------------------------------------------
TRUCKING--3.7%
193,400 Allied Holdings, Inc.* 2,949,350
341,900 Landstar Systems, Inc.* 8,547,500
- ---------------------------------------------------------------
11,496,850
- ---------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $230,250,550) $258,084,954
- ---------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.1%
$ 500,000 J. Baker, Inc.
7.0%, 06/01/02 $ 446,250
- ---------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $498,537) $ 446,250
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Contracts Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS--0.3%
500 S&P 500 Index Put Strike 900
exp.09/97 $ 518,750
200 S&P 500 Index Put Strike 825
exp.09/97 47,500
300 S&P 500 Index Put Strike 775
exp.09/97 30,000
350 S&P 500 Index Put Strike 800
exp.09/97 48,125
500 S&P 500 Index Put Strike 875
exp.09/97 325,000
- ------------------------------------------------------------------------------
969,375
- ------------------------------------------------------------------------------
TOTAL OPTIONS
(COST $3,270,771) $ 969,375
- ------------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS--16.1%
$49,800,000 Joint Repurchase Agreement Account
5.84%, 08/01/97 $ 49,800,000
- ------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(COST $49,800,000) $ 49,800,000
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $283,819,858)(A) $309,300,579
- ------------------------------------------------------------------------------
<CAPTION>
Contracts Description Value
- ------------------------------------------------------------------------------
<C> <S> <C>
OPTIONS WRITTEN--(0.2%)
CALL OPTIONS WRITTEN
500 Black Box Corp., Call Strike $35 expiring 09/20/97 262,500
500 Black Box Corp., Call Strike $40 expiring 09/20/97 100,000
400 General Nutrition Companies, Inc., Call Strike $25
expiring 10/18/97 185,000
400 Royal Caribbean Cruise Lines Call Strike $40
expiring 09/20/97 80,000
- ------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $528,963) 627,500
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Description Value
- -------------------------------
<C> <S> <C>
FEDERAL INCOME TAX
INFORMATION:
Gross
unrealized
gain for
investments in
which value
exceeds cost $ 52,656,504
Gross
unrealized
loss for
investments in
which cost
exceeds value (27,422,188)
- -------------------------------
Net unrealized
gain $ 25,234,316
- -------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $284,066,263.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
47
<PAGE>
Letter to Shareholders
- -------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
OBJECTIVE AND INVESTMENT APPROACH
The Goldman Sachs Asia Growth Fund seeks long-term capital appreciation by
investing in a limited number of carefully selected companies located in 12
Asian markets: China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand.
We utilize extensive fundamental research in our search for well-managed
companies whose stock prices are, in our opinion, undervalued in the
marketplace. Because many companies in the Asian region are growing at
relatively rapid rates, we consider a company's return on capital, its price-
to-book value and the predictability of its earnings stream as among the best
measures of its intrinsic value. A strong market position and a skilled
management team dedicated to maximizing shareholder returns are also important
to us. Our investment process includes face-to-face meetings with senior
management as well as frequent contact with a company's customers, suppliers
and competitors.
While our primary focus is on stock selection, we seek to carefully manage
risk by diversifying the fund's portfolio in terms of countries, industry
sectors and size of capitalization. We are also mindful of making certain that
the market for a particular stock is relatively liquid, so we can easily sell
a position if our opinion changes. From time to time, we may choose to
significantly overweight or underweight our holdings in a country compared
with our benchmark, if we believe there is a compelling reason to do so.
Finally, we closely monitor the potential impact of political and economic
events in the region on particular companies and adjust the portfolio
accordingly.
MARKET OVERVIEW: REGIONAL FACTORS DAMPENED PERFORMANCE OF SEVERAL KEY MARKETS
Asian stock markets returned 1.3% during the period, as measured by the MSCI
All Country Asia Free (Ex Japan) Index (without dividends reinvested). During
the first half of the period, several key issues dampened the region's
performance, including continued uncertainty in Thailand, the results of the
Indian budget process and several weaker than expected Asian economic
indicators. In May and June, the Asian equity markets improved as earlier
concerns eased and investors grew increasingly optimistic regarding the Hong
Kong handover. The period closed on a volatile note, however, when Thailand's
devaluation of the baht sparked currency turmoil throughout the region,
particularly the ASEAN (Association of South East Asian Nations) countries.
On an individual country level, Taiwan and India were two of the strongest
performing markets, rising 31.4% and 26.7%, respectively (in U.S. dollar
terms). Taiwan's market benefited from local liquidity, an accommodative
monetary policy and a constant inflow of foreign capital, all of which helped
it reach a seven-year record high in July. In India, stocks briefly came under
pressure due to political uncertainty but recovered when Indian politicians
renewed their commitment to liberalization and deregulation. Hong Kong, the
most heavily weighted country in the Index, also performed well, particularly
during the latter half of the period when property stocks rebounded on
positive sentiment related to the July handover and China-related "red-chip"
stocks soared on investor excitement over China's potential asset injections.
In contrast, several markets experienced sharp declines. Thailand was one of
the weakest performers, as it suffered from an overextended financial sector,
sharp downgrades to earnings forecasts and an uncertain political outlook. The
Thai situation impacted countries such as Malaysia and the Philippines, where
spillover concerns regarding a run on their respective currencies led
investors to decrease their weightings in those stock markets.
48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
PERFORMANCE REVIEW: TOP PERFORMING STOCKS IN A VARIETY OF MARKETS
PERFORMANCE SUMMARY: JANUARY 31, 1997--JULY 31, 1997
<TABLE>
<CAPTION>
FUND TOTAL RETURN
(BASED ON NET MSCI AC ASIA FREE
ASSET VALUE) (EX JAPAN) INDEX+
----------------- -----------------
<S> <C> <C>
Class A* 1.29% 1.30%
Class B* 0.99% 1.30%
Institutional* 1.59% 1.30%
</TABLE>
* Class A, B and Institutional share performance assumes reinvestment of all
dividends and distributions, a complete redemption at the net asset value at
the end of the period and no initial sales charge or contingent deferred sales
charge.
+ Represents a price-only index that does not reflect reinvested dividends.
Though the region's performance was generally weak, the fund benefited from
our specific stock selections. Several of the fund's country weightings also
worked in its favor, such as its overweighting in Hong Kong, which performed
well, and its underweighting in Thailand and Malaysia, two of the weakest
markets. Conversely, the fund's overweighting in the Philippines was negative
for the portfolio.
The fund's top performers came from a variety of different countries. In
India, HINDUSTAN LEVER, LTD., which is 51% owned by Unilever, appreciated as
its core business in detergents and soaps achieved strong growth rates and its
merger with Brooke Bond Lipton India Ltd. was finally approved by the Indian
Supreme Court. TAIWAN-SOGO SHINKONG, a Taiwan-based security services company
that controls approximately 38% of the market, recorded strong results driven
by increased demand for its products following several high-profile kidnappings
in Taiwan.
The fund's overweighting in Hong Kong's banking sector also contributed
significantly to performance as our bank stocks did very well, particularly in
May. HSBC HOLDINGS PLC, a banking and financial services organization, rose
approximately 50% during the period due to a favorable re-rating and strong
earnings fueled by fast growth in the Hong Kong banking market. Other favorable
investments in the sector were WING HANG BANK LTD., the portfolio's largest
holding as of July 31, and DAO HENG BANK GROUP LTD., a new position added
during the period.
PORTFOLIO COMPOSITION
As of July 31, 1997, 93.6% of the fund's net assets was invested in equities
and 6.0% was in cash equivalents, with the remainder in other securities. By
country, the portfolio's five largest allocations were in Hong Kong (40.6%),
Malaysia (12.1%), Singapore (10.5%), India (6.2%) and Taiwan (6.1%). Compared
with the Index, as of the end of the period, the portfolio was overweighted in
Hong Kong and the Philippines and underweighted in Malaysia, Indonesia,
Thailand and Taiwan.
The fund's 40.6% allocation in Hong Kong included 4.4% in China-based
companies that are traded on the Hong Kong stock exchange. The fund has not
made any direct investments in China due to its poor regulatory environment and
generally weak company management. Instead, we seek to participate in China's
growth potential through China-related stocks in other countries or stocks of
companies that operate in China but are listed on the Hong Kong exchange, where
companies are required to meet higher standards. We expect these management
issues and stock market regulations to continue under Hong Kong's new China-
appointed Special Administrative Region (SAR) government. In addition, we
expect to limit the fund's exposure to "red-chip" stocks traded in Hong Kong,
as most of them are trading at a substantial premium to their asset values with
little or no fundamental justification.
PORTFOLIO CHANGES INCLUDED NEW POSITIONS IN HEALTHCARE AND PROPERTY DEVELOPMENT
STOCKS
During the period, we added a number of stocks to the portfolio. In March, we
initiated a position in PARKWAY HOLDINGS (Singapore), the largest healthcare
group in the region, which is currently focusing on
49
<PAGE>
Letter to Shareholders
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
regional expansion and has established hospitals in Indonesia, Malaysia and
India. Another new investment was NEW WORLD DEVELOPMENT, a Hong Kong-based
property developer with rapidly increasing exposure to projects in China. New
World Development is expected to be one of the prime beneficiaries of the land
supply policies of the new SAR government. During the period, we sold
METROPOLITAN BANK AND TRUST, the largest bank in the Philippines, due to its
expensive valuation and a deterioration of the company's fundamentals.
TOP 10 PORTFOLIO HOLDINGS AS OF JULY 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
COMPANY (LINE OF BUSINESS) COUNTRY NET ASSETS
-------------------------- ------- ----------
<S> <C> <C>
Wing Hang Bank Ltd. Hong Kong 4.1%
Banking and
Finance
Taiwan-Sogo
Shinkong Taiwan 4.0
Consumer Goods and
Services
Dao Heng Bank Group
Ltd. Hong Kong 3.7
Banking and
Finance
Hutchison Whampoa Hong Kong 3.7
Conglomerate
Hong Kong Electric
Holdings Hong Kong 3.7
Utilities
New World
Development Hong Kong 3.5
Real Estate
HKR International
Ltd. Hong Kong 3.4
Real Estate
Asia Satellite
Telecommunications Hong Kong 3.4
Telecommunications
Dah Sing Financial Hong Kong 3.3
Banking and
Finance
Hindustan Lever,
Ltd. India 3.3
Consumer Products
</TABLE>
OUTLOOK
We are generally positive on the long-term outlook of the Asian markets.
However, we remain cautious over the near term as the volatility of these
markets will be higher due to uncertainties resulting from the delinking of a
number of currencies from the U.S. dollar. Select Asian equities remain
attractively valued on a historical basis and are expected to benefit from a
pickup in export growth, improved inflation and a modest economic recovery
throughout the region subsequent to the currency devaluations. We will manage
our exposure in a conservative manner as we remain committed to our long-term
investment style.
We intend to focus our investments in those countries with strong domestic
growth. We expect to maintain the fund's overweighting in Hong Kong, as we
anticipate most companies will continue to perform well under its new China-
appointed government. Hong Kong's political situation is currently marked by
concerns that China might implement drastic changes that could jeopardize the
existing laissez-faire environment that Hong Kong has thrived on, as well as
rumors that the SAR government may introduce measures to cool the property
sector. However, we believe the Hong Kong equity market will benefit from
strong earnings momentum and increased exposure to the recovering Chinese
economy. We also favor some of the smaller Asian markets where we expect
macroeconomic conditions to improve. In particular, subsequent to their
currency devaluations, both the Philippines and Indonesia should enjoy better
economic climates amongst the Asian countries, and should continue to record
improved export growth and healthy corporate profits.
In contrast, we intend to limit our exposure to Thailand, which continues to
experience structural problems. To rebuild the Thai economy, Thailand will need
to implement a series of fiscal tightenings and a comprehensive restructuring
in the months and years ahead to correct the past misallocation of resources.
We will also remain underweighted in Malaysia, where economic overheating
remains a concern.
In general, we expect Asian markets will benefit over time as foreign
investment in the region increases. Therefore, we urge investors to be prepared
to withstand periods of volatility and to view the fund as a long-term
investment opportunity.
50
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
/s/ Warwick M. Negus
Warwick M. Negus
Senior Portfolio Manager,
Asia Active Equity
/s/ Alice Lui
Alice Lui
Portfolio Manager,
Asia Active Equity
/s/ Ravi Shanker
Ravi Shanker
Portfolio Manager,
Asia Active Equity
/s/ Karma A. Wilson
Karma A. Wilson
Portfolio Manager,
Asia Active Equity
August 29, 1997
51
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASIA GROWTH FUND
July 31, 1997
(Unaudited)
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Shares Description Value
- -------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--89.4%
HONG KONG DOLLAR--40.6%
3,049,000 Asia Satellite Telephone (Telecommunications) $ 9,155,861
17,231,000 Beijing Datang Power Gen-H
(Utility) 8,735,121
1,420,600 Dah Sing Financial
(Banking) 9,063,951
1,660,000 Dao Heng Bank Group
(Banking) 10,119,729
6,103,440 HKR International Ltd. (Real Estate) 9,183,736
2,447,500 Hong Kong Electric Holdings (Utility) 9,989,151
95,283 HSBC Holdings (Banking) 3,322,752
1,028,000 Hutchison Whampoa (Diversified) 10,024,411
1,309,000 New World Development Co.
(Real Estate) 9,425,476
670,000 Sun Hung Kai Properties Co.
(Real Estate) 8,415,563
916,000 Swire Pacific Ltd. "A" (Diversified) 8,695,641
1,877,000 Wing Hang Bank Ltd.
(Banking) 11,224,424
11,000,000 Zhejiang Expressway (Construction) 3,267,678
- -------------------------------------------------------------------------------
110,623,494
- -------------------------------------------------------------------------------
INDIAN RUPEE--6.2%
190,000 Colgate Palmolive (Consumer Goods and Services) 1,716,627
227,600 Hindustan Lever Ltd.
(Consumer Goods and Services) 9,047,889
427,000 ITC Ltd. (Consumer Goods and Services) 6,160,667
644 Larsen & Toubro Ltd. (Heavy Industry) 4,858
350 Mahindra & Mahindra Ltd.
(Automotive) 4,309
400 Niit Limited (Technology) 5,065
- -------------------------------------------------------------------------------
16,939,415
- -------------------------------------------------------------------------------
INDONESIAN RUPIAH--6.0%
2,374,750 Indofoods Sukses Makmur--Foreign (Consumer Goods and
Services) 4,949,288
464,300 Peregrine Indo Food ADR (Food) 1,420,758
2,346,000 PT Bank of Bali--Foreign (Banking) 6,504,207
2,613,000 PT Jaya Real Property--Foreign
(Real Estate) 3,497,323
- -------------------------------------------------------------------------------
16,371,576
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
Shares Description Value
- -----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
MALAYSIAN RINGGIT--11.9%
1,703,800 Commerce Asset Holdings
(Banking) $ 4,263,537
1,919,000 Road Builder Malaysia Holdings
(Construction & Infrastructure) 8,003,412
1,695,000 Tenaga National Berhad (Utility) 6,812,133
1,470,000 UMW Holdings Berhad
(Automotive) 5,796,398
1,081,000 United Engineers Malaysia (Construction
and Infrastructure) 7,541,384
- -----------------------------------------------------------------------------
32,416,864
- -----------------------------------------------------------------------------
NEW TAIWAN DOLLAR--6.1%
2,673,750 Kindom Construction Co. Ltd.
(Real Estate) 5,869,207
2,791,677 Taiwan-Sogo Shinkong (Consumer Goods and Services) 10,894,349
- -----------------------------------------------------------------------------
16,763,556
- -----------------------------------------------------------------------------
PHILIPPINE PESO--5.3%
7,971,000 Ayala Land Inc. "B" (Real Estate) 5,809,373
1,169,570 Manila Electric Co., Class B
(Utility) 4,995,452
23,028,400 Metro Pacific Corp., Class A
(Diversified) 3,629,900
- -----------------------------------------------------------------------------
14,434,725
- -----------------------------------------------------------------------------
SINGAPORE DOLLAR--10.5%
858,000 City Developments (Real Estate) 7,290,463
356,750 Keppel Land Warrants (Real Estate) 329,808
949,800 Overseas Union Bank--Foreign (Banking) 6,165,855
1,860,000 Parkway Holdings (Consumer
Goods and Services) 8,534,430
337,000 Singapore Press Holdings--Foreign (Media) 6,391,340
- -----------------------------------------------------------------------------
28,711,896
- -----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
SOUTH KOREAN WON--2.7%
7,132 Samsung Fire & Marine Insurance
(Financial Services) $ 2,931,332
4,758 SK Telecom (Telecommunications) 3,536,424
86,920 SK Telecom ADR (Telecommunications) 999,579
- ---------------------------------------------------------------------
7,467,335
- ---------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $211,826,215) $243,728,861
- ---------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--0.2%
MALAYSIAN RINGITT--0.2%
MYR1,024,000 United Engineers Malaysia (Construction)
4.00%, 05/22/99 $ 628,954
- ---------------------------------------------------------------------
TOTAL CORPORATE BONDS
(COST $521,580) $ 628,954
- ---------------------------------------------------------------------
STRUCTURED NOTES--4.4%
$ 1,000,000 SK Telecom $ 981,300
783,987 Taiwan Index Linked Note 10,928,779
- ---------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(COST $10,935,000) $ 11,910,079
- ---------------------------------------------------------------------
<CAPTION>
Shares Description Value
- ---------------------------------------------------------------------
<C> <S> <C>
EQUITY LINKED NOTE--0.2%
$ 1,308 SK Telecom (Telecommunications) $ 690,716
- ---------------------------------------------------------------------
TOTAL EQUITY LINKED NOTE
(COST $667,627) $ 690,716
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
- ------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM OBLIGATIONS--6.0%
$16,284,594 State Street Bank & Trust Euro-Time Deposit
5.687%, 08/01/97 $ 16,284,594
- ------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $16,284,594) $ 16,284,594
- ------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $240,235,016)(A) $273,243,209
- ------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $ 42,057,404
Gross unrealized loss for investments in which cost
exceeds value (13,554,092)
- ------------------------------------------------------------------------
Net unrealized gain $ 28,503,312
- ------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $243,331,769.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
<TABLE>
- ----------------------------
<S> <C> <C>
COMMON STOCKS INDUSTRY
CONCENTRATIONS
- ----------------------------
Automotive 2.1%
Banking 18.5%
Construction and
Infrastructure 6.9%
Consumer Goods and
Services 15.1%
Diversified 8.2%
Engineering + Others 0.2%
Financial Services 1.1%
Food 0.5%
Heavy Industry 0.0%
Media 2.3%
Real Estate 18.3%
Technology 0.0%
Telecommunications 5.0%
Utility 11.2%
- ----------------------------
TOTAL COMMON STOCKS 89.6%
- ----------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
53
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
-------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(identified cost $127,753,734, $377,598,149,
$28,826,861, $826,462,978, $142,278,430,
$673,679,471, $283,819,858 and $240,235,016,
respectively) $145,647,765 $542,098,398
Cash, at value 24,774 93,046
Receivables:
Investment securities sold 3,238,030 --
Forward foreign currency exchange contracts -- --
Fund shares sold 879,535 5,489,136
Dividends and interest 651,887 496,369
Variation margin 9,657 20,000
Deferred organization expenses, net 29,512 --
Other assets 70,779 11,347
- ------------------------------------------------------------------------------
TOTAL ASSETS 150,551,939 548,208,296
- ------------------------------------------------------------------------------
LIABILITIES:
Options Written, at value (premium received,
$528,963) -- --
Payables:
Investment securities purchased 16,714,962 --
Forward foreign currency exchange contracts 11,101 --
Fund shares repurchased 80,696 123,745
Capital gains tax -- --
Amounts owed to affiliates 184,578 780,165
Variation margin -- --
Accrued expenses and other liabilities 39,439 128,711
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 17,030,776 1,032,621
- ------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 108,955,474 354,693,448
Accumulated undistributed (distributions in
excess of) net investment income (loss) 339,584 2,043,010
Accumulated undistributed (distributions in
excess of) net realized gain (loss) on
investment, option and futures transactions 6,207,098 25,574,291
Accumulated net realized foreign currency
loss (2,148) --
Net unrealized gain on investments, options
and futures 18,014,255 164,864,926
Net unrealized gain (loss) on translation of
assets and liabilities denominated in
foreign currencies 6,900 --
- ------------------------------------------------------------------------------
NET ASSETS $133,521,163 $547,175,675
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class A Class B
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Total shares of beneficial
interest outstanding, $.001 par
value
(100,000,000 and 25,000,000
shares authorized for each
Class A and B, respectively) 5,812,234 434,759 11,508,646 1,352,331
Net asset and Class A redemption
value per share(a) $21.38 $21.30 $28.47 $28.23
Maximum public offering price
per share (Class A
NAV X 1.0582) $22.62 $21.30 $30.13 $28.23
<CAPTION>
Institutional Service Institutional Service
------------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Total shares of beneficial
interest outstanding, $.001 par
value
(50,000,000 shares per each
class authorized) -- -- 6,121,100 197,898
Net asset value, offering and
redemption price per share -- -- $28.71 $28.43
- -------------------------------------------------------------------------------
</TABLE>
(a) At redemption, Class B shares are subject to a contingent deferred sales
charge assessed on the amount equal to the lesser of the current net asset
value or the original purchase price of the shares.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP CAPITAL GROWTH MID CAP INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
GROWTH FUND FUND EQUITY FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$32,639,495 $1,180,290,404 $187,426,440 $838,942,326 $309,300,579 $273,243,209
10,398 54,166 43,278 160,110 210,038 2,861,814
-- -- 819,883 457,596 1,947,290 --
-- -- -- 7,725,121 -- --
1,001,965 4,256,988 1,044,197 5,090,337 3,836,809 350,379
21,085 897,205 152,413 468,788 69,615 422,050
-- -- -- -- -- --
47,479 -- 51,544 7,346 6,789 61,377
47,701 9,494 66,516 524,549 750 24,844
- ------------------------------------------------------------------------------------------------
33,768,123 1,185,508,257 189,604,271 853,376,173 315,371,870 276,963,673
- ------------------------------------------------------------------------------------------------
-- -- -- -- 627,500 --
407,378 8,221,644 359,116 15,473,640 4,112,414 783,887
-- -- -- 707,762 -- --
612 311,158 -- 4,371,624 343,333 482,630
-- -- -- -- -- 1,408,129
42,652 1,795,928 107,071 1,646,456 543,850 596,421
-- -- -- -- -- 779,796
90,508 60,368 44,441 464,249 4,781 225,073
- ------------------------------------------------------------------------------------------------
541,150 10,389,098 510,628 22,663,731 5,631,878 4,275,936
- ------------------------------------------------------------------------------------------------
29,040,278 691,258,887 120,969,622 614,334,694 256,493,400 256,752,469
24,537 609,537 580,925 1,036,836 (620,559) (792,684)
349,524 129,423,309 22,395,086 45,368,038 28,484,967 (12,411,607)
-- -- -- (1,890,238) -- (2,433,287)
3,812,634 353,827,426 45,148,010 211,562,708 25,382,184 39,610,602
-- -- -- (39,699,596) -- (8,037,756)
- ------------------------------------------------------------------------------------------------
$33,226,973 $1,175,119,159 $189,093,643 $830,712,442 $309,739,992 $272,687,737
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B Class A
- ------------- ------- ------------- ------- ------------- ------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2,468,215 312,763 56,181,750 818,966 -- -- 30,913,314 2,125,041 11,816,017 783,168 15,499,590
$11.95 $11.94 $20.62 $20.46 -- -- $23.34 $23.18 $24.63 $24.42 $16.52
$12.65 $11.94 $21.82 $20.46 -- -- $24.70 $23.18 $26.06 $24.42 $17.48
<CAPTION>
Institutional Service Institutional Service Institutional Service Institutional Service Institutional Service Institutional
- ------------- ------- ------------- ------- ------------- ------- ------------- --------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
155 150 -- -- 7,989,163 87 2,461,067 89,276 -- -- 685,661
$11.95 $11.94 -- -- $23.67 $23.67 $23.51 $23.38 -- -- $16.59
<CAPTION>
Class B
- -------
<S> <C>
319,335
$16.40
$16.40
Service
- -------
<S> <C>
--
--
</TABLE>
55
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends(a) (including $65,234 received from
affiliated issuers for Small Cap Equity) $ 486,754 $ 4,172,206
Interest(b) 1,633,213 283,272
- ---------------------------------------------------------------------------------
TOTAL INCOME 2,119,967 4,455,478
- ---------------------------------------------------------------------------------
EXPENSES:
Management fees 332,006 1,669,777
Distribution fees 139,549 413,921
Authorized dealer service fees 127,694 352,253
Custodian fees 50,207 62,893
Transfer agent fees 99,878 240,104
Professional fees 35,455 29,552
Registration fees 15,137 54,862
Amortization of deferred organization expenses 6,661 --
Trustee fees 1,202 3,091
Other 10,294 48,453
- ---------------------------------------------------------------------------------
TOTAL EXPENSES 818,083 2,874,906
Less--expenses reimbursed and fees waived by
Goldman Sachs (289,609) (462,438)
- ---------------------------------------------------------------------------------
NET EXPENSES 528,474 2,412,468
- ---------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,591,493 2,043,010
- ---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT, OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions (including realized
gains of $2,634,349 on sales of investments in
affiliated issuers for Small Cap Equity) 5,165,557 20,056,208
Futures transactions 64,054 1,115,559
Foreign currency related transactions (14,723) --
Net change in unrealized gain (loss) on:
Investments 9,359,807 73,407,077
Futures 42,885 272,877
Translation of assets and liabilities
denominated in foreign currencies 19,468 --
- ---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT,
OPTION, FUTURES AND FOREIGN CURRENCY
TRANSACTIONS 14,637,048 94,851,721
- ---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $16,228,541 $96,894,731
- ---------------------------------------------------------------------------------
</TABLE>
(a) For the Balanced, CORE U.S. Equity, CORE Large Cap Growth, Capital Growth,
Mid Cap Equity, International Equity and Asia Growth Funds, taxes withheld
on dividends were $744, $20,389, $408, $42,487, $4,487, $909,357 and
$201,084, respectively.
(b) For the Balanced Fund, taxes withheld on interest were $2,724.
(c) CORE Large Cap Growth Fund commenced operations on May 1, 1997.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND(C) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 69,444 $ 6,813,967 $ 1,183,533 $ 5,932,214 $ 722,690 $ 2,369,480
9,091 868,702 94,041 858,131 595,147 473,203
- --------------------------------------------------------------------------------------------------------
78,535 7,682,669 1,277,574 6,790,345 1,317,837 2,842,683
- --------------------------------------------------------------------------------------------------------
43,779 4,891,228 592,506 3,437,442 1,226,018 1,360,100
15,564 1,241,280 -- 868,168 326,906 335,767
14,589 1,222,807 -- 790,939 306,505 325,580
22,154 63,364 18,791 474,368 36,394 232,094
12,099 450,925 31,600 420,003 265,468 214,033
18,627 32,460 31,072 36,142 32,119 37,005
17,155 32,147 13,894 83,971 20,320 45,375
2,521 -- 8,512 7,227 6,678 15,736
126 7,847 1,278 5,544 1,706 2,373
4,577 69,092 12,670 68,155 12,586 20,217
- --------------------------------------------------------------------------------------------------------
151,191 8,011,150 710,323 6,191,959 2,234,700 2,588,280
(97,193) (1,213,570) (38,816) (464,116) (296,304) (269,236)
- --------------------------------------------------------------------------------------------------------
53,998 6,797,580 671,507 5,727,843 1,938,396 2,319,044
- --------------------------------------------------------------------------------------------------------
24,537 885,089 606,067 1,062,502 (620,559) 523,639
- --------------------------------------------------------------------------------------------------------
349,524 115,156,585 14,892,426 42,837,306 21,099,362 4,610,560
-- -- -- -- -- (994,498)
-- -- -- (972,391) -- (2,021,368)
3,812,634 101,151,901 23,232,147 99,071,315 20,776,667 6,596,227
-- -- -- -- -- --
-- -- -- (7,290,060) -- (6,042,525)
- --------------------------------------------------------------------------------------------------------
4,162,158 216,308,486 38,124,573 133,646,170 41,876,029 2,148,396
- --------------------------------------------------------------------------------------------------------
$4,186,695 $217,193,575 $38,730,640 $134,708,672 $41,255,470 $ 2,672,035
- --------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended July 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
-------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 1,591,493 $ 2,043,010
Net realized gain on investment, option and
futures transactions 5,229,611 21,171,767
Net realized loss on foreign currency
related transactions (14,723) --
Net change in unrealized gain on
investments, options and futures 9,402,692 73,679,954
Net change in unrealized gain (loss) on
translation of assets and liabilities
denominated in foreign currencies 19,468 --
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 16,228,541 96,894,731
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (1,375,790) --
Class B shares (56,323) --
Institutional shares -- --
Service shares -- --
- ----------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,432,113) --
- ----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 40,396,833 99,586,343
Reinvestment of dividends and distributions 1,224,846 --
Cost of shares repurchased (6,417,071) (45,139,094)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 35,204,608 54,447,249
- ----------------------------------------------------------------------------
Total increase (decrease) 50,001,036 151,341,980
NET ASSETS:
Beginning of period 83,520,127 395,833,695
- ----------------------------------------------------------------------------
End of period $133,521,163 $547,175,675
- ----------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income (loss) $ 339,584 $ 2,043,010
- ----------------------------------------------------------------------------
</TABLE>
(a) CORE Large Cap Growth Fund commenced operations on May 1, 1997.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CORE LARGE CAP GROWTH CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND(A) FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 24,537 $ 885,089 $ 606,067 $ 1,062,502 $ (620,559) $ 523,639
349,524 115,156,585 14,892,426 42,837,306 21,099,362 3,616,062
-- -- -- (972,391) -- (2,021,368)
3,812,634 101,151,901 23,232,147 99,071,315 20,776,667 6,596,227
-- -- -- (7,290,060) -- (6,042,525)
- --------------------------------------------------------------------------------------------------------------
4,186,695 217,193,575 38,730,640 134,708,672 41,255,470 2,672,035
- --------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
29,901,684 95,800,041 6,949,969 191,045,207 73,020,425 46,386,178
-- -- -- -- -- --
(861,406) (61,741,484) (1,840,296) (119,570,466) (20,270,709) (56,060,080)
- --------------------------------------------------------------------------------------------------------------
29,040,278 34,058,557 5,109,673 71,474,741 52,749,716 (9,673,902)
- --------------------------------------------------------------------------------------------------------------
33,226,973 251,252,132 43,840,313 206,183,413 94,005,186 (7,001,867)
-- 923,867,027 145,253,330 624,529,029 215,734,806 279,689,604
- --------------------------------------------------------------------------------------------------------------
$33,226,973 $1,175,119,159 $189,093,643 $ 830,712,442 $309,739,992 $272,687,737
- --------------------------------------------------------------------------------------------------------------
$ 24,537 $ 609,537 $ 580,925 $ 1,036,836 $ (620,559) $ (792,684)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
Goldman Sachs Trust-Equity Portfolios
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS
BALANCED CORE U.S. EQUITY
FUND FUND
------------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 2,322,774 $ 3,164,879
Net realized gain (loss) on investment,
option and futures transactions 3,956,460 15,032,718
Net realized gain on options written -- --
Net realized gain (loss) on foreign currency
related transactions 12,575 --
Net change in unrealized gain (loss) on
investments, options and futures 5,023,032 49,460,545
Net change in unrealized loss on translation
of assets and liabilities denominated in
foreign currencies (12,568) --
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 11,302,273 67,658,142
- ----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares (2,259,972) (1,515,575)
Class B shares (13,466) (4,750)
Institutional shares -- (1,606,175)
Service shares -- (6,666)
In excess of net investment income
Class A shares (7,504) --
Class B shares -- (118,421)
Institutional shares -- (34,205)
Service shares -- (16,030)
From net realized gain on investment, option
and futures transactions
Class A shares (3,654,841) (7,174,235)
Class B shares (77,400) (440,131)
Institutional shares -- (4,675,726)
Service shares -- (68,472)
- ----------------------------------------------------------------------------
Total distributions to shareholders (6,013,183) (15,660,386)
- ----------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 29,174,047 167,209,718
Reinvestment of dividends and distributions 5,694,651 14,904,237
Cost of shares repurchased (7,565,668) (32,152,494)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from share transactions 27,303,030 149,961,461
- ----------------------------------------------------------------------------
Total increase 32,592,120 201,959,217
NET ASSETS:
Beginning of year 50,928,007 193,874,478
- ----------------------------------------------------------------------------
End of year $83,520,127 $395,833,695
- ----------------------------------------------------------------------------
Accumulated undistributed (distributions in
excess of) net investment income $ 180,204 $ --
- ----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS GOLDMAN SACHS
CAPITAL GROWTH MID CAP EQUITY INTERNATIONAL EQUITY SMALL CAP EQUITY ASIA GROWTH
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,337,292 $ 1,726,659 $ (242,737) $ (1,551,590) $ 538,846
53,687,297 13,627,039 16,714,697 28,767,853 (7,436,150)
-- 40,466 -- -- --
-- -- 146,694 -- (1,099,538)
145,350,120 14,749,074 60,236,901 22,913,571 5,823,115
-- -- (28,245,657) -- (599,549)
- ------------------------------------------------------------------------------------
204,374,709 30,143,238 48,609,898 50,129,834 (2,773,276)
- ------------------------------------------------------------------------------------
(5,948,617) -- -- -- (206,784)
-- -- -- -- --
-- (1,837,675) (106,712) -- --
-- -- -- -- --
(258,749) -- -- -- --
(12,838) -- -- -- (5,064)
-- (25,142) -- -- (83,075)
-- -- -- -- --
(91,862,169) -- (5,358,559) (10,210,264) --
(179,327) -- (159,717) (149,626) --
-- (6,629,058) (689,171) -- --
-- -- (3,947) -- --
- ------------------------------------------------------------------------------------
(98,261,700) (8,491,875) (6,318,106) (10,359,890) (294,923)
- ------------------------------------------------------------------------------------
76,008,897 3,933,239 321,475,961 56,119,213 144,448,826
90,088,874 8,489,760 5,481,492 9,876,571 221,279
(229,399,817) (24,491,993) (75,580,037) (95,024,895) (67,451,011)
- ------------------------------------------------------------------------------------
(63,302,046) (12,068,994) 251,377,416 (29,029,111) 77,219,094
- ------------------------------------------------------------------------------------
42,810,963 9,582,369 293,669,208 10,740,833 74,150,895
881,056,064 135,670,961 330,859,821 204,993,973 205,538,709
- ------------------------------------------------------------------------------------
$ 923,867,027 $145,253,330 $624,529,029 $215,734,806 $279,689,604
- ------------------------------------------------------------------------------------
$ (275,552) $ (25,142) $ (25,666) $ -- $ (1,316,323)
- ------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
1. ORGANIZATION
Effective May 1, 1997, the Goldman Sachs Equity Portfolios, Inc. was
reorganized from a Maryland corporation to a Delaware business trust named the
Goldman Sachs Trust (the "Trust"). The Trust includes the Equity Portfolios,
collectively the "Funds" or individually a "Fund". The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end,
diversified management investment company. Included in this report are the
financial statements for the Goldman Sachs Balanced Fund ("Balanced Fund"),
Goldman Sachs CORE U.S. Equity Fund ("CORE U.S. Equity Fund"), Goldman Sachs
CORE Large Cap Growth Fund ("CORE Large Cap Growth Fund"), Goldman Sachs
Capital Growth Fund ("Capital Growth Fund"), Goldman Sachs Mid Cap Equity Fund
("Mid Cap Equity Fund"), Goldman Sachs International Equity Fund
("International Equity Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap
Equity Fund") and Goldman Sachs Asia Growth Fund ("Asia Growth Fund"). At July
31, 1997, the CORE U.S. Equity, CORE Large Cap Growth, International Equity and
Asia Growth Funds offer four classes of shares--Class A, Class B, Institutional
and Service. The Balanced, Capital Growth and Small Cap Equity Funds offer two
classes of shares--Class A and Class B. The Mid Cap Equity Fund offers two
classes of shares--Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation
Investments in securities traded on a U.S. or foreign securities exchange or
the NASDAQ system are valued daily at their last sale or closing price on the
principal exchange on which they are traded or NASDAQ. If no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked price, and securities traded on a foreign exchange
will be valued at the official bid price. Unlisted equity and debt securities
for which market quotations are available are valued at the mean between the
most recent bid and asked prices. Debt securities are valued at prices supplied
by an independent pricing service, which reflect broker/dealer-supplied
valuations and matrix pricing systems. Short-term debt obligations maturing in
sixty days or less are valued at amortized cost. Restricted securities, and
other securities for which quotations are not readily available, are valued at
fair value using methods approved by the Board of Trustees of the Trust.
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified-cost basis.
Dividend income is recorded on the ex-dividend date. Dividends for which the
Funds have the choice to receive either cash or stock are recognized as
investment income in an amount equal to the cash dividend. This amount is also
used as an estimate of the fair value of the stock received. Interest income is
determined on the basis of interest accrued, premium amortized and discount
earned with the exception of the Balanced Fund which does not amortize premiums
on U.S. Government and Corporate bonds. In addition, it is the Funds' policy to
accrue for estimated capital gains taxes on foreign securities held by the
Funds subject to such taxes.
C. Mortgage Dollar Rolls
The Balanced Fund may enter into mortgage "dollar rolls" in which the Fund
sells securities in the current month for delivery and simultaneously contracts
with the same counterparty to repurchase similar (same type, coupon and
maturity) but not identical securities on a specified future date. For
financial reporting and tax reporting purposes, the Fund treats mortgage dollar
rolls
62
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale.
D. Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
on currency exchange rates prevailing on the respective dates of such
transactions.
Net realized and unrealized gain (loss) on foreign currency transactions will
represent: (i) foreign exchange gains and losses from the sale and holdings of
foreign currencies and investments; (ii) gains and losses between trade date
and settlement date on investment securities transactions and forward exchange
contracts; and (iii) gains and losses from the difference between amounts of
dividends and interest recorded and the amounts actually received.
E. Forward Foreign Currency Exchange Contracts
Certain of the Funds are authorized to enter into forward foreign currency
exchange contracts for the purchase of a specific foreign currency at a fixed
price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions. The Balanced, International Equity and
Asia Growth Funds may enter into such contracts to seek to increase total
return. All commitments are "marked-to-market" daily at the applicable
translation rates and any resulting unrealized gains or losses are recorded in
the funds' financial statements. The Funds record realized gains or losses at
the time the forward contract is offset by entry into a closing transaction or
extinguished by delivery of the currency. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
F. Short Securities Positions
The Funds (other than the CORE U.S. Equity and CORE Large Cap Growth Funds) may
enter into covered short sales. Short securities positions are accounted for at
cost and subsequently marked to market to reflect the current market value of
the position. The market value of the short position is recorded as a liability
on the fund's records and any difference between this market value and cash
received is reported as unrealized gain or loss. Gains and losses are realized
when a short position is closed out by delivering securities back to the
broker.
G. Federal Taxes
It is the Funds' policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute each year
substantially all of their investment company taxable income and capital gains
to their shareholders. Accordingly, no federal tax provisions are required. The
characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with income tax rules. Therefore, the
source of the Funds' distributions may be shown in the accompanying financial
statements as either from or in excess of net investment income or net realized
gain on investment transactions, or from capital, depending on the type of
book/tax differences that may exist as well as timing differences associated
with having different book and tax year ends.
Asia Growth Fund had approximately $184,000, $5,487,000 and $9,825,000 at
January 31, 1997 of capital loss carryforward expiring in 2002, 2003 and 2004
for federal tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
H. Deferred Organization Expenses
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
63
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
I. Expenses
Expenses incurred by the Funds which do not specifically relate to an
individual Fund are allocated to the Funds based on each Fund's relative
average net assets for the period.
Class A and Class B shares bear all expenses and fees relating to the
distribution and authorized dealer service plans as well as other expenses
which are directly attributable to such shares. Each class of Shares separately
bears their respective class-specific transfer agency fees. Service shares
separately bear a service fee.
J. Option Accounting Principles
When certain of the Funds write call or put options, an amount equal to the
premium received is recorded as an asset and as an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the option written. When a written option expires on its
stipulated expiration date or the funds enter into a closing purchase
transaction, the funds realize a gain or loss without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. When a written call option is exercised, the funds
realize a gain or loss from the sale of the underlying security, and the
proceeds of the sale are increased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the funds purchase upon exercise.
There is a risk of loss from a change in value of such options which may exceed
the related premiums received.
Upon the purchase of a call option or a protective put option by the Funds
the premium paid is recorded as an investment and subsequently marked-to-market
to reflect the current market value of the option. If an option which the Funds
have purchased expires on the stipulated expiration date, the funds will
realize a loss in the amount of the cost of the option. If the funds enter into
a closing sale transaction, the funds will realize a gain or loss, depending on
whether the sale proceeds from the closing sale transaction are greater or less
than the cost of the option. If the Funds exercise a purchased put option, the
funds will realize a gain or loss from the sale of the underlying security, and
the proceeds from such sale will be decreased by the premium originally paid.
If the Funds exercise a purchased call option, the cost of the security which
the funds purchase upon exercise will be increased by the premium originally
paid.
K. Futures Contracts
The Funds may enter into futures transactions in order to hedge against changes
in interest rates, securities prices or currency exchange rates or to seek to
increase total return. The CORE U.S. Equity and CORE Large Cap Growth Funds may
enter into such transactions only with respect to the S&P 500 Index or a
representative index, respectively. A Fund will engage in futures transactions
only for bona fide hedging purposes as defined in regulations of the CFTC or to
seek to increase total return to the extent permitted by such regulations. The
use of futures contracts involve, to varying degrees, elements of market risk
which may exceed the amounts recognized in the Statements of Assets and
Liabilities.
Upon entering into a futures contract, the Funds are required to deposit with
a broker an amount of cash or securities equal to the minimum "initial margin"
requirement of the futures exchange on which the contract is traded. Subsequent
payments ("variation margin") are made or received by the Funds each day,
dependent on the daily fluctuations in the value of the contract, and are
recorded for financial reporting purposes as unrealized gains or losses. When
entering into a closing transaction, the Funds will realize a gain or loss
equal to the difference between the value of the futures contract to sell and
the futures contract to buy. Futures contracts are valued at the most recent
price, unless such price does not reflect the fair market value of the
contract, in which case the position will be valued using methods approved by
the Board of Trustees of the Trust.
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Certain risks may arise upon entering into futures contracts. The predominant
risk is that the changes in the value of the futures contract may not directly
correlate with changes in the value of the underlying securities. This risk may
decrease the effectiveness of the Funds' hedging strategies and may also result
in a loss to the Funds.
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration Agreements
were combined into an Investment Management Agreement (the "Agreement")
encompassing the same services and fee structure. Goldman Sachs Asset
Management ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), acts as investment adviser to the Balanced, CORE Large Cap
Growth, Mid Cap Equity and Small Cap Equity Funds; Goldman Sachs Funds
Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, acts as investment
adviser to the CORE U.S. Equity and Capital Growth Funds; and Goldman Sachs
Asset Management International ("GSAM International") acts as investment
adviser to the International Equity and Asia Growth Funds. Under the
Agreements, GSAM, GSFM and GSAM International (the "Investment Advisors"),
subject to the general supervision of the Trust's Board of Trustees, manage the
Fund's portfolios. As compensation for the services rendered under the
Agreements, the assumption of the expenses related thereto and administering
the Funds' business affairs, including providing facilities, GSAM is entitled
to a fee, computed daily and payable monthly, at an annual rate equal to .65%,
..75%, .75% and 1.00% of the average daily net assets of the Balanced, CORE
Large Cap Growth, Mid Cap Equity and Small Cap Equity Funds, respectively. GSFM
is entitled to a fee of .75% and 1.00% of the average daily net assets of the
CORE U.S. Equity and Capital Growth Funds, respectively. GSAM International is
entitled to a fee for the International Equity and Asia Growth Funds of 1.00%
and 1.00% of the average daily net assets for those funds, respectively.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other
Expenses" for the Balanced, CORE U.S. Equity, CORE Large Cap Growth, Mid Cap
Equity, International Equity and Asia Growth Funds (excluding management,
service, distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordinary
expenses and with the exception of the Balanced and CORE Large Cap Growth
Funds, transfer agent fees) until further notice to the extent such expenses
exceed .10%, .06%, .05%, .06%, .20% and .24% of the average daily net assets of
the funds, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B contingent deferred sales charge imposed and has advised
the Trust that it retained approximately $126,000, $318,000, $34,000, $420,000,
$840,000, $212,000, $546,000 during the six months ended July 31, 1997 for the
Balanced, CORE U.S. Equity, CORE Large Cap Growth, Capital Growth,
International Equity, Small Cap Equity and Asia Growth Funds, respectively.
The Trust, on behalf of each Fund, other than the Mid Cap Equity Fund, has
adopted a Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1.
Under the Distribution Plan, Goldman Sachs is entitled to a quarterly fee from
each Fund for distribution services equal, on an annual basis, to .25% and .75%
of a Fund's average daily net assets attributable to Class A and Class B
shares, respectively.
The Trust, on behalf of each Fund, other than the Mid Cap Equity Fund, has
adopted an Authorized Dealer Service Plan (the "Service Plan") pursuant to
which Goldman Sachs and Authorized Dealers are compensated for providing
personal and account maintenance services. Each Fund pays a fee under its
Service Plan equal, on an annual basis, to .25% of its average daily net assets
attributable to Class A and Class B shares. Goldman Sachs also serves as the
Transfer Agent of the funds for a fee.
65
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
For the six months ended July 31, 1997, the Manager and Distributor have
voluntarily agreed to waive certain fees and reimburse other expenses as
follows (in thousands):
<TABLE>
<CAPTION>
Waivers
------------------ Reimburse-
Class A Reimburse- ment
Fund Management 12b-1 ment Outstanding
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced $ -- $ 122 $168 $52
CORE U.S. Equity 356 51 55 10
CORE Large Cap Growth 9 14 74 48
Capital Growth -- 1,214 -- --
Mid Cap Equity -- -- 39 9
International Equity 344 120 -- --
Small Cap Equity -- 296 -- --
Asia Growth 190 51 28 17
</TABLE>
The Investment Manager and Distributor may discontinue or modify such waivers
and limitations in the future at their discretion.
At July 31, 1997, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Authorized
Distri- Dealer Transfer
Fund Management butor Service Agent Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced $ 69 $ 12 $ 71 $ 33 $ 185
CORE U.S. Equity 259 139 260 122 780
CORE Large Cap Growth 15 1 15 12 43
Capital Growth 955 20 646 175 1,796
Mid Cap Equity 107 -- -- -- 107
International Equity 617 420 427 182 1,646
Small Cap Equity 250 22 168 104 544
Asia Growth 198 143 156 99 596
</TABLE>
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments, futures and options) for the six months ended July 31, 1997,
were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
- ---- ------------ ------------
<S> <C> <C>
Balanced $129,509,183 $ 94,675,496
CORE U.S. Equity 167,742,702 121,365,630
CORE Large Cap Growth 32,152,475 4,475,138
Capital Growth 455,703,046 432,962,894
Mid Cap Equity 59,312,478 55,776,587
International Equity 237,116,150 148,697,747
Small Cap Equity 118,941,639 104,800,391
Asia Growth 134,170,651 151,973,563
</TABLE>
Included in the above amounts were purchases and proceeds of sales or
maturities of governmental securities for the Balanced Fund in the amounts of
$77,260,237 and $68,674,762, respectively.
For the six months ended July 31, 1997, written put option transactions in
the Small Cap Equity Fund were as follows:
<TABLE>
<CAPTION>
Number of Premium
Written Options Contracts Received
- --------------- --------- --------
<S> <C> <C>
Balance outstanding at beginning of period 0 $ 0
Options written 1,800 528,963
- --------------------------------------------------------------
Balance outstanding, end of period 1,800 $528,963
- --------------------------------------------------------------
</TABLE>
Certain risks arise related to call and put options from the possible inability
of counterparties to meet the terms of their contracts.
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
At July 31, 1997, the International Equity Fund had the following outstanding
forward foreign currency exchange contracts:
<TABLE>
- -----------------------------------------------------------------------------
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT UNREALIZED
SALE CONTRACTS DATE CURRENT VALUE GAIN (LOSS)
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIAN DOLLAR
expiring 9/18/97 $ 22,928,352 $ 22,877,160 $ 51,192
DEUTSCHE MARK expiring 8/21/97 23,195,818 21,660,471 1,535,347
expiring 9/11/97 15,822,424 15,344,454 477,970
FRENCH FRANC expiring 10/23/97 40,939,929 40,045,646 894,283
HONG KONG DOLLAR
expiring 8/8/97 18,484,541 18,491,623 (7,082)
expiring 8/8/97 5,803,189 5,802,003 1,186
JAPANESE YEN expiring 9/22/97 74,555,000 71,008,671 3,546,329
expiring 10/22/97 9,761,324 9,593,392 167,932
- -----------------------------------------------------------------------------
Total Foreign Currency Sale Contracts $211,490,577 $204,823,420 $6,667,157
- -----------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. At July 31, 1997, the
International Equity Fund had sufficient cash and securities to cover any
commitments under these contracts.
The Balanced and International Equity Funds have recorded a "Receivable for
forward foreign currency exchange contracts" and "Payable for forward foreign
currency exchange contracts" resulting from open and closed but not settled
forward foreign currency exchange contracts of $0 and $11,101 and $7,725,121
and $707,762, respectively, in the accompanying Statements of Assets and
Liabilities. Included in these amounts for the International Equity Fund are
$1,050,882 and $700,680 respectively, and a payable of $11,101 for the Balanced
Fund related to forward contracts closed but not settled as of July 31, 1997.
For the six months ended July 31, 1997, Goldman Sachs earned approximately
$12,000, $162,000, $14,000, $14,000, and $71,000 of brokerage commissions from
portfolio transactions executed on behalf of the Balanced, Capital Growth, Mid
Cap Equity, Small Cap Equity and Asia Growth Funds.
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Funds' custodian.
67
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having advisory
agreements with GSAM or its affiliates, transfer uninvested cash balances into
joint accounts, the daily aggregate balance of which is invested in one or more
repurchase agreements. The underlying securities for the repurchase agreements
are U.S. Treasury and agency obligations. At July 31, 1997, the Balanced, CORE
U.S. Equity, CORE Large Cap Growth, Capital Growth, Mid Cap Equity and Small
Cap Equity Funds had undivided interests in the repurchase agreements in the
following joint account which equaled $16,200,000, $12,900,000, $800,000,
$27,500,000, $5,600,000 and $49,800,000, respectively, in principal amount. At
July 31, 1997, the repurchase agreements held in this joint account, along with
the corresponding underlying securities (including the type of security, market
value, interest rate and maturity date) were as follows:
<TABLE>
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bear Stearns Securities, Inc., dated 07/31/97, repurchase price $100,016,250
(FNMA: $48,113,651, 5.50%-7.50%, 02/01/01-06/01/10; FHLMC: $55,056,251,
7.00%, 03/01/12)
$100,000,000 5.85% 08/01/97 $100,000,000
JP Morgan Securities, Inc., dated 07/31/97, repurchase price $80,013,000
(FNMA: $81,948,067, 6.76%-6.99%, 07/09/07-07/16/07)
80,000,000 5.85% 08/01/97 80,000,000
Lehman Government Securities, dated 07/31/97, repurchase price $28,004,480
(U.S. Treasury Note: $28,554,949, 6.75%, 04/30/00)
28,000,000 5.76% 08/01/97 28,000,000
Nomura Securities, Inc., dated 07/31/97, repurchase price $50,008,125 (GNMA:
$51,000,001, 7.00%-7.50%, 01/01/00-10/15/26)
50,000,000 5.85% 08/01/97 50,000,000
- ---------------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $258,000,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Funds, except the CORE U.S. Equity Fund,
participate in a $50,000,000 committed, unsecured revolving line of credit
facility. Both facilities are to be used solely for temporary or emergency
purposes. Under the most restrictive arrangement, each Fund must own securities
having a market value in excess of 300% of the total bank borrowings. The
interest rate on the borrowings is based on the Federal Funds rate. The
committed facility also requires a fee to be paid based on the amount of the
commitment which has not been utilized. During the six months ended July 31,
1997, the Funds did not have any borrowings under these facilities.
8. TRANSACTIONS WITH AFFILIATED COMPANIES
A Fund is considered to be invested in an affiliated company if that Fund owns
greater than five percent of the outstanding voting securities of such company.
Transactions during the six months ended July 31, 1997 which are considered to
be affiliates of Small Cap Equity and which are still held as of period end are
as follows (dollar amounts in thousands):
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
Purchases Sales Realized Dividend Market
Affiliate Name at Cost Proceeds Gain/(Loss) Income Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alpine Lace Brands, Inc. $ -- $ -- $ -- $-- $ 3,044
APS Holding Corp. 759 -- -- -- 6,395
J. Baker, Inc. -- 970 (802) 30 8,744
Brookstone, Inc. -- -- -- -- 6,488
Congoleum Corp. -- 336 96 -- 2,198
International Post Ltd. -- -- -- -- 1,297
Loehmann's Inc. 6,413 -- -- -- 5,309
Mortons Restaurant Group, Inc. -- 764 392 -- 7,602
Movado Group, Inc. -- 5,361 2,948 35 13,284
Opinion Research Corp. -- -- -- -- 2,089
Pegasus Communications Corp. 1,153 -- -- -- 4,905
Platinum Entertainment Corp. 265 -- -- -- 2,158
Seibels Bruce Group 890 -- -- -- 1,076
- -------------------------------------------------------------------------------
</TABLE>
9. OTHER MATTERS
As of July 31, 1997, Goldman, Sachs & Co. Employees Profit Sharing and
Retirement Income Plan was the beneficial owner of approximately 13% and 96% of
the outstanding shares of the CORE US Equity and Mid Cap Equity Funds,
respectively.
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS
Share activity for the six months ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund CORE U.S. Equity CORE Large Cap Growth Capital Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,737,618 $33,943,369 2,647,977 $ 65,826,339 2,541,195 $26,311,995 4,685,824 $ 84,105,240
Reinvestment of
dividends and
distributions 59,887 1,173,108 -- -- -- -- -- --
Shares repurchased (321,372) (6,246,538) (828,137) (20,340,078) (72,980) (857,534) (3,525,798) (61,466,440)
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,476,133 28,869,939 1,819,840 45,486,261 2,468,215 25,454,461 1,160,026 22,638,800
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 328,037 6,453,464 667,031 16,620,871 313,111 3,587,107 641,628 11,694,801
Reinvestment of
dividends and
distributions 2,626 51,738 -- -- -- -- -- --
Shares repurchased (8,564) (170,533) (58,922) (1,454,365) (348) (3,872) (15,902) (275,044)
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
322,099 6,334,669 608,109 15,166,506 312,763 3,583,235 625,726 11,419,757
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold -- -- 648,136 15,939,242 155 1,550 -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (878,994) (23,136,379) -- -- -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- (230,858) (7,197,137) 155 1,550 -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 49,244 1,199,891 150 1,032 -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (8,810) (208,272) -- -- -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 40,434 991,619 150 1,032 -- --
<CAPTION>
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase (decrease)
in shares 1,798,232 $35,204,608 2,237,525 $ 54,447,249 2,781,283 $29,040,278 1,785,752 $ 34,058,557
<CAPTION>
=================================================================================================
</TABLE>
69
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the six months ended July 31, 1997 is as follows:
<TABLE>
<CAPTION>
Mid Cap Equity Fund International Equity Fund Small Cap Equity Fund Asia Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold -- -- 7,064,902 $ 150,626,998 2,575,972 $ 58,437,359 2,679,332 $ 43,080,940
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (3,917,168) (83,252,386) (900,448) (19,664,773) (3,301,864) (52,529,142)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 3,147,734 67,374,612 1,675,524 38,772,586 (622,532) (9,448,202)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold -- -- 1,152,179 24,332,741 634,966 14,583,066 145,477 2,305,142
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (24,945) (522,072) (28,342) (605,936) (32,529) (515,087)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 1,127,234 23,810,669 606,624 13,977,130 112,948 1,790,055
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold 328,465 $ 6,947,969 732,981 14,842,655 -- -- 64,282 1,000,096
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased (95,076) (1,840,296) (1,796,083) (35,721,797) -- -- (194,120) (3,015,851)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
233,389 5,107,673 (1,063,102) (20,879,142) -- -- (129,838) (2,015,755)
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold 87 2,000 57,954 1,242,813 -- -- -- --
Reinvestment of
dividends and
distributions -- -- -- -- -- -- -- --
Shares repurchased -- -- (3,508) (74,211) -- -- -- --
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
87 2,000 54,446 1,168,602 -- -- -- --
<CAPTION>
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase
(decrease) in shares 233,476 $ 5,109,673 3,266,312 $ 71,474,741 2,282,148 $ 52,749,716 (639,422) $ (9,673,902)
<CAPTION>
===================================================================================================
</TABLE>
70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Balanced Fund Select Equity Fund Mid-Cap Equity Fund Capital Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 1,529,469 $27,172,279 3,862,697 $ 81,642,386 -- $ -- 4,677,047 $ 73,029,007
Reinvestment of
dividends and
distributions 310,437 5,598,883 370,586 8,175,333 -- -- 5,870,272 89,898,521
Shares repurchased (446,535) (7,533,272) (1,109,202) (23,823,146) -- -- (14,635,348) (229,277,586)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1,393,371 25,237,890 3,124,081 65,994,573 -- -- (4,088,029) (66,350,058)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 109,171 2,001,768 733,802 15,946,016 -- -- 188,331 2,979,890
Reinvestment of
dividends and
distributions 5,284 95,768 24,314 535,407 -- -- 12,408 190,353
Shares repurchased (1,795) (32,396) (13,894) (310,118) -- -- (7,499) (122,231)
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
112,660 2,065,140 744,222 16,171,305 -- -- 193,240 3,048,012
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL
SHARES
Shares sold -- -- 3,151,881 66,277,175 227,071 3,933,239 -- --
Reinvestment of
dividends and
distributions -- -- 275,197 6,102,331 483,747 8,489,760 -- --
Shares repurchased -- -- (363,536) (7,991,198) (1,480,859) (24,491,993) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 3,063,542 64,388,308 (770,041) (12,068,994) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 154,590 3,344,141 -- -- -- --
Reinvestment of
dividends and
distributions -- -- 4,126 91,166 -- -- -- --
Shares repurchased -- -- (1,252) (28,032) -- -- -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- 157,464 3,407,275 -- -- -- --
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net increase
(decrease) in
shares 1,506,031 $27,303,030 7,089,309 $149,961,461 (770,041) $(12,068,994) (3,894,789) $ (63,302,046)
<CAPTION>
======================================================================================================
</TABLE>
71
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 1997
(Unaudited)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
10. SUMMARY OF SHARE TRANSACTIONS (continued)
Share activity for the year ended January 31, 1997 is as follows:
<TABLE>
<CAPTION>
Small Cap Equity Fund International Equity Fund Asia Growth Fund
- --------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 2,508,268 $ 52,353,524 12,103,239 $ 230,847,197 7,588,351 $124,281,405
Reinvestment of
dividends and
distributions 475,255 9,732,097 241,377 4,749,851 11,669 184,607
Shares repurchased (4,697,902) (94,933,279) (3,820,157) (72,226,935) (3,945,614) (63,723,269)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(1,714,379) (32,847,658) 8,524,459 163,370,113 3,654,406 60,742,743
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Shares sold 173,849 3,765,689 1,000,064 19,327,085 210,879 3,433,876
Reinvestment of
dividends and
distributions 7,086 144,474 7,924 155,475 279 4,391
Shares repurchased (4,391) (91,616) (10,181) (198,263) (4,771) (76,391)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
176,544 3,818,547 997,807 19,284,297 206,387 3,361,876
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Shares sold -- -- 3,657,119 70,627,799 1,041,822 16,733,545
Reinvestment of
dividends and
distributions -- -- 28,973 572,219 2,040 32,281
Shares repurchased -- -- (161,923) (3,153,741) (228,363) (3,651,351)
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- 3,524,169 68,046,277 815,499 13,114,475
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SERVICE SHARES
Shares sold -- -- 34,686 673,880 -- --
Reinvestment of
dividends and
distributions -- -- 200 3,947 -- --
Shares repurchased -- -- (56) (1,098) -- --
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-- -- 34,830 676,729 -- --
<CAPTION>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net increase (decrease)
in shares (1,537,835) $(29,029,111) 13,081,265 $ 251,377,416 4,676,292 $ 77,219,094
<CAPTION>
==============================================================================
</TABLE>
72
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From gain on In excess Net asset
value, Net investments, net investment of net Net increase value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
BALANCED FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $18.78 $0.29 $2.58 $(0.27) $ -- $ -- $2.60 $21.38 15.42%(c)
1997--Class B
Shares
(unaudited)..... 18.73 0.27 2.52 (0.22) -- -- 2.57 21.30 15.01(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 17.31 0.66 2.47 (0.66) (1.00) -- 1.47 18.78 18.59
1997--Class B
Shares(b)....... 17.46 0.42 2.34 (0.42) (1.00) (0.07) 1.27 18.73 16.22(c)
1996--Class A
Shares.......... 14.22 0.51 3.43 (0.50) (0.35) -- 3.09 17.31 28.10
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.18 0.10 0.02 (0.08) -- -- 0.04 14.22 0.87(c)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(g) (in 000s) assets assets net assets net assets
-------------------------------------------------------------------------------------------------
BALANCED FUND
-------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 95.62%(c)(f) $0.0595 $124,260 1.00%(e) 3.15%(e) 1.59%(e) 2.56%(e)
1997--Class B
Shares
(unaudited)..... 95.62(c)(f) 0.0595 9,261 1.75(e) 2.37(e) 2.09(e) 2.03(e)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
1997--Class A
Shares.......... 208.11(f) .0587 81,410 1.00 3.76 1.77 2.99
1997--Class B
Shares(b)....... 208.11(f) .0587 2,110 1.75(e) 2.59(e) 2.27(e) 2.07(e)
1996--Class A
Shares.......... 197.10(f) -- 50,928 1.00 3.65 1.90 2.75
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(d)....... 14.71(c) -- 7,510 1.00(e) 3.39(e) 8.29(e) (3.90)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) Not annualized.
(d) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(e) Annualized.
(f) Includes the effect of mortgage dollar roll transactions.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
From
Net realized net realized
and unrealized gain on
Net asset gain (loss) on From investments, In excess Net increase Net asset
value, Net investments, net options of net (decrease) value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
CORE U.S. EQUITY FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $23.32 $0.08 $ 5.07 $ -- $ -- $ -- $ 5.15 $28.47 22.08%(b)
1997--Class B
Shares
(unaudited)..... 23.18 0.09 4.96 -- -- -- 5.05 28.23 21.74(b)
1997--
Institutional
Shares
(unaudited)..... 23.44 0.18 5.09 -- -- -- 5.27 28.71 22.48(b)
1997--Service
Shares
(unaudited)..... 23.27 0.12 5.04 -- -- -- 5.16 28.43 22.17(b)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 19.66 0.16 4.46 (0.16) (0.80) -- 3.66 23.32 23.75
1997--Class B
Shares(f)....... 20.44 0.04 3.70 (0.04) (0.80) (0.16) 2.74 23.18 18.59(b)
1997--
Institutional
Shares.......... 19.71 0.30 4.51 (0.28) (0.80) -- 3.73 23.44 24.63
1997--Service
Shares(f)....... 21.02 0.13 3.15 (0.13) (0.80) (0.10) 2.25 23.27 15.92(b)
1996--Class A
Shares.......... 14.61 0.19 5.43 (0.16) (0.41) -- 5.05 19.66 38.63
1996--
Institutional
Shares(d)....... 16.97 0.16 3.23 (0.24) (0.41) -- 2.74 19.71 20.14(b)
1995--Class A
Shares.......... 15.93 0.20 (0.38) (0.20) (0.94) -- (1.32) 14.61 (1.10)
1994--Class A
Shares.......... 15.46 0.17 2.08 (0.17) (1.61) -- 0.47 15.93 15.12
1993--Class A
Shares.......... 15.05 0.22 0.41 (0.22) -- -- 0.41 15.46 4.30
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 14.17 0.11 0.88 (0.11) -- -- 0.88 15.05 7.01(b)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses in income
turnover commission period average net average net average to average
rate rate(g) (in 000s) assets assets net assets net assets
--------------------------------------------------------------------------------------
CORE U.S. EQUITY FUND
--------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 27.62%(b) $0.0406 $327,636 1.28%(c) 0.72%(c) 1.50%(c) 0.50%(c)
1997--Class B
Shares
(unaudited)..... 27.62(b) 0.0406 38,170 1.82(c) 0.14(c) 2.00(c) (0.04)(c)
1997--
Institutional
Shares
(unaudited)..... 27.62(b) 0.0406 175,744 0.65(c) 1.37(c) 0.83(c) 1.19(c)
1997--Service
Shares
(unaudited)..... 27.62(b) 0.0406 5,626 1.15(c) 0.84(c) 1.33(c) 0.66(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 37.28 $ .0417 225,968 1.29 0.91 1.53 0.67
1997--Class B
Shares(f)....... 37.28 .0417 17,258 1.83(c) 0.06(c) 2.00(c) (0.11)(c)
1997--
Institutional
Shares.......... 37.28 .0417 148,942 0.65 1.52 0.85 1.32
1997--Service
Shares(f)....... 37.28 .0417 3,666 1.15(c) 0.69(c) 1.35(c) 0.49(c)
1996--Class A
Shares.......... 39.35 -- 129,045 1.25 1.01 1.55 0.71
1996--
Institutional
Shares(d)....... 39.35(b) -- 64,829 0.65(c) 1.49(c) 0.96(c) 1.18(c)
1995--Class A
Shares.......... 56.18 -- 94,968 1.38 1.33 1.63 1.08
1994--Class A
Shares.......... 87.73 -- 92,769 1.42 0.92 1.67 0.67
1993--Class A
Shares.......... 144.93 -- 117,757 1.28 1.30 1.53 1.05
FOR THE PERIOD ENDED JANUARY 31,
1992--Class A
Shares(e)....... 135.02(c) -- 151,142 1.57(c) 1.24(c) 1.82(c) 0.99(c)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Not annualized.
(c) Annualized.
(d) For the period from June 15, 1995 (commencement of operations) to January
31, 1996.
(e) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(f) For the period from May 1 and June 7, 1996 (commencement of operations) to
January 31, 1997 for Class B and Service shares, respectively.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(e) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From gain on In excess Net asset
value, Net investments, net investment of net Net increase value,
beginning investment options and investment and futures investment in net end of Total
of period income futures income transactions income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------
CORE LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED JULY 31,(C)
1997--Class A
Shares
(unaudited)..... $10.00 $0.01 $1.94 -- -- -- $1.95 $11.95 19.50%(f)
1997--Class B
Shares
(unaudited)..... 10.00 -- 1.94 -- -- -- 1.94 11.94 19.40(f)
1997--
Institutional
Shares
(unaudited)..... 10.00 0.03 1.92 -- -- -- 1.95 11.95 19.50(f)
1997--Service
Shares
(unaudited)..... 10.00 0.02 1.92 -- -- -- 1.94 11.94 19.40(f)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
---------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(b) (in 000s) assets assets net assets net assets
-----------------------------------------------------------------------------------------------
CORE LARGE CAP GROWTH FUND
-----------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,(C)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 18.14%(f) $0.0292 $29,491 0.90%(d) 0.45%(d) 2.96%(d) (1.61)%(d)
1997--Class B
Shares
(unaudited)..... 18.14(f) 0.0292 3,734 1.65(d) (0.35)(d) 3.46(d) (1.90)(d)
1997--
Institutional
Shares
(unaudited)..... 18.14(f) 0.0292 2 0.65(d) 0.94 (d) 2.46(d) (0.87)(d)
1997--Service
Shares
(unaudited)..... 18.14(f) 0.0292 2 1.15(d) 0.30 (d) 2.96(d) (1.51)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(c) For the period from May 1, 1997 (commencement of operations) to July 31,
1997.
(d) Annualized.
(e) Includes the balancing effect of calculating per share amounts.
(f) Not annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
75
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
--------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain (loss) on From gain on In excess Net increase Net asset
value, Net investments, net investments, of net (decrease) value,
beginning investment options and investment options and investment in net end of Total
of period income futures income futures income asset value period return(a)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $16.73 $0.02(h) $ 3.87(h) $ -- $ -- $ -- $ 3.89 $20.62 23.25%(d)
1997--Class B
Shares
(unaudited)..... 16.67 (0.06)(h) 3.85(h) -- -- -- 3.79 20.46 22.74(d)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 14.91 0.10 3.56 (0.10) (1.72) (0.02) 1.82 16.73 25.97
1997--Class B
Shares(b)....... 15.67 0.01 2.81 (0.01) (1.72) (0.09) 1.00 16.67 19.39(d)
1996--Class A
Shares.......... 13.67 0.12 3.93 (0.12) (2.69) -- 1.24 14.91 30.45
1995--Class A
Shares.......... 15.96 0.03 (0.69) (0.01) (1.62) -- (2.29) 13.67 (4.38)
1994--Class A
Shares.......... 14.64 0.02 2.40 (0.01) (1.07) (0.02) 1.32 15.96 16.89
1993--Class A
Shares.......... 13.65 0.06 2.28 (0.07) (1.28) -- 0.99 14.64 18.01
1992--Class A
Shares.......... 11.10 0.28 2.90 (0.31) (0.32) -- 2.55 13.65 29.31
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 11.34 0.34 (0.27) (0.31) -- -- (0.24) 11.10 0.84(d)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
---------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income (loss) to expenses to income (loss)
turnover commission period average net average average to average
rate rate(f) (in 000s) assets net assets net assets net assets
---------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
---------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 44.92%(d) $0.0620 $1,158,360 1.38%(e) 0.19%(e) 1.63%(e) (0.06)%(e)
1997--Class B
Shares
(unaudited)..... 44.92(d) 0.0620 16,759 2.13(e) (0.66)(e) 2.13(e) (0.66)(e)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 52.92 .0563 920,646 1.40 0.62 1.65 0.37
1997--Class B
Shares(b)....... 52.92 .0563 3,221 2.15(e) (0.39)(e) 2.15(e) (0.39)(e)
1996--Class A
Shares.......... 63.90 -- 881,056 1.36 0.65 1.61 0.40
1995--Class A
Shares.......... 38.36 -- 862,105 1.38 0.16 1.63 (0.09)
1994--Class A
Shares.......... 36.12 -- 833,682 1.38 0.13 1.63 (0.12)
1993--Class A
Shares.......... 58.93 -- 665,976 1.41 0.42 1.66 0.17
1992--Class A
Shares.......... 48.93 -- 500,307 1.53 2.09 1.78 1.84
FOR THE PERIOD ENDED JANUARY 31,
1991--Class A
Shares(c)....... 35.63(d) -- 437,533 1.27(d) 3.24(d) 1.47(d) 3.04(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
76
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Distributions to
investment operations(h) shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized
Net asset gain on From In excess gain on Net asset
value, Net investments, net of net investment Net increase value,
beginning investment options and investment investment and futures in net end of Total
of period income futures income income transactions asset value period return(b)
- -----------------------------------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--
Institutional
Shares
(unaudited)..... $18.73 $0.08 $4.86 $ -- $ -- $ -- $4.94 $23.67 26.37%(f)
1997--Service
Shares(a)
(unaudited)..... 23.01 -- 0.66 -- -- -- 0.66 23.67 2.87(f)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--
Institutional
Shares.......... 15.91 0.24 3.77 (0.24) (0.02) (0.93) 2.82 18.73 25.63
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1996--Individual
Shares(d)....... 15.00 0.13 0.90 (0.12) -- -- 0.91 15.91 6.89(d)(f)
- -----------
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Net Ratio of Ratio of net Ratio of net
assets at net investment Ratio of investment
Portfolio Average end of expenses to income (loss) to expenses to income (loss)
turnover commission period average net average net average to average
rate rate(c) (in 000s) assets assets net assets net assets
-------------------------------------------------------------------------------------------------
MID CAP EQUITY FUND
-------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED JULY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997--
Institutional
Shares
(unaudited)..... 35.77%(f) $0.0540 $189,092 0.85%(e) 0.77%(e) 0.90%(e) 0.72%(e)
1997--Service
Shares(a)
(unaudited)..... 35.77(f) 0.0540 2 1.35(e) (0.06)(e) 1.40(e) (0.11)(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--
Institutional
Shares.......... 74.03 0.0547 145,253 0.85 1.35 0.91 1.29
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1996--Individual
Shares(d)....... 58.77(f) -- 135,671 0.85(e) 1.67(e) 0.98(e) 1.54(e)
</TABLE>
- ----
(a) For the period from July 18, 1997 (commencement of operations) to July 31,
1997.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(c) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(d) For the period from August 1, 1995 (commencement of operations) to
January 31, 1996.
(e) Annualized.
(f) Not annualized.
(g) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(h) Includes the balancing effect of calculating per share amounts.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
77
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from
investment operations(g)
-------------------------------------------------
Net realized
and unrealized
Net realized gain (loss)
Net asset and unrealized on foreign
value, Net gain (loss) on currency
beginning investment investments, options related
of period income (loss) and futures transactions
---------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $19.32 $0.03(h) $4.20(h) $(0.24)
1997--Class B
Shares
(unaudited)..... 19.24 (0.02)(h) 4.17(h) (0.24)
1997--
Institutional
Shares
(unaudited)..... 19.40 0.08(h) 4.26(h) (0.24)
1997--Service
Shares
(unaudited)..... 19.34 0.04(h) 4.24(h) (0.24)
FOR THE YEAR ENDED JANUARY 31,
- -------------
1997--Class A
Shares.......... 17.20 0.10 3.51 (1.28)
1997--Class B
Shares(e)....... 18.91 (0.06) 0.94 (0.34)
1997--
Institutional
Shares(e)....... 17.45 0.04 3.39 (1.24)
1997--Service
Shares(e)....... 17.70 (0.02) 2.95 (1.08)
1996--Class A
Shares.......... 14.52 0.13 2.58 1.42
1995--Class A
Shares.......... 18.10 0.06 (3.04) (0.01)
1994--Class A
Shares.......... 14.35 0.05 4.08 (0.38)
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... 14.18 (0.01) 0.29 (0.11)
<CAPTION>
Distributions to
shareholders
-----------------------
From
net realized
gain on Net
From investment, increase Net asset
net option and (decrease) value,
investment futures in net asset end of Total
income transactions value period return(a)
-----------------------------------------------------------------
INTERNATIONAL EQUITY FUND
-----------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- ------------
<S> <C> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... $ -- $ -- $ 4.02 $23.34 20.81%(c)
1997--Class B
Shares
(unaudited)..... -- -- 3.94 23.18 20.48(c)
1997--
Institutional
Shares
(unaudited)..... -- -- 4.11 23.51 21.19(c)
1997--Service
Shares
(unaudited)..... -- -- 4.04 23.38 20.89(c)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... -- (0.21) 2.12 19.32 13.48
1997--Class B
Shares(e)....... -- (0.21) 0.33 19.24 2.83(c)
1997--
Institutional
Shares(e)....... (0.03) (0.21) 1.95 19.40 12.53(c)
1997--Service
Shares(e)....... -- (0.21) 1.64 19.34 10.42(c)
1996--Class A
Shares.......... (0.58) (0.87) 2.68 17.20 28.68
1995--Class A
Shares.......... -- (0.59) (3.58) 14.52 (16.65)
1994--Class A
Shares.......... -- -- 3.75 18.10 26.13
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... -- -- 0.17 14.35 1.23(c)
<CAPTION>
Ratio of net
Portfolio Average Net assets expenses to
turnover commission at end of average net
rate rate (f) period (in 000's) assets
---------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
---------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 22.30%(c) $0.0230 $721,502 1.69%(d)
1997--Class B
Shares
(unaudited)..... 22.30(c) 0.0230 49,263 2.23(d)
1997--
Institutional
Shares
(unaudited)..... 22.30(c) 0.0230 57,860 1.10(d)
1997--Service
Shares
(unaudited)..... 22.30(c) 0.0230 2,087 1.60(d)
- -------------
FOR THE YEAR ENDED JANUARY 31,
- -------------
1997--Class A
Shares.......... 38.01 .0318 536,283 1.69
1997--Class B
Shares(e)....... 38.01 .0318 19,198 2.23(d)
1997--
Institutional
Shares(e)....... 38.01 .0318 68,374 1.10(d)
1997--Service
Shares(e)....... 38.01 .0318 674 1.60(d)
1996--Class A
Shares.......... 68.48 -- 330,860 1.52
1995--Class A
Shares.......... 84.54 -- 275,086 1.73
1994--Class A
Shares.......... 60.04 -- 269,091 1.76
- ------------
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... 0.00 -- 66,063 1.80(d)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of net
investment Ratio of
income Ratio of net investment
(loss) to expenses income (loss)
average net to average to average
assets net assets net assets
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
<S> <C> <C> <C>
1997--Class A
Shares
(unaudited)..... 0.30%(d) 1.83%(d) 0.16%(d)
1997--Class B
Shares
(unaudited)..... 0.22)(d) 2.33(d) (0.32)(d)
1997--
Institutional
Shares
(unaudited)..... 0.78(d) 1.20(d) 0.68(d)
1997--Service
Shares
(unaudited)..... 0.35(d) 1.70(d) 0.25(d)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... (0.07) 1.88 (0.26)
1997--Class B
Shares(e)....... (0.97)(d) 2.38(d) (1.12)(d)
1997--
Institutional
Shares(e)....... 0.43(d) 1.25(d) 0.28(d)
1997--Service
Shares(e)....... (0.40)(d) 1.75(d) (0.55)(d)
1996--Class A
Shares.......... 0.26 1.77 0.01
1995--Class A
Shares.......... 0.40 1.98 0.15
1994--Class A
Shares.......... 0.51 2.01 0.26
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(b)....... (0.42)(d) 2.58(d) (1.20)(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 7, March 6 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional, Service and Class B
shares, respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
78
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
---------------------------------- ------------------------------------
From In excess
net realized of realized
Net realized gain on gain on
Net asset Net and unrealized From investment, investment,
value, investment gain (loss) on net option and option and
beginning income investments, options investment futures futures
of period (loss) and futures income transactions transactions
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... $20.91 $(.0.05)(h) $ 3.77(h) $ -- $ -- $ --
1997--Class B
Shares
(unaudited)..... 20.80 (0.12)(h) 3.74(h) -- -- --
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 17.29 (0.21) 4.92 -- (1.09) --
1997--Class B
Shares(b)....... 20.79 (0.11) 1.21 -- (1.09) --
1996--Class A
Shares.......... 16.14 (0.23) 1.39 -- (0.01) --
1995--Class A
Shares.......... 20.67 (0.07) (3.53) -- (0.69) (0.24)
1994--Class A
Shares.......... 16.68 (0.04) 5.03 -- (1.00) --
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(c)....... 14.18 0.03 2.50 (0.03) -- --
<CAPTION>
Net increase Net asset Ratio of net
(decrease) value, Portfolio Average Net assets at expenses to
in net end of Total turnover commission end of period average net
asset value period return(a) rate rate(g) (in 000's) assets
-------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... $ 3.72 $24.63 17.65%(d) 46.02%(d) $0.0506 $290,615 1.56%(e)
1997--Class B
Shares
(unaudited)..... 3.62 24.42 17.26(d) 46.02(d) 0.0506 19,125 2.31(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 3.62 20.91 27.28 99.46 .0461 212,061 1.60
1997--Class B
Shares(b)....... 0.01 20.80 5.39(d) 99.46 .0461 3,674 2.35(e)
1996--Class A
Shares.......... 1.15 17.29 7.20 57.58 -- 204,994 1.41
1995--Class A
Shares.......... (4.53) 16.14 (17.53) 43.67 -- 319,487 1.53
1994--Class A
Shares.......... 3.99 20.67 30.13 56.81 -- 261,074 1.60
FOR THE PERIOD ENDED JANUARY 31,
- ------------
Shares(c)....... 2.50 16.68 17.86(d) 7.12(e) -- 59,339 1.65(e)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
---------------------------
Ratio of net Ratio of net
investment Ratio of investment
income (loss) to expenses to loss
average net average to average
assets net assets net assets
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- -------------
1997--Class A
Shares
(unaudited)..... (0.49)%(e) 1.81%(e) (0.74)%(e)
1997--Class B
Shares
(unaudited)..... (1.06)(e) 2.31(e) (1.06)(e)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... (0.72) 1.85 (0.97)
1997--Class B
Shares(b)....... (1.63)(e) 2.35(e) (1.63)(e)
1996--Class A
Shares.......... (0.59) 1.66 (0.84)
1995--Class A
Shares.......... (0.53) 1.78 (0.78)
1994--Class A
Shares.......... (0.45) 1.85 (0.70)
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1993--Class A
Shares(c)....... 0.62(e) 2.70(e) (0.43)(e)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from May 1, 1996 (commencement of operations) to January
31, 1997.
(c) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
(d) Not annualized.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
79
<PAGE>
Goldman Sachs Trust--Equity Portfolios
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(g) shareholders
-------------------------------------------- ---------------------
Net realized
Net asset Net Net realized and unrealized From In excess Net increase Net asset
value, investment and unrealized gain on foreign net of net (decrease) value,
beginning income gain (loss) on currency related investment investment in net end of Total
of period (loss) investments transactions income income asset value period return(a)
- --------------------------------------------------------------------------------------------------------------------------------
ASIA GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
1997--Class A
Shares
(unaudited)..... $16.31 $ 0.03(h) $ 0.86(h) $(0.68) $ -- $ -- $ 0.21 $16.52 1.29%(c)
1997--Class B
Shares
(unaudited)..... 16.24 (0.02)(h) 0.71(h) (0.56) -- -- 0.16 16.40 0.99(c)
1997--
Institutional
Shares
(unaudited)..... 16.33 0.07(h) 0.90(h) (0.71) -- -- 0.26 16.59 1.59(c)
FOR THE YEAR ENDED JANUARY 31,
1997--Class A
Shares.......... 16.49 0.06 (0.11) (0.12) (0.01) -- (0.18) 16.31 (1.01)
1997--Class B
Shares(e)....... 17.31 (0.05) (0.48) (0.51) -- (0.03) (1.07) 16.24 (6.02)(c)
1997--
Institutional
Shares(e)....... 16.61 0.04 (0.11) (0.11) (0.04) (0.06) (0.28) 16.33 (1.09)(c)
1996--Class A
Shares.......... 13.31 0.17 3.44 (0.12) (0.17) (0.14) 3.18 16.49 26.49
FOR THE PERIOD ENDED JANUARY 31,
1995--Class A
Shares(b)....... 14.18 0.11 (0.89) 0.01 (0.10) -- (0.87) 13.31 (5.46)(c)
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of net Ratio of net
Ratio of net investment Ratio of investment
Portfolio Average Net assets at expenses to income (loss) expenses income (loss)
turnover commission end of period average net to average net to average to average
rate rate(f) (000's) assets assets net assets net assets
------------------------------------------------------------------------------------------
ASIA GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JULY 31,
- ------------
1997--Class A
Shares
(unaudited)..... 51.72%(c) $0.0068 $256,078 1.72%(d) 0.37%(d) 1.92%(d) 0.17%(d)
1997--Class B
Shares
(unaudited)..... 51.72(c) 0.0068 5,237 2.27(d) (0.21)(d) 2.43(d) (0.37)(d)
1997--
Institutional
Shares
(unaudited)..... 51.72(c) 0.0068 11,372 1.10(d) 0.91(d) 1.26(d) 0.75(d)
FOR THE YEAR ENDED JANUARY 31,
- ------------
1997--Class A
Shares.......... 48.40 .0151 263,014 1.67 0.20 1.87 0.00
1997--Class B
Shares(e)....... 48.40 .0151 3,354 2.21(c) (0.56)(d) 2.37(d) (0.72)(d)
1997--
Institutional
Shares(e)....... 48.40 .0151 13,322 1.10(d) 0.54(d) 1.26(d) 0.38(d)
1996--Class A
Shares.......... 88.80 -- 205,539 1.77 1.05 2.02 0.80
FOR THE PERIOD ENDED JANUARY 31,
- ------------
1995--Class A
Shares(b)....... 36.08(c) -- 124,298 1.90(d) 1.83(d) 2.38(d) 1.35(d)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
(c) Not annualized.
(d) Annualized.
(e) For the period from February 2 and May 1, 1996 (commencement of
operations) to January 31, 1997 for Institutional and Class B shares,
respectively.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
(g) Includes the balancing effect of calculating per share amounts.
(h) Calculated based on average shares outstanding methodology.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
80
<PAGE>
SERVICE PLANS
Each Fund has adopted a service plan (the "Plan") with respect to its Service
Shares which authorizes it to compensate Service Organizations for providing
certain administration services and personal and account maintenance services to
their customers who are or may become beneficial owners of such Shares.
Pursuant to the Plan, each Fund enters into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers, (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund. (c) answer questions and handle correspondence
from customers regarding their accounts, (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds, (e) issue confirmations for transactions in shares by customers, (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund, (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information,
(h) display and make prospectuses available on the Service Organization's
premises, (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization and (j) act as liaison between customers and a Fund, including
obtaining information from the Fund, working with the Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, each Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization.
Each Fund has adopted its Plan pursuant to Rule 12b-1 under the Act in order to
avoid any possibility that payments to the Service Organizations pursuant to the
Service Agreements might violate the Act. Rule 12b-1, which was adopted by the
SEC under the Act, regulates the circumstances under which an investment company
or series thereof may bear expenses associated with the distribution of its
shares. In particular, such an investment company or series thereof cannot
engage directly or indirectly in financing any activity which is primarily
intended to result in the sale of shares issued by the company unless it has
adopted a plan pursuant to, and complies with the other requirements of, such
Rule. The Trust believes that fees paid for the services provided in the Plan
and described above are not expenses incurred primarily for effecting the
distribution of Service Shares. However, should such payments be deemed by a
court or the SEC to be distribution expenses, such payments would be duly
authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with a Fund, such Service Organizations might be required to alter
materially or discontinue the services performed under their Service Agreements.
If one or more of the Service Organizations were restricted from effecting
purchases or sales of Service Shares automatically pursuant to pre-authorized
instructions, for example, effecting such transactions on a manual basis might
affect the size and/or growth of a Fund. Any such alteration or discontinuance
of services could require the Board of Trustees to consider changing a Fund's
method of operations or providing alternative means of offering Service Shares
of the Fund to customers of such Service Organizations, in which case the
operation of such Fund, its size and/or its growth might be significantly
altered. It is not anticipated, however, that any
B-75
<PAGE>
alternation of a Fund's operations would have any effect on the net asset value
per share or result in financial losses to any shareholder.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of a Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, are urged to consult legal advisers before
investing fiduciary assets in Service Shares of a Fund. In addition, under
some state securities laws, banks and other financial institutions purchasing
Service Shares on behalf of their customers may be required to register as
dealers.
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plans or the related Service Agreements, voted to approve
each Plan and related Service Agreements at a meeting called for the purpose of
voting on such Plans and Service Agreements on April 23, 1997. Each Plan will
be approved by the sole shareholder of Service Shares of each Fund, on April
23, 1997. The Plans and Service Agreements will remain in effect until June 30,
1997 and will continue in effect thereafter only if such continuance is
specifically approved annually by a vote of the Trustees in the manner described
above. The Plans may not be amended to increase materially the amount to be
spent for the services described therein without approval of the Service
Shareholders of the affected Fund and all material amendments of the Plan must
also be approved by the Trustees in the manner described above. The Plan may be
terminated at any time by a majority of the Trustees as described above or by a
vote of a majority of the outstanding Service Shares of the affected Fund. The
Service Agreements may be terminated at any time, without payment of any
penalty, by vote of a majority of the Trustees as described above or by a vote
of a majority of the outstanding Service Shares of the affected Fund on not more
than sixty (60) days' written notice to any other party to the Service
Agreements. The Service Agreements will terminate automatically if assigned.
So long as the Plans are in effect, the selection and nomination of those
Trustees who are not interested persons will be committed to the discretion of
the Trust's Nominating Committee, which consists of all of the non-interested
members of the Trustees. The Trustees has determined that, in its judgment,
there is a reasonable likelihood that the Plans will benefit the Funds and the
holders of Service Shares of the Funds. In the Trustees' quarterly review of
the Plans and Service Agreements, the Board will consider their continued
appropriateness and the level of compensation provided therein.
B-76
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS*
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
- ---------------
* The rating system described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. and Standard and Poor's
Ratings Group at the date of this Additional Statement for the securities
listed. Ratings are generally given to securities at the time of issuance.
While the rating agencies may from time to time revise such ratings, they
undertake no obligation to do so, and the ratings indicated do not necessarily
represent ratings which will be given to these securities on the date of the
Fund's fiscal year end.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such
1-A
<PAGE>
issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
STANDARD & POOR'S RATINGS GROUP
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and C the
highest. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
D: Bonds rated D are in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired,
2-A
<PAGE>
unless Standard & Poor's believes that such payments will be made during such
grace period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
N.R.: Not rated.
3-A
<PAGE>
Appendix B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that if we
serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these assets
diminish, reputation is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While recognizing
that the old way may still be the best way, we constantly strive to find a
better solution to a client's problems. We pride ourselves on having pioneered
many of the practices and techniques that have become standard in the industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our people
to maintain high ethical standards in everything they do, both in their work for
the firm and in their personal lives.
1-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $5.3 billion as of November
29, 1996.
. With thirty-four offices around the world, Goldman Sachs employs over
9,000 professionals focused on opportunities in major markets.
. The number one underwriter of all international equity issuers from
(1993-1996).
. A research budget of $200 million for 1997.
. Premier lead manager of negotiated municipal bond offerings over the
past six years (1990-1996).
. The number one lead manager of U.S. common stock offerings for the
past eight years (1989-1996).*
. The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1996).
* Source: Securities Data Corporation. Common stock ranking excludes REITs,
====================================
Investment Trusts and Rights.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (longest-standing client
relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest
equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
1996 Dow Jones Industrial Average breaks 6000
Goldman Sachs takes Deutsche Telecom public
1997 Dow Jones Industrial Average breaks 7000
3-B
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements
Included in the Prospectus:
Financial Highlights for the CORE Large Cap Growth Fund for the period
ended July 31, 1997 (unaudited),
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations (April 20, 1990) through January 31, 1991 and
for the six years ended January 31, 1997 for Goldman Sachs Capital Growth
Fund (audited).
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations (May 24, 1991) through January 31, 1992 and for
the five years ended January 31, 1997 for Goldman Sachs CORE U.S. Equity
Fund (audited). (Formerly, Goldman Sachs Select Equity Fund)
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations (October 22, 1992) to January 31, 1993 and for
the four years ended January 31, 1997 for Goldman Sachs Small Cap Value
Fund (audited).
Financial Highlights - Selected Data for Shares Outstanding From
Commencement of Operations (December 1, 1992) to January 31, 1993 and for
the four years ended January 31, 1997 for Goldman Sachs International
Equity Fund (audited).
Financial Highlights - Selected data for Shares Outstanding from
Commencement of Operations (February 5, 1993) through January 31, 1994 and
for the three years ended January 31, 1997 for Goldman Sachs Growth and
Income Fund (audited).
Financial Highlights - Selected data for a Share Outstanding from
Commencement of Operations (July 8, 1994) through January 1, 1995 and for
the two year ended January 31, 1997 for Goldman Sachs Asia Growth Fund
(audited).
Financial Highlights - Selected data for a Share Outstanding from
Commencement of Operations (October 12, 1994) through January 31, 1995 and
for the two years ended January 31, 1997 for Goldman Sachs Balanced Fund
(audited).
Financial Highlights - Selected data for a Share Outstanding from
Commencement of Operations (August 1, 1995) through
<PAGE>
January 31, 1996 and for the one year ended January 31, 1997 for Goldman
Sachs Mid Cap Equity Fund (audited).
Incorporated by Reference into the Statement of Additional Information:
Statement of Investments as of July 31, 1997 for Goldman Sachs CORE Large
Cap Growth Fund (unaudited) and as of January 31, 1997 for Goldman Sachs
Capital Growth Fund, Goldman Sachs Core U.S. Equity Fund, Goldman Sachs
Small Cap Equity Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Growth and Income Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs
Balanced Fund and Goldman Sachs Mid Cap Equity Fund (audited).
Statement of Assets and Liabilities as of July 31, 1997 for Goldman Sachs
CORE Large Cap Growth Fund (unaudited) and as of January 31, 1997 for
Goldman Sachs Capital Growth Fund, Goldman Sachs Core U.S. Equity Fund,
Goldman Sachs Small Cap Equity Fund, Goldman Sachs International Equity
Fund, Goldman Sachs Growth and Income Fund, Goldman Sachs Asia Growth Fund,
Goldman Sachs Balanced Fund and Goldman Sachs Mid Cap Equity Fund
(audited).
Statement of Operations for the period ended July 31, 1997 for Goldman
Sachs CORE Large Cap Growth Fund (unaudited) and for the year ended January
31, 1997 for Goldman Sachs Capital Growth Fund, Goldman Sachs Core U.S.
Equity Fund, Goldman Sachs Small Cap Equity Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Growth and Income Fund, Goldman
Sachs Mid Cap Equity Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs
Balanced Fund (audited).
Statement of Changes in Net Assets for the period ended July 31, 1997 for
Goldman Sachs CORE Large Cap Growth Fund (unaudited) and for the years
ended January 31, 1996 and January 31, 1997 for Goldman Sachs Balanced
Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Asia Growth Fund,
Goldman Sachs Core U.S. Equity Fund, Goldman Sachs Small Cap Equity Fund,
Goldman Sachs International Equity Fund, Goldman Sachs Mid Cap Equity Fund
and Goldman Sachs Growth and Income Fund (audited).
Financial Highlights for the CORE Large Cap Growth Fund as of July 31, 1997
(unaudited),
Financial Highlights for the period from Commencement of Operations (April
20, 1990) to January 31, 1991 and for the six years ended January 31, 1997
for Goldman Sachs Capital Growth Fund (audited).
Financial Highlights for the period from Commencement of Operations (May
24, 1991) to January 31, 1992 and for the five years ended January 31, 1997
for Goldman Sachs Core U.S. Equity Fund (audited).
2
<PAGE>
Financial Highlights for the period from Commencement of Operations
(October 22, 1992) to January 31, 1993 and for the four years ended January
31, 1997 for Goldman Sachs Small Cap Value Fund (audited).
Financial Highlights for the period from Commencement of Operations
(December 1, 1992) to January 31, 1993 and for the four years ended January
31, 1997 for Goldman Sachs International Equity Fund (audited).
Financial Highlights for the period from Commencement of Operations
(February 3, 1993) to January 31, 1994 and for the three years ended
January 31, 1997 for Goldman Sachs Growth and Income Fund (audited).
Financial Highlights for the period from Commencement of Operations (July
8, 1994) to January 31, 1995 and for the two years ended January 31, 1997
for Goldman Sachs Asia Growth Fund (audited).
Financial Highlights for the period from Commencement of Operations
(October 12, 1994) to January 31, 1995 and for the two years ended January
31, 1997 for Goldman Sachs Balanced Fund (audited).
Financial Highlights for the period from Commencement of Operations (August
1, 1995) to January 31, 1996 and for the one year ended January 31, 1997for
Goldman Sachs Mid Cap Equity Fund (audited).
Notes to Financial Statements.
(b) Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on form N-1A as initially filed (Reference A), to Pre-
Effective Amendment No. 1 to such Registration Statement (Reference B), or to
Post-Effective Amendment No. 1 to such Registration Statement (Reference C), or
to Post-Effective Amendment No. 2 to such Registration Statement (Reference D),
or to Post-Effective Amendment No. 4 to such Registration Statement (Reference
F), or to Post-Effective Amendment No. 12 to such Registration Statement
(Reference M), or to Post-Effective Amendment No. 16 to such Registration
Statement (Reference Q) or to Post-Effective Amendment No. 17 to such
Registration Statement (Reference R), or to Post-Effective Amendment No. 19 to
such Registration Statement (Reference T), or to Post-Effective Amendment No. 20
to such Registration Statement (Reference U), or to Post-Effective Amendment No.
21 to such Registration Statement (Reference V), or to Post-Effective Amendment
No. 24 to such Registration Statement (Reference Y), or to Post-Effective
Amendment No. 25 to such Registration Statement
3
<PAGE>
(Reference Z), to Post-Effective Amendment No. 26 to such Registration
Statement (Accession No. 0000950130-95-002856), to Post-Effective Amendment No.
27 to such Registration Statement (Accession No. 0000950130-96-004931), to
Post-Effective Amendment No. 29 to such Registration Statement (Accession
No.0000950130-97-000573), to Post-Effective Amendment No. 31 to such
Registration Statement (Accession No. 0000950130-97-000805) and to Post-
Effective Amendment No. 33 to such Registration Statement (Accession No.
0000950130-97-0001867).
1. Agreement and Declaration of Trust. (Accession No. 0000950130-97-
000573)
2. By-laws of the Delaware business trust (Accession No. 0000950130-
97-000573)
3. Not applicable.
4. Not applicable.
5(a). Advisory Agreement between Registrant on behalf of GS Short-Term
Government Agency Fund and Goldman, Sachs & Co. (Reference P)
5(b). Advisory Agreement between Registrant on behalf of GS Adjustable
Rate Government Agency Fund and Goldman Sachs Asset Management.
(Reference P)
5(c). Advisory Agreement between Registrant on behalf of GS Short
Duration Tax-Free Fund and Goldman, Sachs & Co. (Reference P)
5(d). Advisory Agreement between Registrant on behalf of GS Core Fixed
Income Fund and Goldman Sachs Asset Management. (Reference T)
5(e). Management Agreements on behalf of Delaware business
trust (Accesssion No. 0000950130-97-002797)
6(a). Distribution Agreement between Registrant and Goldman, Sachs &
Co. (Reference P)
7. Not applicable.
8(a). Custodian Agreement between Registrant and State Street Bank and
Trust Company. (Reference P)
8(b). Form of Wiring Agreement among State Street Bank and Trust
Company, Goldman, Sachs & Co. and The Northern Trust Company.
(Reference B)
4
<PAGE>
8(c). Fee schedule relating to the Custodian Agreement between
Registrant and State Street Bank and Trust Company. (Reference C)
8(d). Form of Letter Agreement between Registrant and State Street Bank
and Trust pertaining to the latter's designation of Security
Pacific National Bank as its sub-custodian and certain other
matters. (Reference C)
8(g). Form of Amendment dated August, 1989 to the Wiring Agreement
among State Street Bank and Trust Company, Goldman, Sachs & Co.
and The Northern Trust Company relating to the indemnification of
The Northern Trust Company. (Reference D)
9(a). Transfer Agency Agreement between Registrant and
Goldman, Sachs & Co. (Reference P)
9(b). Fee schedule relating to the Transfer Agency Agreement between
Registrant and Goldman, Sachs & Co. (Reference B)
10. Opinion of Delaware Counsel (Accession No. 0000950130-97-0001867)
11. Consent of Arthur Andersen.
12. Not applicable.
13. Subscription Agreement with Goldman, Sachs & Co. (Reference B)
14. Not applicable.
15(a). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs
Municipal Income Fund. (Reference P)
15(c). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs
Government Income Fund (Reference O)
15(d). Distribution Plan pursuant to Rule 12b-1 for Goldman Sachs Global
Income Fund. (Reference O)
15(f). Distribution Plan Pursuant to Rule 12b-1 for GS Adjustable Rate
Government Agency Fund-Class A Shares. (Reference Y)
15(h). Administration Plan and Service Plan of the Trust. (Reference X)
5
<PAGE>
16. Schedule for Computation of Performance Data. (Reference V)
18. Form of Plan entered into by Registrant pursuant to Rule 18f-3.
(Reference Z)
19. Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Sringer, Strubel, Mosior, Gilman, Perlowski, Richman, Surloff,
Mmes. MacPherson, Mucker and Taylor (Accession No. 0000950130-97-
000805)
27. Financial Data Schedules (Accession No. 0000950130-97-0001867)
The following exhibit relating to Goldman Sachs Trust is filed
herewith electronically pursuant to EDGAR rules:
11. Consent of Arthur Andersen LLP.
27(b). Financial Data Schedule - CORE Large Cap Growth Fund
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
-------------------------------
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>
Treasury Obligations Portfolio
ILA Units 767
ILA Administration Units 80
ILA Service Units 9
Treasury Instruments Portfolio
ILA Units 326
ILA Administration Units 44
ILA Service Units 17
Federal Portfolio
ILA Units 2,712
ILA Administration Units 648
ILA Service Units 136
Government Portfolio
ILA Units 1,388
ILA Administration Units 66
ILA Service Units 5
Prime Obligations Portfolio
ILA Class A 485
ILA Units 803
ILA Class B Units 58
ILA Administration Units 70
ILA Service Units 17
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Money Market Portfolio
ILA Units 1,665
ILA Administration Units 946
ILA Service Units 6
Tax-Exempt Diversified Portfolio
ILA Class A 53
ILA Units 2,299
ILA Administration Units 25
ILA Service Units 22
Tax-Exempt California Portfolio
ILA Units 895
ILA Administration Units 4
ILA Service Units 1
Tax-Exempt New York Portfolio
ILA Units 224
ILA Administration Units 69
ILA Service Units 2
Financial Square Treasury Obligations Fund
FST Shares 410
FST Administration Shares 127
FST Service Shares 652
FST Preferred Shares 16
Financial Square Prime Obligations Fund
FST Shares 481
FST Administration Shares 135
FST Service Shares 352
FST Preferred Shares 17
Financial Square Government Fund
FST Shares 254
FST Administration Shares 207
FST Service Shares 101
FST Preferred Shares 17
Financial Square Money Market Fund
FST Shares 565
FST Administration Shares 273
FST Service Shares 167
FST Preferred Shares 34
Financial Square Tax-Free Money Market Fund
FST Shares 286
FST Administration Shares 52
FST Service Shares 97
FST Preferred Shares 12
Financial Square Treasury Instruments Fund
FST Shares 165
FST Administration Shares 3
FST Service Shares 7
FST Preferred Shares 2
Financial Square Federal Fund
FST Shares 221
FST Administration Shares 128
FST Service Shares 153
FST Preferred Shares 3
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Financial Square Municipal Money Market Fund
FST Shares 0
FST Administration Shares 0
FST Service Shares 0
FST Preferred Shares 0
Financial Square Premium Money Market Fund
FST Shares 12
FST Administration Shares 1
FST Service Shares 1
FST Preferred Shares 1
GS Short Duration Government Fund
Institutional Shares 353
Administration Shares 38
Service Shares 6
Class A 49
Class B 20
Class C 3
GS Adjustable Rate Government Fund
Institutional Shares 456
Administration Shares 19
Service Shares 3
Class A 391
GS Short Duration Tax-Free Fund
Institutional Shares 144
Administration Shares 5
Service Shares 0
Class A 63
Class B 11
Class C 2
GS Core Fixed Income Fund
Institutional Shares 184
Administration Shares 38
Service Shares 4
Class A 83
Class B 23
Class C 2
Goldman Sachs Global Income Fund
Institutional Shares 37
Service Shares 5
Class A 2,832
Class B 253
Class C 7
Goldman Sachs Government Income Fund
Class A 1,086
Class B 307
Class C 13
Institutional Shares 1
Service Shares 1
Goldman Sachs Municipal Income Fund
Class A 1,546
Class B 48
Class C 2
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Institutional Shares 1
Service Shares 1
Goldman Sachs Capital Growth Fund
Class A 33,496
Class B 1,623
Class C 36
Institutional Shares 1
Service Shares 1
Goldman Sachs CORE U.S. Equity Fund
Class A 14,291
Class B 2,552
Class C 41
Institutional Shares 23
Service Shares 8
Goldman Sachs Small Cap Value Fund
Class A 18,700
Class B 2,224
Class C 54
Institutional Shares 2
Service Shares 1
Goldman Sachs International Equity Fund
Class A 27,363
Class B 4,630
Class C 55
Institutional Shares 45
Service Shares 11
Goldman Sachs Growth and Income Fund
Class A 46,114
Class B 11,576
Class C 116
Institutional Shares 21
Service Shares 14
Goldman Sachs Asia Growth Fund
Class A 10,315
Class B 625
Class C 17
Institutional Shares 11
Service Shares 3
Goldman Sachs Balanced Fund
Class A 4,966
Class B 778
Class C 15
Institutional Shares 2
Service Shares 1
Goldman Sachs Mid Cap Equity Fund
Class A 267
Class B 115
Class C 20
Institutional Shares 28
Service Shares 4
Goldman Sachs CORE Large Cap Growth Fund
Class A 697
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Class B 409
Class C 17
Institutional Shares 7
Service Shares 6
Goldman Sachs Emerging Markets Equity Fund
Class A 0
Class B 0
Class C 0
Institutional Shares 0
Service Shares 0
Goldman Sachs CORE Small Cap Equity Fund
Class A 73
Class B 67
Class C 15
Institutional Shares 1
Service Shares 1
Goldman Sachs CORE International Equity Fund
Class A 77
Class B 73
Class C 15
Institutional Shares 1
Service Shares 1
Goldman Sachs Real Estate Securities Fund
Class A 0
Class B 0
Class C 0
Institutional Shares 0
Service Shares 0
</TABLE>
(Information supplied as of September 5, 1997)
ITEM 27. INDEMNIFICATION
---------------
Article III of the Declaration of Trust of Goldman Sachs Trust, the Delaware
business trust, provides for indemnification of the Trustees, offices and agents
of the Trust, subject to certain limitations. The Declaration of Trust was
filed as Exhibit 1.
The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on the party of
the Investment Adviser or from reckless disregard by the Investment Adviser of
its obligations or duties under the Management Agreement. Section 7 of the
Advisory Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by reason of its
wilful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Advisory Agreement. The Management
Agreements were filed as Exhibit 5(e).
10
<PAGE>
Section XI of the Distribution Agreement and Section 7 of the Transfer Agency
Agreement between the Registrant and Goldman, Sachs & Co. dated July 15, 1991
each provides that the Registrant will indemnify Goldman, Sachs & Co. against
certain liabilities. A copy of such Agreements were filed as Exhibits 6(a) and
9(a), respectively, to the Registrant's Registration Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Goldman Sachs Money Market Trust, Goldman Sachs Equity
Portfolios, Inc., Trust for Credit Unions, The Benchmark Funds and The Commerce
Funds and Goldman, Sachs & Co. insure such persons and their respective
trustees, partners, officers and employees, subject to the policies' cover age
limits and exclusions and varying deductibles, against loss resulting from
claims by reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the text of which are hereby incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
(a). Goldman, Sachs & Co. or an affiliate or a division thereof currently
serves as investment adviser and distributor of the units of Trust for Credit
Unions and for shares of Goldman Sachs Trust. Goldman, Sachs & Co., or a
division thereof currently serves as administrator and distributor of the units
or shares of The Benchmark Funds and The Commerce Funds.
(b). Set forth below is certain information pertaining to the Managing
Directors of Goldman, Sachs & Co., the Registrant's principal underwriter, who
are members of Goldman, Sachs & Co.'s Executive Committee. None of the members
of the executive committee holds a position or office with the Registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
Name and Principal
Business Address Position
---------------- --------
Jon S. Corzine (1) Chief Executive Officer
Robert J. Hurst (1) Managing Director
11
<PAGE>
Henry M. Paulson, Jr. (1) Chief Operating Officer
John A. Thain (1)(3) Chief Financial Officer
John L. Thornton (3) Managing Director
Roy J. Zuckerberg (2) Managing Director
_______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Declaration of Trust, By-laws and minute books of the Registrant are in the
physical possession of Goldman Sachs Asset Management, One New York Plaza, New
York, New York 10004. All other accounts, books and other documents required
to be maintained under Section 31(a) of the Investment Company Act of 1940 and
the Rule promulgated thereunder are in the physical possession of State Street
Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105 except for
certain transfer agency records which are maintained by Goldman, Sachs & Co.,
4900 Sears Tower, Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES
-------------------
Not applicable.
ITEM 32. UNDERTAKINGS
------------
(a) The Funds undertake to furnish each person to whom a prospectus is
delivered with the latest Annual Report.
(b) With respects to Goldman Sachs CORE Small Cap Equity Fund, Goldman Sachs
CORE International Fund and Goldman Sachs Real Estate Securities Fund, the
Registrant undertakes to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of the Post-Effective Amendment to the Registration Statement
relating to shares of such Funds.
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Goldman Sachs Trust, a Delaw are business trust (the
"Delaware Trust") certifies that it meets all of the requirements for
effectiveness pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Post-Effective Amendment No. 39 to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly autho rized, in
the City and State of New York on the 1st day of October, 1997.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: Michael J. Richman
--------------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 39 to the Registration State ment of the Delaware Trust
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------ --------------------- ---------------
<S> <C> <C>
*Douglas C. Grip President October 1, 1997
- ------------------------
Douglas C. Grip
*Scott M. Gilman Principal Accounting October 1, 1997
- ------------------------
Scott M. Gilman Officer And Principal
Financial Officer
*David B. Ford Trustee October 1, 1997
- ------------------------
David B. Ford
*Ashok N. Bakhru Trustee October 1, 1997
- ------------------------
Ashok N. Bakhru
*John P. McNulty Trustee October 1, 1997
- ------------------------
John P. McNulty
*Alan A. Shuch Trustee October 1, 1997
- ------------------------
Alan A. Shuch
*Jackson W. Smart Trustee October 1, 1997
- ------------------------
Jackson W. Smart, Jr.
*Mary P. McPherson Trustee October 1, 1997
- ------------------------
Mary P. McPherson
</TABLE>
13
<PAGE>
*William H. Springer Trustee October 1, 1997
- ---------------------
William H. Springer
*Richard P. Strubel Trustee October 1, 1997
- ---------------------
Richard P. Strubel
*By: Michael J. Richman
_______________________ October 1, 1997
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
14
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
- -------
11A Consent of Arthur Andersen LLP.
11B Consent of Drinker Biddle & Reath.
27.1 Financial Data Schedules for CORE Large Cap Growth Fund.
15
<PAGE>
EXHIBIT 99.11(a)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Goldman Sachs Trust:
As independent public accountants, we hereby consent to the incorporation by
reference in is registration statement of our reports dated March 15,1997 for
the Goldman Sachs Trust - Equity Portfolios (which includes Goldman Sachs
Balanced Fund, Goldman Sachs CORE U.S. Equity Fund (formerly Goldman Sachs
Select Equity Fund), Goldman Sachs Growth and Income Fund, Goldman Sachs Capital
Growth Fund, Goldman Sachs Mid Cap Equity Fund, Goldman Sachs International
Equity Fund, Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asia Growth
Fund) and to all references to our firm included in or made a part of Post-
Effective Amendment No. 39 and Amendment No. 41 to Registration Statement File
Nos. 33-17619 and 811-5349, respectively.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 30, 1997
<PAGE>
EXHIBIT 99.11(b)
Law Offices
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Telex: 834684
Fax: (215) 988-2757
October 1, 1997
Goldman Sachs Trust
4900 Sears Tower
Chicago, IL 60606-6303
Re: Post-Effective Amendment No. 39 to the Registration
Statement Under the Securities Act of 1933
Gentlemen:
As counsel to Goldman Sachs Trust (the "Trust"), we have reviewed the
above-referenced post-effective amendment prepared by the Trust for filing with
the Securities and Exchange Commission. We hereby represent, pursuant to Rule
485(b)(4) under the Securities Act of 1933, as amended, that said post-effective
amendment does not, in our view, contain disclosure that would make it
ineligible to become effective pursuant to paragraph (b) of said Rule 485.
We consent to the filing of this letter by the Trust with the
Securities and Exchange commission together with post-effective amendment no. 39
to the Trust's registration statement.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
Drinker Biddle & Reath LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GOLDMAN SACHS TRUST'S SEMI-ANNUAL STATEMENT ON BEHALF OF THE EQUITY
FUNDS DATED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 601
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 28,826,861
<INVESTMENTS-AT-VALUE> 32,639,495
<RECEIVABLES> 1,023,050
<ASSETS-OTHER> 47,701
<OTHER-ITEMS-ASSETS> 57,877
<TOTAL-ASSETS> 33,768,123
<PAYABLE-FOR-SECURITIES> 407,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,772
<TOTAL-LIABILITIES> 541,150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,040,278
<SHARES-COMMON-STOCK> 2,468,215
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 24,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 349,524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,812,634
<NET-ASSETS> 33,226,973
<DIVIDEND-INCOME> 69,444
<INTEREST-INCOME> 9,091
<OTHER-INCOME> 0
<EXPENSES-NET> 53,998
<NET-INVESTMENT-INCOME> 24,537
<REALIZED-GAINS-CURRENT> 349,524
<APPREC-INCREASE-CURRENT> 3,812,634
<NET-CHANGE-FROM-OPS> 4,186,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,541,195
<NUMBER-OF-SHARES-REDEEMED> (72,980)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,226,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,779
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 151,191
<AVERAGE-NET-ASSETS> 23,180,238
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.95
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GOLDMAN SACHS TRUST'S SEMI-ANNUAL STATEMENT ON BEHALF OF THE EQUITY
FUNDS DATED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 602
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 28,826,861
<INVESTMENTS-AT-VALUE> 32,639,495
<RECEIVABLES> 1,023,050
<ASSETS-OTHER> 47,701
<OTHER-ITEMS-ASSETS> 57,877
<TOTAL-ASSETS> 33,768,123
<PAYABLE-FOR-SECURITIES> 407,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,772
<TOTAL-LIABILITIES> 541,150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,040,278
<SHARES-COMMON-STOCK> 312,763
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 24,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 349,524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,812,634
<NET-ASSETS> 33,226,973
<DIVIDEND-INCOME> 69,444
<INTEREST-INCOME> 9,091
<OTHER-INCOME> 0
<EXPENSES-NET> 53,998
<NET-INVESTMENT-INCOME> 24,537
<REALIZED-GAINS-CURRENT> 349,524
<APPREC-INCREASE-CURRENT> 3,812,634
<NET-CHANGE-FROM-OPS> 4,186,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 313,111
<NUMBER-OF-SHARES-REDEEMED> (348)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,226,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,779
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 151,191
<AVERAGE-NET-ASSETS> 23,180,238
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GOLDMAN SACHS TRUST'S SEMI-ANNUAL STATEMENT ON BEHALF OF THE EQUITY
FUNDS DATED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 603
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-INSTITUTIONAL
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 28,826,861
<INVESTMENTS-AT-VALUE> 32,639,495
<RECEIVABLES> 1,023,050
<ASSETS-OTHER> 47,701
<OTHER-ITEMS-ASSETS> 57,877
<TOTAL-ASSETS> 33,768,123
<PAYABLE-FOR-SECURITIES> 407,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,772
<TOTAL-LIABILITIES> 541,150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,040,278
<SHARES-COMMON-STOCK> 155
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 24,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 349,524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,812,634
<NET-ASSETS> 33,226,973
<DIVIDEND-INCOME> 69,444
<INTEREST-INCOME> 9,091
<OTHER-INCOME> 0
<EXPENSES-NET> 53,998
<NET-INVESTMENT-INCOME> 24,537
<REALIZED-GAINS-CURRENT> 349,524
<APPREC-INCREASE-CURRENT> 3,812,634
<NET-CHANGE-FROM-OPS> 4,186,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 155
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,226,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,779
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 151,191
<AVERAGE-NET-ASSETS> 23,180,238
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.95
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GOLDMAN SACHS TRUST'S SEMI-ANNUAL STATEMENT ON BEHALF OF THE EQUITY
FUNDS DATED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 606
<NAME> GOLDMAN SACHS CORE LARGE CAP GROWTH FUND-SERVICE SHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 28,826,861
<INVESTMENTS-AT-VALUE> 32,639,495
<RECEIVABLES> 1,023,050
<ASSETS-OTHER> 47,701
<OTHER-ITEMS-ASSETS> 57,877
<TOTAL-ASSETS> 33,768,123
<PAYABLE-FOR-SECURITIES> 407,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 133,772
<TOTAL-LIABILITIES> 541,150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,040,278
<SHARES-COMMON-STOCK> 150
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 24,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 349,524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,812,634
<NET-ASSETS> 33,226,973
<DIVIDEND-INCOME> 69,444
<INTEREST-INCOME> 9,091
<OTHER-INCOME> 0
<EXPENSES-NET> 53,998
<NET-INVESTMENT-INCOME> 24,537
<REALIZED-GAINS-CURRENT> 349,524
<APPREC-INCREASE-CURRENT> 3,812,634
<NET-CHANGE-FROM-OPS> 4,186,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,226,973
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,779
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 151,191
<AVERAGE-NET-ASSETS> 23,180,238
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.94
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
