<PAGE>
GOLDMAN SACHS FUNDS
JAPANESE EQUITY FUND Semi-Annual Report July 31, 1998
Capital growth potential
[GRAPHIC] through a diversified
portfolio of Japanese stocks
Goldman
Sachs
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Fund Basics
as of July 31, 1998
Assets Under Management
$16 Million
Number of Holdings
37
NASDAQ SYMBOLS
Class A Shares
GSJAX
Class B Shares
GSJBX
Class C Shares
GSJCX
Institutional Shares
GSJIX
Service Shares
GSJSX
Mutual funds,annuities,and other investment products:
. are not FDIC insured;
. are not deposits or obligations of,or guaranteed by,any financial institution;
. are subject to investment risks, including possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------
PERFORMANCE REVIEW
- --------------------------------------------------------------------------------
Inception (May 1,1998)- Fund Total Return TOPIX
July 31,1998 (based on NAV)/1/ (USD)/2/
- --------------------------------------------------------------------------------
Class A 0.90% -5.57%
Class B 0.80% -5.57%
Class C 0.80% -5.57%
Institutional 1.00% -5.57%
Service 0.90% -5.57%
- --------------------------------------------------------------------------------
/1/ The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares. The Fund's performance assumes the
investment of dividends and other distributions.
/2/ The Tokyo Price Index (TOPIX) figures do not reflect any fees or expenses.
In addition, investors cannot invest directly in the Index.
- --------------------------------------------------------------------------------
SEC CUMULATIVE TOTAL RETURN/3/
- --------------------------------------------------------------------------------
For the period ended
7/31/98 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
Since inception -4.63% -4.20% -0.20% 1.00% 0.90%
(5/1/98)
- --------------------------------------------------------------------------------
/3/ The SEC Cumulative Total Return is determined by computing the percentage
change in the value of $1,000 invested at the maximum public offering price
for the specified periods, assuming reinvestment of all distributions at
NAV. The total return calculation reflects a maximum initial sales charge of
5.5% for Class A shares, and the assumed deferred sales charge for Class B
shares (5% maximum declining to 0% after six years) and Class C shares (1%
if redeemed within 12 months of purchase) The public offering price of the
Class A shares on July 31, 1998 was $10.68 and represents the NAV plus the
maximum sales charge of 5.5%.
- --------------------------------------------------------------------------------
TOP 10 COMPANY HOLDINGS AS OF 7/31/98
- --------------------------------------------------------------------------------
Company Holding % of Total Net Assets Line of Business
- --------------------------------------------------------------------------------
Family Mart Co. 3.7% Retail - Convenience
Rohm Co. 3.4% Electronics
Sankyo Co. 3.4% Financial Services
Mitsui Mining and Smelting 3.4% Mining - Metals/Minerals
NGK Insulators, Ltd. 3.3% Auto Components
Minebea Co. 3.3% Electronics
TDK Corp. 3.3% Consumer Goods
Itoen, Ltd. 3.2% Foods and Beverages
SMC Corp. 3.2% Machinery
Takefuji Corp. 3.2% Financial Services
- --------------------------------------------------------------------------------
The top 10 holdings may not be representative of the Fund's future investments.
Total return figures represent past performance and do not indicate future
results, which will vary. The investment return and principal value of an
investment will fluctuate and, therefore, an investor's shares, when redeemed,
may be worth more or less than their original cost.
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Market Overview
Dear Shareholder,
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder in
the Goldman Sachs Japanese Equity Fund. This semiannual report covers the brief
period from May 1, 1998, when the Fund began operations, through July 31,1998.
For informational purposes, however, the following commentary covers the six-
month period ended July 31, 1998.
. Market Review: Japan's Market Falters in Wake of Economic Downturn -- The
Japanese stock market was generally weak during the six-month period.
Following a sharp drop in prices in late 1997 that lasted into early 1998,
investor sentiment improved after the government revealed various economic
measures designed to prevent further deterioration of the domestic economy.
The announcements substantially lifted low-priced stocks that had been
underperforming the market in previous months. In the ensuing weeks,
expectations for additional fiscal stimulus policy packages helped support
the market intermittently. However, in the final weeks of the period,
negative news on corporate fundamentals outweighed the market, causing it to
retreat.
. Market Outlook: Maintain a Long-Term Perspective -- Corporate earnings for
the fiscal year ended March 1998 came in somewhat lower than anticipated.
This was primarily due to the rapid slowdown in the domestic economy and the
deterioration of the Asian economies late in the year. Although the near term
earnings outlook does not look promising, we expect profit levels to edge up
in the second half of the year; firm U.S. and European economies could
compensate for weak domestic demand for electronics-related companies, while
additional government spending is likely to have a positive impact, thus
buttressing a number of domestic demand-related companies as well.
It is worth noting that, during the reporting season just ended, about 30% of
the companies listed on the First Section of the Tokyo Stock Exchange
announced their intentions to change their Articles of Incorporation to buy
back shares. Although it is not realistic to assume that all of the companies
will actually buy back shares as an efficient use of "piled-up" cash, we
believe the announcements are a positive sign that a growing number of
Japanese companies are becoming conscious of the advancement of shareholders'
value. This shift in attitude should be supportive of the equity market in
the long run.
We encourage you to maintain your diversified, long-term investment program,
and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ David B. Ford
David B. Ford
Co-Head,
Goldman Sachs Asset Management International
/s/ John P. McNulty
John P. McNulty
Co-Head,
Goldman Sachs Asset Management International
August 31, 1998
1
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Performance Overview
Dear Shareholder,
On behalf of Goldman Sachs, it is a pleasure to welcome you as a shareholder in
the Goldman Sachs Japanese Equity Fund. This semi-annual report covers the brief
period from May 1, 1998, when the Fund began operations,through July 31, 1998.
Performance Review
Despite the fact that Japan's equity market in general performed poorly
during the period covered by this report -- a circumstance that is clearly
reflected in the -5.57% return of the Fund's benchmark, the Tokyo Price Index
(TOPIX) -- the Fund itself generated positive performance. The Fund's Class A
shares generated a 0.90% return, outperforming the benchmark by over 6
percentage points.
The Fund's outperformance is primarily attributable to specific stock
selection. As the market became increasingly concerned with downward
revisions in corporate earnings, companies that posted steady earnings saw
their stocks turn in generally good performance. Many of the Fund's holdings
benefited from this scenario.
Sector Allocation
In general, as of July 31, 1998, the Fund held large positions in the
electric machinery (15.90%), machinery (12.22%) and retail (10.95%) sectors.
It is important to note that the Fund's sector weightings are the result of
our bottom-up stock selection process, rather than sector-based decisions.
Portfolio Highlights
. Canon,Inc.-- Canon, a major manufacturer of office machinery (printers and
copiers), has demonstrated steady performance. Going forward, an increase in
sales of the company's line of supplies (toners and cartridges) will likely
buttress medium-term profitability.
. TDK Corp.-- TDK, an electronics components manufacturer, is one of the Fund's
top 10 holdings. The company's competitiveness in hard-disk drive (HDD) heads
is expected to remain intact, despite the advent of a new type of HDD head.
Unlike its competitors, TDK has a very diversified customer base. As such,
the company was less susceptible to weak demand from some HDD makers, even as
these companies implemented mid year-end inventory adjustments.
. Meitec Corporation -- Meitec is the largest engineering outsourcing company
in Japan. A growing number of Japanese companies have come to view
outsourcing not only as a cost-cutting tool but as an efficient, strategic
way to do business. Meitec has benefited from this trend, as evidenced by the
company's earnings growth: in the past three consecutive years, the company
has generated earnings per share growth of 32% per annum.
2
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
INVESTMENT
PROCESS OVERVIEW
The investment process for the Goldman Sachs Japanese Equity Fund combines both
qualitative and quantitative analysis, with an emphasis on portfolio manager
input.
Company Visits
--------------
Internal Research
-----------------
Return Expectations
-------------------
[DOWN ARROW]
Stock Selection
[DOWN ARROW]
Portfolio [SIDE ARROW]
Construction
. Stock & Industry
Views Relative
to Benchmark
[DOWN ARROW]
Portfolio Review [SIDE ARROW]
& Analysis
. Performance
Measurement
& Attribution
. BARRA
. Risk Analysis
Portfolio Outlook
We continue to prefer internationally competitive export-related manufacturing
companies for fundamental reasons -- favorable medium-term earnings outlook,
reasonable valuations and credible management -- and intend to maintain our
overweight position in these stocks. In Japan, longer term, we expect profit
levels to edge up, especially for electronics companies. In particular, the
personal computer market is expected to experience regrowth in the latter half
of the year, adding to the steady growth of the telecommunications market
worldwide. However, given a possible slowdown in the U.S. economy in coming
quarters and continued Asian market deterioration, we do not presently intend to
substantially increase our exposure to export-related electronics stocks that
tend to be sensitive to overseas demand and equity markets. Finally, there will
likely be some positive impact from additional government spending in coming
quarters, which should buttress a number of domestic demand-related companies.
We will actively look for investment opportunities among those domestic stocks
whose earnings outlook is relatively firm.
We thank you for your investment and look forward to your continued confidence.
Goldman Sachs Japanese Equity Investment Team
Tokyo, August 31, 1998
3
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
An Action Plan for Volatile Markets
When fear and uncertainty temporarily take hold of global markets, you can gain
a greater sense of control over your own investment portfolio by making sound
decisions. Whether you are a seasoned investor or a market neophyte, the
following thoughts are intended to help you maintain some perspective during
these volatile market times.
Remember the factors
you considered when you first
began investing:your long-term
objectives, time horizon, risk
tolerance and financial needs.
Stay on Course
Don't let market directions dictate your investment decisions--avoid the common
mistake of basing decisions on emotions or uncertainty. Remember the factors you
considered when you first began investing: your long-term objectives, time
horizon, risk tolerance and financial needs.
Stay Diversified
Global diversification is one of the best defenses against uncertain markets.
Because the world's countries have varying economies, growth rates and stages of
development, they tend to offer strong performance at different times.
Diversifying among equity markets enables you to capture a wide range of
opportunities and seek maximum risk-adjusted returns.
Stay Invested
Investors often redeem at market lows because of concern or lack of
information--and negatively impact their longer-term returns. With stock
investing, the longer your holding period, the greater the likelihood of
positive returns.
Consult Your
Financial Advisor
Market declines provide a good opportunity to touch base with your advisor, gain
confirmation that you are properly diversified and assess whether any recent
life events necessitate a change in asset allocation policy.
For More Information
Goldman Sachs Asset Management offers a broad spectrum of equity mutual funds
that can help you weather market ups and downs. For more information on Goldman
Sachs Funds, contact your investment professional.
4
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Performance Summary
July 31, 1998 (Unaudited)
The following graph shows the value as of July 31, 1998, of a $10,000 invest-
ment made (with the maximum sales charge of 5.5% for Class A shares and re-
demption charges of 5.0% and 1.0% for Class B and Class C, respectively, and
at NAV for the Institutional and Service Classes) on May 1, 1998 (commence-
ment of operations). For comparative purposes, the performance of the Fund's
benchmark (the Tokyo Price Index ("Topix")) is shown. This performance data
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.
JAPANESE EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MAY 1, 1998 TO JULY
31, 1998
LOGO
Japanese Equity
GS-JAPANESE EQUITY
INCEPTION DATE: 5/1/98
Class A Class B Class C Institutional Service
TOPIX Fund Fund Fund Class Class
---------------------------------------------------------------------
MAY 1/98 10,000 9,500 10,000 10,000 10,000 10,000
MAY 9,544 9,367 9,910 9,910 9,910 9,910
JUNE 9,629 9,348 9,890 9,890 9,900 9,890
JULY 9,443 9,537 9,580 9,980 10,100 10,090
<TABLE>
<CAPTION>
SINCE INCEPTION(A)
OF CLASS
AVERAGE ANNUAL TOTAL RETURN THROUGH JULY 31,
1998(B)
<S> <C> <C> <C>
CLASS A
Excluding sales charges 0.90%
Including sales charges -4.63%
----------------------------------------------------
CLASS B
Excluding redemption
charges 0.80%
Including redemption
charges -4.20%
----------------------------------------------------
CLASS C
Excluding redemption
charges 0.80%
Including redemption
charges -0.20%
----------------------------------------------------
INSTITUTIONAL CLASS 1.00%
----------------------------------------------------
SERVICE CLASS 0.90%
----------------------------------------------------
</TABLE>
(a) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
(b) All classes commenced May 1, 1998.
5
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Investments
July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 94.6%
<C> <S> <C>
JAPANESE YEN - 94.6%
8,800 Benesse Corp. (Commercial Services) $ 351,099
21,000 Canon, Inc. (Computers/Office) 479,187
52,000 Citizen Watch Co. (Electronics) 424,284
47,000 Dai Ichi Kangyo Bank (Banking) 245,367
15,100 Familymart Co. (Retail--Convenience) 571,131
15,000 Inaba Denkisangyo
(Wire & Cable Products) 152,469
14,600 Itoen, Ltd. (Food & Beverages) 506,790
24,000 Kinden Corp. (Engineering) 261,707
12,300 Kita Kyushu Coca (Food--Wholesale) 292,574
24,000 Kokuyo Company, Ltd. (Computers/Office) 416,540
12,600 Meitec Corporation (Business Services) 483,543
49,000 Minebea Co. (Electronics) 520,087
13,600 Ministop Co., Ltd.
(Retail--Food Chains) 280,238
47,000 Minolta Co.
(Photo Equipment and Supplies) 304,515
17,800 Misumi Corporation (Metal Products) 298,472
73,000 Mitsui & Co. (Trading/Wholesale) 409,874
95,000 Mitsui Marine & Fire (Insurance) 492,670
120,000 Mitsui Mining & Smelting (Mining--Metals/Minerals) 536,025
58,000 NGK Insulators, Ltd.
(Auto Components) 520,564
5,000 Nintendo Co., Ltd.
(Entertainment & Leisure) 475,384
38 Nippon Telephone & Telegraph Corp. (Telecommunications) 328,447
6 NTT Data Corp.
(Office Equipment & Supplies) 233,163
5,100 Otsuka Kagu Ltd. (Retail--Furniture) 253,907
7,400 Riso Kagaku Corp.
(Office Equipment and Supplies) 440,050
5,000 Rohm Co. (Electronics) 538,999
2,300 Ryohin Keikaku Co. Ltd.
(Retail--Department Stores) 219,472
24,000 Sankyo Co. (Financial Services) 537,685
34,000 Sanwa Bank (Banking) 289,877
6,700 SMC Corp. (Machinery) 502,199
5,700 Sony Corp. (Electronics) 484,394
9,400 Takefuji Corp. (Financial Services) 493,984
7,000 TDK Corp. (Consumer Goods) 515,489
28,000 THK Co. (Machine Tools) 344,627
39,000 Toppan Forms Company, Ltd. (Printing) 479,208
23,000 Yamanouchi Pharmaceutical (Pharmaceuticals) 476,317
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C> <C>
JAPANESE YEN - (CONTINUED)
32,000 Yamatake (Electronics) $ 333,674
33 Yoshinoya D&C Co. Ltd. (Restaurants) 294,358
--------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $14,572,611) $14,788,370
--------------------------------------------------------------
TOTAL INVESTMENTS
(COST $14,572,611)(A) $14,788,370
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FEDERAL IN-
COME TAX IN-
FORMATION:
Gross
unrealized
gain for
investments
in which
value exceeds
cost $ 562,986
Gross
unrealized
loss for
investments
in which
cost exceeds
value (376,120)
-------------------------
Net
unrealized
gain $ 186,866
</TABLE>
------------------------------------------------------------------------------
(a) The aggregate cost for federal income tax purposes is $14,601,504.
PERCENTAGE OF TOTAL NET ASSETS
<TABLE>
<S> <C>
COMMON STOCK INDUSTRY CONCENTRATIONS
Auto Components 3.3%
Banking 3.4
Business Services 3.1
Commercial Services 2.3
Computers/Office 5.7
Consumer Goods 3.3
Electronics 14.7
Engineering 1.7
Entertainment & Leisure 3.1
Financial Services 6.6
Food & Beverages 3.2
Food--Wholesale 1.9
Insurance 3.2
Machine Tools 2.2
Machinery 3.2
Metal Products 1.9
Mining--Metals/Minerals 3.4
Office Equipment & Supplies 4.3
Pharmaceuticals 3.0
Photo Equipment & Supplies 1.9
Printing 3.1
Restaurants 1.9
Retail--Convenience 3.7
Retail--Department Stores 1.4
Retail--Food Chains 1.8
Retail--Furniture 1.6
Telecommunications 2.1
Trading/Wholesale 2.6
Wire & Cable Products 1.0%
--------------------------------------------
TOTAL COMMON STOCK 94.6%
--------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
6
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Assets and Liabilities
July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$14,572,611) $14,788,370
Cash, at value 670,335
Receivables:
Investment securities sold 128,541
Forward foreign currency exchange contracts 58,229
Fund shares sold 18,299
Dividends, at value 2,442
Deferred organization expenses, net 47,479
Other assets 68,734
-------------------------------------------------------------------------------
TOTAL ASSETS 15,782,429
-------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 46,247
Amounts owed to affiliates 27,842
Accrued expenses and other liabilities 68,085
-------------------------------------------------------------------------------
TOTAL LIABILITIES 142,174
-------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 15,452,687
Accumulated undistributed net investment loss (12,402)
Accumulated undistributed net realized loss on investment
and foreign currency transactions (20,859)
Net unrealized gain on investments and translation of assets
and liabilities denominated in foreign currencies 220,829
-------------------------------------------------------------------------------
NET ASSETS $15,640,255
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 461,444 70,030 17,643
Net asset and Class A redemption value per share(a) $10.09 $10.08 $10.08
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
----------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 1,000,000 150
Net asset value, offering and redemption price
per share $10.10 $10.09
----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share X 1.0582) for
Class A Shares is $10.68. At redemption, Class B and Class C shares may
be subject to a contingent deferred sales charge assessed on the amount
equal to the lesser of the current net asset value or the original pur-
chase price of the shares.
7
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Operations
For the Period Ended July 31, 1998 (Unaudited)(a)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(b) $ 2,118
Interest 26,582
-------------------------------------------------------------------------------
TOTAL INCOME 28,700
-------------------------------------------------------------------------------
EXPENSES:
Management fees 35,290
Registration fees 29,669
Transfer agent fees 21,667
Professional fees 21,278
Custodian fees 19,575
Distribution fees 3,224
Authorized dealer service fees 2,585
Amortization of deferred organization expenses 2,521
Trustee fees 61
Other 12,176
-------------------------------------------------------------------------------
TOTAL EXPENSES 148,046
-------------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (106,944)
-------------------------------------------------------------------------------
NET EXPENSES 41,102
-------------------------------------------------------------------------------
NET INVESTMENT LOSS (12,402)
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CUR-
RENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions (84,095)
Foreign currency related transactions 63,236
Net change in unrealized gain on:
Investments 215,759
Translation of assets and liabilities denominated in foreign
currencies 5,070
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS 199,970
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 187,568
-------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998.
(b) Taxes withheld on dividends were $374.
8
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Statement of Changes in Net Assets
For the Period Ended July 31, 1998 (Unaudited)(a)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
FROM OPERATIONS:
Net investment loss $ (12,402)
Net realized loss on investment and foreign currency related
transactions (20,859)
Net change in unrealized gain on investments and translation of
assets and liabilities denominated in foreign currencies 220,829
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 187,568
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 16,639,962
Cost of shares repurchased (1,187,275)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 15,452,687
------------------------------------------------------------------------------
TOTAL INCREASE 15,640,255
------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
------------------------------------------------------------------------------
End of period $15,640,255
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT LOSS $ (12,402)
------------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on May 1, 1998.
9
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
--------------------------- -----------------------------------
NET REALIZED
AND UNREALIZED
GAIN ON
NET ASSET INVESTMENTS IN EXCESS FROM NET NET INCREASE
VALUE, NET AND FOREIGN FROM NET OF NET REALIZED GAIN (DECREASE)
BEGINNING INVESTMENT CURRENCY RELATED INVESTMENT INVESTMENT ON INVESTMENT IN NET ASSET
OF PERIOD LOSS TRANSACTIONS INCOME INCOME TRANSACTIONS VALUE
FOR THE PERIOD ENDED JULY 31(B) (UNAUDITED),
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $10.00 $(0.02) $0.11 -- -- -- $0.09
1998 - Class B Shares 10.00 (0.03) 0.11 -- -- -- 0.08
1998 - Class C Shares 10.00 (0.02) 0.10 -- -- -- 0.08
1998 - Institutional
Shares 10.00 -- 0.10 -- -- -- 0.10
1998 - Service Shares 10.00 (0.01) 0.10 -- -- -- 0.09
--------------------------------------------------------------------------------------------------------------
</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) Class A, Class B, Class C, Institutional and Service share activity
commenced on May 1, 1998.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
10
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
<TABLE>
<CAPTION>
RATIO OF
NET ASSETS RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES LOSS TO
VALUE, END TOTAL TURNOVER PERIOD TO AVERAGE AVERAGE NET
OF PERIOD RETURN(A) RATE (IN 000S) NET ASSETS ASSETS
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF
NET ASSET EXPENSES TO NET INVESTMENT LOSS
VALUE, END AVERAGE TO AVERAGE NET
OF PERIOD NET ASSETS ASSETS
<S> <C> <C> <C> <C> <C>
$10.09 0.90%(d) 15.51%(d) $ 4,654 1.50%(c) (1.07)%(c)
10.08 0.80(d) 15.51(d) 706 2.00(c) (1.73)(c)
10.08 0.80(d) 15.51(d) 178 2.00(c) (1.79)(c)
10.10 1.00(d) 15.51(d) 10,100 1.00(c) (0.02)(c)
10.09 0.90(d) 15.51(d) 2 1.50(c) (0.30)(c)
- -----------------------------------------------------------------------------
<S> <C> <C>
$10.09 4.53%(c) (4.10)%(c)
10.08 5.03(c) (4.76)(c)
10.08 5.03(c) (4.82)(c)
10.10 4.03(c) (3.05)(c)
10.09 4.53(c) (3.33)(c)
- -----------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements
July 31, 1998 (Unaudited)
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs Japanese Equity
Fund (the "Fund"). At July 31, 1998, the Japanese Equity Fund offered five
classes of shares -- Class A, Class B, Class C, Institutional and Service.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consist-
ently followed by the Fund. The preparation of financial statements in con-
formity 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 for-
eign 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. Un-
listed equity and debt securities for which market quotations are available
are valued at the last sale price on the valuation date or, if no sale occurs
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 invest-
ments are calculated on the identified-cost basis. Dividend income is re-
corded on the ex-dividend date. Dividends for which the Fund has the choice
to receive either cash or stock are recognized as investment income in an
amount equal to the cash dividend. Interest income is determined on the basis
of interest accrued, premium amortized and discount earned.
C. FOREIGN CURRENCY TRANSLATIONS -- The books and records of the Fund 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 hold-
ings of foreign currencies; (ii) gains and losses between trade date and set-
tlement 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.
12
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Fund is 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 or 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 Fund's financial statements. The Fund records re-
alized 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.
E. SHORT SECURITIES POSITION -- The 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 the cash received is re-
ported as unrealized gain or loss. Gains and losses are realized when a short
position is closed out by delivering securities back to the broker.
F. FEDERAL TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required. The characterization of distributions to shareholders
for financial reporting purposes is determined in accordance with income tax
rules. Therefore, the source of the Fund's distributions may be shown in the
accompanying financial statements as either from or in excess of net invest-
ment 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.
G. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
H. EXPENSES -- Expenses incurred by the Trust which do not specifically re-
late to an individual fund of the Trust are allocated to the funds based on
each Fund's relative net assets.
Class A, Class B and Class C shares bear all expenses and fees relating to
distribution and authorized dealer service plans. Service shares separately
bear a service class fee payable monthly to service organizations for their
services.
I. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes 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 Fund enters
into a closing purchase transaction, the Fund realizes a gain or loss without
regard to any unrealized gain or loss on the underlying security, and the li-
ability related to such option is extinguished. When a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds of the sale are increased by the premium origi-
nally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the
Fund purchases 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 Fund,
the premium paid is recorded as an investment and subsequently marked-to-mar-
ket to reflect the current market value of the option. If an option which the
Fund has purchased expires on the stipulated expiration date, the Fund will
realize a loss in the amount of the cost of the option. If the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss, de-
pending on whether the sale proceeds for the closing sale transaction are
greater or less than the cost of the option. If the Fund exercises a pur-
chased put option, the Fund will realize a gain or loss from the sale of the
underlying security, and the proceeds from such sale will be decreased by
13
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
the premium originally paid. If the Fund exercises a purchased call option,
the cost of the security which the Fund purchases upon exercise will be in-
creased by the premium originally paid.
J. FUTURES CONTRACTS -- The Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
or to seek to increase total return.
Upon entering into a futures contract, the Fund is required to deposit with
a broker, an amount of cash or securities equal to the minimum "initial mar-
gin" requirement of the respective futures. Subsequent payments for futures
contracts ("variation margin") are paid or received by the Fund daily, depen-
dent on the daily fluctuations in the value of the contracts, and are re-
corded as unrealized gains or losses. When contracts are closed, the Fund
realized a gain or loss which is reported in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statement of Assets and Liabilities. Changes in the value of the futures con-
tracts may not directly correlate with changes in the value of the underlying
securities. This risk may decrease the effectiveness of the Fund's hedging
strategies and potentially result in a loss.
3. AGREEMENTS
Goldman Sachs Asset Management International ("GSAM International") an affil-
iate of Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund's investment
adviser pursuant to an Investment Management Agreement (the "Agreement"). Un-
der the Agreement, GSAM International, subject to the general supervision of
the Trust's Board of Trustees, manages the Fund's portfolio. As compensation
for the services rendered under the Agreement, the assumption of the expenses
related thereto and administering the Fund's business affairs, including pro-
viding facilities, GSAM International is entitled to a fee, computed daily
and payable monthly, at an annual rate equal to 1.00% of the average daily
net assets of the Fund. For the period ended July 31, 1998, GSAM Interna-
tional has agreed to waive approximately $4,000 of its management fee. GSAM
International may discontinue or modify this waiver in the future.
For the period ended July 1, 1998, Goldman Sachs voluntarily agreed to re-
duce or limit certain "Other Expenses" for the Fund (excluding management,
service, distribution and authorized dealer service fees and litigation and
indemnification costs, taxes, interest, brokerage commissions and extraordi-
nary expenses) to the extent such expenses exceeded .10% of the average daily
net assets of the Fund. For the period ended July 31, 1998, Goldman Sachs has
reimbursed approximately $103,000. At July 31, 1998, approximately $68,000 is
owed to the Fund. Effective September 1, 1998, this expense limitation has
been modified.
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to a
Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges imposed
and has advised the Fund that it retained approximately $1,000 during the pe-
riod ended July 31, 1998.
The Trust, on behalf of the Fund, has adopted Distribution Plans (the "Dis-
tribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs is entitled to a quarterly fee from the Fund for distribution
services equal, on an annual basis, to .25%, .75% and .75% of the Fund's av-
erage daily net assets attributable to Class A, Class B and Class C shares,
respectively.
The Trust, on behalf of the Fund, has adopted Authorized Dealer Service
Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and Autho-
rized Dealers are compensated for providing personal and account maintenance
services. The Fund pays a fee under its Dealer Service Plan equal, on an an-
nual basis, to .25% of its average daily net assets attributable to Class A,
Class B and Class C shares. Goldman Sachs also serves as the Transfer Agent
of the Fund for a fee. Effective September 1, 1998 fees charged for such
transfer agent services are as follows: 0.19% of average daily net assets for
Class A, Class B and Class C Shares and 0.04% of average daily net assets for
Institutional and Service Class Shares.
14
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
The Trust, on behalf of the Fund, has adopted a Service Plan. This plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
.50% (on a annualized basis), of the average daily net asset value of the
Service shares.
At July 31, 1998, the Fund owed approximately $12,000, $3,000, $3,000 and
$10,000 for Management, Distribution, Authorized Dealer Service and Transfer
Agent fees, respectively.
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures transactions) for the period ended July 31,
1998, were $16,802,046 and $2,145,340, respectively.
For the period ended July 31, 1998, Goldman Sachs earned approximately
$8,000 of brokerage commissions from portfolio transactions.
At July 31, 1998, the Fund had the following outstanding forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
VALUE ON
FOREIGN CURRENCY SETTLEMENT CURRENT UNREALIZED
SALE CONTRACTS DATE VALUE GAIN
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Japanese Yen
expiring 9/22/98 $603,220 $584,765 $18,455
expiring 10/26/98 132,000 129,889 2,111
-------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CONTRACTS $735,220 $714,654 $20,566
-------------------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At July 31,
1998, the Fund had sufficient cash and securities to cover any commitments
under these contracts.
The Fund has recorded a "Receivable for forward foreign currency exchange
contracts" of $58,229 ($37,663 of realized gains relating to forward foreign
currency exchange contracts closed but not settled as of July 31, 1998 and
$20,566 of unrealized gains relating to open forward foreign currency con-
tracts as detailed in the table above) in the accompanying Statement of As-
sets and Liabilities.
5. LINE OF CREDIT FACILITY
The Fund participates in a $250,000,000 uncommitted, unsecured revolving line
of credit facility. In addition, the Fund participates in a $50,000,000 com-
mitted, unsecured revolving line of credit facility. Both facilities are to
be used solely for temporary or emergency purposes. Under the most restric-
tive arrangement, the Fund must own securities having a market value in ex-
cess 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 period ended July 31, 1998, the Fund did not have
any borrowings under these facilities.
15
<PAGE>
GOLDMAN SACHS JAPANESE EQUITY FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
6. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended July 31, 1998 is as follows:
<TABLE>
<CAPTION>
SHARES DOLLARS
---------------------------------------------
<S> <C> <C>
CLASS A SHARES
Shares sold 577,828 $ 5,775,531
Shares repurchased (116,384) (1,185,282)
461,444 4,590,249
---------------------------------------------
CLASS B SHARES
Shares sold 70,030 692,188
70,030 692,188
---------------------------------------------
CLASS C SHARES
Shares sold 17,845 170,743
Shares repurchased (202) (1,993)
17,643 168,750
---------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,000,000 10,000,000
1,000,000 10,000,000
---------------------------------------------
SERVICE
Sales 150 1,500
150 1,500
---------------------------------------------
NET INCREASE 1,549,267 $15,452,687
---------------------------------------------
</TABLE>
16
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs Japanese Equity Fund
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Japanese Equity Fund, you can capitalize
on Goldman Sachs'history of excellence while benefiting from the firm's
leadership in three areas:
1 Global Resources
With professionals based in offices throughout the Americas, Europe and Asia,
Goldman Sachs possesses first-hand knowledge of the world's markets and
economies.
2 Fundamental Research
Goldman Sachs is recognized by the managements of corporations worldwide as a
leader in investment research. As a result, we obtain face-to-face meetings
with managers on a timely, regular basis.
3 Risk Management
Goldman,Sachs & Co. excels in understanding, monitoring and managing
investment risk -- a process that is integrated into all Goldman Sachs
investment products.
An Investment Idea for the Long Term
History has shown that a long-term plan that includes international stocks can
help provide greater protection against market volatility over time than a
portfolio that invests only in U.S. stocks.
Goldman Sachs Japanese Equity Fund provides investors access to the benefits
associated with international market diversification. The Fund seeks long-term
capital appreciation through equity securities of Japanese companies.
Target Your Needs
The Goldman Sachs Japanese Equity Fund has a distinct investment objective and a
defined place on the risk/return spectrum. As your investment objectives change,
you can exchange shares within Goldman Sachs Funds without any additional
charge./*/ (Please note:in general, greater returns are associated with greater
risk.)
- --------------------------------------------------------------------------------
Goldman Sachs Funds
ASSET ALLOCATION
Higher Risk/Return Lower Risk/Return
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY DOMESTIC FIXED MONEY
. Goldman Sachs EQUITY INCOME MARKET
Japanese Equity
Fund
For More Information
To learn more about the Goldman Sachs Japanese Equity Fund and other Goldman
Sachs Funds, call your investment professional today.
/*/ The exchange privilege is subject to termination and its terms are subject
to change.
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT
ONE NEW YORK PLAZA, 42ND FLOOR, NEW YORK, NEW YORK 10004
TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard B. Strubel
OFFICERS
Douglas C. Grip, President
Jesse Cole, Vice President
James A. Fitzpatrick, Vice President
Anne Marcel, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Philip V. Giuca, Jr. Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN, SACHS & CO.
Distributor and Transfer Agent
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
Investment Adviser
GOLDMAN SACHS INTERNATIONAL
Peterborough Court, 133 Fleet Street
London EC4A 2BB, England
Visit our internet address: www.gs.com/funds
This material is not authorized for distribution to prospective investors unless
preceded or accompanied by a current Prospectus. Investors should read the
Prospectus carefully before investing or sending money.
Goldman, Sachs & Co., distributor of the Fund, is not a bank, and Fund shares
distributed by it are neither bank deposits nor obligations of, nor endorsed,
nor guaranteed by any bank or other insured depository institution, nor are they
insured by the Federal Deposit Insurance Corporation (FDIC), the Federal
Reserved Board or any other government agency. Investment in the Fund involves
risks, including possible loss of the principal amount invested.
Asia Growth Fund's, Emerging Markets Equity Fund's and International Equity
Fund's investment in securities of foreign issuers and foreign currencies
entails certain risks not customarily associated with investing in securities
of U.S. issuers quoted in U.S. dollars. In particular, the securities market of
emerging countries in which the Funds may invest without limit are less liquid,
are subject to greater price volatility, have smaller market capitalizations,
have problems with share registration and custody, 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.
Asia Growth Fund's, Japanese Equity Fund's, International Small Cap Equity
Fund's and CORE International Equity Fund's foreign investments and active
management techniques entail risks in addition to those customarily associated
with investing in dollar-denominated securities of U.S. issuers. Compared with
domestic securities markets, foreign markets may be less liquid, more volatile
and less subject to government regulation, and may make available less public
information about issuers. The Funds may incur losses because of changes in
securities prices expressed in local currencies, movements in exchange rates or
both. Concentration of the Japanese Equity and Asia Growth Fund's assets in one
or a few countries and currencies will subject the Fund to greater risk than if
a Fund's assets were not geographically concentrated.
An investment in a money market fund is neither insured nor guaranteed by the
U.S. government and there can be no assurance that any money market fund will be
able to maintain a net asset value of $1.00 pr share.
(c) Copyright 1998 Goldman, Sachs & Co. All rights reserved.
Date of first use: September 30, 1998 JAPANSAR/31K/9-98
