<PAGE>
Goldman Sachs Funds
================================================================================
INTERNATIONAL EQUITY FUND Annual Report January 31, 1998
================================================================================
Long-term capital growth potential
through investments in equity markets
located around the world.
[GRAPHIC]
[LOGO]
Goldman
Sachs
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Fund Basics
as of January 31, 1998
Assets Under Management
-----------------------
$815.6 Million
-----------------------
Number of Holdings
-----------------------
65
-----------------------
NASDAQ SYMBOLS
Class A Shares
-----------------------
GSIFX
-----------------------
Class B Shares
-----------------------
GSEBX
-----------------------
Class C Shares
-----------------------
GSICX
-----------------------
Institutional Shares
-----------------------
GSIEX
-----------------------
Service Shares
-----------------------
GSISX
-----------------------
================================================================================
PERFORMANCE REVIEW
================================================================================
<TABLE>
<CAPTION>
January 31, 1997- Fund Total Return FT/S&P Actuaries
January 31, 1998 (based on NAV)(1) Europe and Pacific Index(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A 11.12% 8.77%
Class B 10.51% 8.77%
Class C (8/15/97-1/31/98) -5.92% -3.94%
Institutional 11.82% 8.77%
Service 11.25% 8.77%
- --------------------------------------------------------------------------------
</TABLE>
(1) The net asset value represents the net assets of the Fund (ex-dividend)
divided by the total number of shares.
(2) The FT/S&P Actuaries Europe and Pacific Index (EuroPac) is a market
capitalization-weighted composite of approximately 1,500 stocks from 20
countries in the Europe and Asia-Pacific region. EuroPac is calculated on
both a hedged and unhedged basis. From the inception of the Fund until
8/31/94, the Fund was managed using the hedged EuroPac as a benchmark,
after which the unhedged EuroPac was used. The combined benchmark reflects
this weighting. The Index figures do not reflect any fees or expenses.
Investors cannot invest directly in the Index.
================================================================================
SEC AVERAGE ANNUAL TOTAL RETURN(3)
================================================================================
<TABLE>
<CAPTION>
For the period Class C
ending 12/31/97 Class A Class B (Cumulative)(4) Institutional Service
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Last 12 Months -1.27% -1.29% N/A 5.10% 4.59%
Five Years 9.41% N/A N/A N/A N/A
Since Inception 9.46% 3.54% -9.58% 11.02% 10.10%
(12/1/92) (5/1/96) (8/15/97) (2/7/96) (3/6/96)
- --------------------------------------------------------------------------------
</TABLE>
(3) The SEC Average Annual Total Return is determined by computing the annual
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). The public offering price of the Class A shares on 1/31/98 was
$21.01 and represents the NAV plus the maximum sales charge of 5.5%.
(4) The SEC Cumulative total return is determined by computing the percentage
change in value of $1,000 invested at the maximum public offering price for
specified periods, assuming reinvestment of all distributions at NAV. The
total return calculation reflects the assumed deferred sales charge for
Class C shares (1% if redeemed within 12 months of purchase).
================================================================================
TOP 10 HOLDINGS AS OF 1/31/98
<TABLE>
<CAPTION>
Percentage of
Company Holding Total Net Assets Line of Business
- --------------------------------------------------------------------------------
<S> <C> <C>
Misys, Inc. 5.1% Computer Software Services
Rentokil Initial 4.2% Environmental Services
TIM 3.8% Telecommunications
Novartis AG 3.7% Pharmaceuticals
Bank of Ireland 3.3% Banking
Dexia France 3.3% Banking
Aegon NV 2.9% Insurance and Financial Services
Fresenius AG 2.8% Pharmaceuticals
Adidas AG 2.7% Sporting Goods Manufacturer
Banco Popular ESP 2.7% Banking
- --------------------------------------------------------------------------------
</TABLE>
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 INTERNATIONAL EQUITY FUND
Market Overview
Dear Shareholder,
1997 was a study in contrasts between the international markets. Europe's
bourses were undeniably the performance leaders, as favorable economic
conditions helped drive those markets upward. Japan fared less well, ending the
year mired in a series of corporate bankruptcies and fallout from Asia's market
woes.
o The International Markets: Market Performances Vary Widely -- In 1997,
Europe's overall economic recovery continued, but growth for specific
countries was mixed. Strong politicial support for European Monetary
Union and positive fundamental themes --including loose monetary
policy and subdued inflation -- helped support stock performance
throughout the fiscal year.
Conversely, Japan's market turned in lackluster performance.
Investors, unnerved by the government's austerity program and a series
of corporate bankruptcies, chose to focus on international blue-chip
stocks that benefited from the yen's weakness. Additional uncertainty
came in the form of the Asian market downturn, which propelled the
Tokyo market into a decline.
In Asia, with the exception of two brief rallies early in the
year, the markets were weak. Mid-year, Asian markets were thrown into
a downturn when, on July 2, Thai authorities allowed their currency to
float freely against the US dollar. The decision severely impacted the
region's highly leveraged economies. In the aftermath, investors have
seen sharply lower asset prices, higher yields, extreme volatility and
widely varying liquidity conditions.
o Outlook: Prospects for Most Markets Are Good, but Maintain Perspective
on Asia -- We believe that Europe's domestic economy is well
positioned to withstand the effects resulting from Asia's market
crisis, as both monetary and fiscal policy underpin Europe's economic
growth.
We are reasonably optimistic regarding prospects for Japan's
equity market. The stock market is significantly undervalued relative
to interest rates and many conventional valuation measures, such as
price-to-book and price-to-cash flow. Although Japanese companies will
likely be affected by the downturn in the Asian economies, any
negative effects will be company-specific, rather than all-inclusive.
In Asia, we anticipate further weakness in most markets and
currencies, as investors await the reforms that will once again
attract capital into this region.
We encourage you to maintain your long-term investment program, and
look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ David B. Ford /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Co-Head,
Goldman Sachs Asset Goldman Sachs Asset
Management International Management International
February 27, 1998
1
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs International
Equity Fund for the 12-month period ended January 31, 1998.
Performance Review: Strong Performance Relative to Peers
The Fund's Class A shares, Class B shares, Institutional shares and
Service shares out-performed (based on NAV) the average annual return
of 8.17% generated by the Lipper International Fund category for the
one-year period ended January 31, 1998, according to Lipper Analytical
Services, Inc. (ranking 140, 156, 120 and 133 out of 435 funds,
respectively. For the five-year period, Class A shares ranked 74 out
of 118 funds. Please note that Lipper rankings do not take sales
charges into account and that past performance is not a guarantee of
future results. Class C share performance was not available, as the
performance record is less than 12 months).
Regional Allocations
Throughout the period, the Fund maintained an overweighting in Central
Europe relative to its benchmark, the Financial Times/S&P Actuaries
Europe & Pacific Index unhedged. This strategy proved beneficial given
this region's strong performance. Although the portfolio was
underweighted in Japan -- and despite Japan's lackluster market -- our
positions there generated strong returns and contributed positively to
Fund performance. Finally, the Fund's underweighting in Asia helped
cushion the Fund from losses after the onset of the currency crisis in
that region.
Portfolio Highlights
o Adidas (Germany) -- Adidas, the world's number two sporting
brand, gained market share this year in part due to its exposure
to the fast-growing running and football sectors and its lack of
exposure in basketball, a declining sector in the United States.
o ASM Lithography (the Netherlands) -- ASM, one of only three
volume manufacturers in the world of photolithographic tools for
semiconductor manufacturing, benefited from strong demand for its
products due to the underlying growth in global semiconductor
demand and the increasing need for complex value-added machines.
o SMC (Japan) -- SMC's management has implemented a strategy
focused on expanding its global sales network, a move that has
already contributed to the company's rising market share in the
business of manufacturing pneumatic control devices.
o TDK (Japan) -- TDK advanced strongly over the 12-month period, in
the wake of robust sales resulting from the company's leading
position in a new type of hard-disk drive head.
o Asia Satellite Telecommunications Holdings Ltd. (Hong Kong) --
The company demonstrated consistently positive relative
performance over the year, and has been very resilient given that
its revenues are secured by long-term, U.S. dollar-denominated
contracts.
2
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
INVESTMENT
PROCESS OVERVIEW
The results of our bottom-up
stock selection process are
enhanced by a top-down
review of our regional market
views and the views of the
quantitative research team.
==================
Regional Portfolio
Management Team
==================
Stock Selection
by Region:
o Expected
Stock Returns
o Expected
Market Returns
o Earnings
Momentum
o Economic and
Political Risks
===============
Quantitative
Research/Asset
Allocation Team
===============
Proprietary Models:
o Expected
Country Returns
o Regional
Optimization
============
Portfolio
Construction
============
\/
o Risk Control BARRA
o Currency Management
\/
=========
Optimal
Portfolio
==========
Key New Acquisitions
o Nintendo (Japan) -- The company's stock has risen significantly since the
position was initiated. One of the largest video game manufacturers in the
industry, Nintendo has the potential to demonstrate strong earnings growth
over the next few years as new games software for the company's Nintendo-64
platform is introduced.
o VNU (Netherlands) -- VNU, based in Holland, is a successful publisher of
consumer magazines and regional newspapers. The company is now expanding
its operations into new areas of growth -- most notably marketing
information services and telephone directories.
Portfolio Outlook
Over the next year, European markets stand to benefit from good earnings
and economic growth, benign inflation and stable interest rates. Moreover,
we expect a continuation of the restructuring trend that has proven so
beneficial to European companies over the past year. Given this favorable
outlook, we plan to maintain the Fund's overweighting in this region. Our
view on Japan is more cautious, and so we intend to focus on quality
companies that have limited economic sensitivity, as well as on exporters
who are not solely dependent upon business in Japan. Finally, in the Asia
Pacific region, we will maintain an underweighting given our opinion that
Asia's woes are not yet over. We will focus on companies in Australia, as
we believe these stand to benefit from reasonable economic growth in that
country.
We thank you for your investment and look forward to your continued
confidence.
Sincerely,
/s/ Ivor H. Farman /s/ Alessandro P. Lunghi
Ivor H. Farman Alessandro P. Lunghi
Portfolio Manager, Goldman Sachs Portfolio Manager, Goldman Sachs
International Equity Fund, London International Equity Fund, London
/s/ Shogo Maeda /s/ Warwick M. Negus
Shogo Maeda Warwick M. Negus
Portfolio Manager, Goldman Sachs Portfolio Manager, Goldman Sachs
International Equity Fund, Tokyo International Equity Fund, Singapore
February 27, 1998
3
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
International Markets Offer Long-Term Rewards
For investors willing to invest in international markets, a long-term reward may
be lower portfolio volatility.
The potential for reduced overall portfolio volatility and the opportunity to
participate in some of the world's best performing markets are two of the most
compelling reasons to consider diversifying into international markets.
A Diversified Portfolio May Reduce Fluctuations Over Time
Historically, there has been a low correlation between the performance of
international markets and the U.S. stock market. Diversifying among markets can
help to reduce the impact a downturn in any one market may have on a portfolio.
Over time, this can lead to lower overall portfolio volatility.
International Investing Provides Access to Top-Performing Markets
As illustrated in the table below, the U.S. stock market has ranked in the top
three performing markets only twice in the last ten years. The steady
advancement of a number of foreign industrialized economies has fostered
unprecedented worldwide economic expansion, which has in turn spurred the growth
of many foreign companies. By investing internationally, you may gain access to
some of the world's best performing markets and fastest growing companies.
================================================================================
THE TOP-PERFORMING STOCK MARKETS (1987-1997)
================================================================================
<TABLE>
<CAPTION>
Year 1st 2nd 3rd
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1988 Belgium 55% Denmark 54% Sweden 49%
1989 Austria 105% Malaysia 56% Germany 47%
1990 U.K. 10% Hong Kong 9% Austria 7%
===============
1991 Hong Kong 50% Australia 36% U.S. 31%
===============
1992 Hong Kong 32% Malaysia 18% Switzerland 18%
1993 Hong Kong 117% Malaysia 110% Finland 83%
1994 Finland 52% Norway 24% Japan 22%
==============
1995 Switzerland 45% U.S. 38% Sweden 34%
==============
1996 Spain 41% Sweden 38% Finland 35%
1997 Portugal 44% Switzerland 43% Italy 34%
- --------------------------------------------------------------------------------
</TABLE>
Source: Morgan Stanley Capital International (MSCI). The percentages indicate
the annual change in total return in stock market value as tracked by MSCI
country indices. Returns are shown in U.S. dollars. MSCI country indices include
selected, domestically listed stocks of companies that are representative of
each market's structure. Please note that investors cannot invest directly in
MSCI country indices. This chart is for illustrative purposes only and is not
indicative of future results of any individual stock market or any Goldman Sachs
mutual fund, or the fees and expenses associated with the funds. At any given
point in time, the funds' portfolios may, or may not, include the securities of
companies in the countries listed in this chart. The funds could be more
volatile than these indices, since they include a smaller number of stocks.
For More Information
A mutual fund composed of international stocks is one of the most convenient
ways for investors to access the benefits associated with international
investing. Goldman Sachs Asset Management offers a variety of mutual funds that
invest in international markets. To learn more about these and other Goldman
Sachs Funds, call your investment professional today.
4
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Performance Summary
January 31, 1998
The following graph shows the value as of January 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5%) in Class A shares on
December 1, 1992. For comparative purposes, the performance of the Fund's
benchmarks (FT Euro-Pac Unhedged and Combined) are 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 re-
deemed, to be worth more or less than their original cost. Performance of
Class B, Class C, Institutional and Service shares will vary from Class A due
to differences in fees and loads.
INTERNATIONAL EQUITY FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 1, 1992 TO
JANUARY 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FT Euro-Pac Unhedged FT Euro-Pac Combined International Equity Fund (Class A)
<S> <C> <C> <C>
Jan-93 10000 10000 9450
10054 10057 9547
10055 10063 9567
10401 10256 9780
11342 10861 9827
12441 11542 9800
Jul-93 12790 11635 9980
12458 11550 10000
13028 12079 10347
13680 12578 10827
13301 12223 10580
13621 12734 11020
Jan-94 12377 11676 10820
13226 12599 11527
14399 13498 12067
14422 13186 11947
13871 12519 11273
14439 12878 11567
Jul-94 14388 12994 11187
14613 12664 10720
14725 12857 10987
15041 13113 11240
14588 12718 11080
15081 13148 11167
Jan-95 14309 12475 10613
14434 12584 10736
13903 12121 10058
13774 12008 10203
14644 12767 10785
15219 13268 11173
Jul-95 15003 13079 11117
14703 12818 11394
15658 13651 11817
15046 13117 11734
15317 13353 12253
14917 13005 12032
Jan-96 15362 13392 12108
15972 13924 12769
16042 13986 12942
16079 14018 13318
16416 14311 13807
16963 14788 14229
Jul-96 16656 14520 14372
16749 14602 14522
16228 14147 14214
16277 14190 14214
16714 14572 14522
16517 14400 14432
Jan-97 17150 14951 15019
16899 14733 15163
16244 14161 14691
16530 14410 15034
16522 14404 15262
16596 14468 15361
Jul-97 17781 15501 16311
18705 16307 17079
18960 16529 17748
17532 15284 16319
18451 16085 17239
17061 14874 15999
Jan-98 16807 14652 15756
16861 14699 15840
17667 15402 16326
</TABLE>
SINCE INCEPTION FIVE YEARS ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH JANUARY 31, 1998
CLASS A (COMMENCED DECEMBER 1, 1992)
Excluding sales charges 11.15% 11.27% 11.12%
Including sales charges 9.94% 10.02% 5.03%
----------------------------------------------------------------------------
CLASS B (COMMENCED MAY 1, 1996)
Excluding redemption charges 7.55% n/a 10.51%
Including redemption charges 5.18% n/a 5.11%
----------------------------------------------------------------------------
CLASS C (COMMENCED AUGUST 15, 1997)(A)
Excluding redemption charges -5.92% n/a n/a
Including redemption charges -6.86% n/a n/a
----------------------------------------------------------------------------
INSTITUTIONAL CLASS (COMMENCED FEBRUARY
7, 1996) 12.27% n/a 11.82%
----------------------------------------------------------------------------
SERVICE CLASS (COMMENCED MARCH 6, 1996) 11.38% n/a 11.25%
----------------------------------------------------------------------------
/TABLE>
(a) Represents aggregate total return since the class has not been in opera-
tion for a full 12 months.
5
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Investments
January 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - 96.8%
<C> <S> <C>
AUSTRALIAN DOLLAR - 3.4%
1,877,894 Telstra Corp. (Utility)* $ 4,341,736
111,735 Village Roadshow (Entertainment & Leisure)* 275,719
1,222,693 Westpac Bank Corp. (Banks) 8,380,947
897,191 Woodside Petroleum (Oil & Gas) 6,180,543
2,422,883 Woolworths Ltd. (Food & Grocery)* 8,669,193
-----------
27,848,138
-------------------------------------------------------------------------
BRITISH POUND - 14.3%
2,586,885 Electrocomponents (Electronics)* 19,975,229
648,511 Farnell Electronics (Electronics) 3,461,933
1,082,800 Misys PLC (Business Services) 41,275,147
7,385,358 Rentokil Group (Business Services) 34,572,316
1,004,965 Siebe (Electronics) 17,144,338
-----------
116,428,963
-------------------------------------------------------------------------
FRENCH FRANC - 6.3%
23,968 Comptoirs Modernes (Retail) 11,309,013
224,500 Dexia France
(Financial Services) 26,664,793
201,750 SGS Thomson Microelectronics
(Electronics)* 13,802,373
-----------
51,776,179
-------------------------------------------------------------------------
GERMAN MARK - 8.7%
152,155 Adidas AG (Apparel & Textiles)* 22,301,227
106,476 Fresenius AG (Pharmaceuticals) 22,668,071
149,680 Henkel KGAA (Chemicals)* 8,906,119
478,217 Hoechst AG (Pharmaceuticals) 16,785,498
-----------
70,660,915
-------------------------------------------------------------------------
HONG KONG DOLLAR - 1.2%
2,973,537 Asia Satellite Telecom (Utility) 4,150,730
1,927,400 Dao Heng Bank Group (Commercial Bank)* 2,864,818
595,678 Sun Hung Kai Properties Co. (Real Estate) 3,056,536
-----------
10,072,084
-------------------------------------------------------------------------
IRISH POUND - 3.3%
1,740,183 Bank of Ireland (Commercial Bank) 26,942,163
-------------------------------------------------------------------------
ITALIAN LIRA - 6.0%
3,082,290 Ente Nazionale Idrocarburi
(Oil & Gas)* 17,942,006
3,392,066 Telecom Italia Mobile (Di Risp Shares) (Utility) 10,032,144
4,329,980 Telecom Italia Mobile (Utility) 20,616,671
-----------
48,590,821
-------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
JAPANESE YEN - 23.1%
278,459 Aderans Company Ltd. (Retail) $ 6,975,184
17,300 Autobachs Seven Co. (Auto/Vehicle) 633,675
762,265 Canon Inc. (Business Equipment Manufacturer) 18,493,708
351,252 Hoya Corp. (Electronics) 9,573,312
285,108 Inaba Denkisangyo (Electronics) 3,144,161
407,100 Ito En (Beverages)* 10,165,475
397,497 Kokuyo Co., Ltd. (Computers/Office) 6,825,864
15 Kyocera Corp. (Electronics) 812
339,776 Max Co. (Office Equipment Manufacturer) 2,676,455
260,750 Mirai Industry Co. (Electronics) 3,183,635
2,981,707 Mitsubishi Heavy Industries Ltd. (Industrial
Machinery) 12,753,580
2,705,790 Mitsui Marine & Fire (Insurance) 15,260,699
191,142 Nintendo (Recreational Products) 20,175,682
217,000 Ono Pharmaceutical (Pharmaceuticals)* 4,854,510
530,000 Sankyo Co. (Financial Services)* 13,818,827
395,654 Santen Pharmaceutical Co. (Pharmaceuticals) 5,204,744
156,800 Sanyo Shinpan Financial
(Financial Services) 7,843,088
357,654 Shimachu Co. (Retail) 6,395,231
218,911 SMC Corp. (Industrial Machinery) 19,658,019
340,629 Taikisha Ltd. (Industrial Machinery) 3,756,444
2 Takeda Chemical Industry (Pharmaceuticals) 56
222,037 TDK Corp. (Consumer Goods)* 17,192,783
835 Tostem Corp. (Construction Materials) 10,918
27 York Benimaru (Retail) 447
-----------
188,597,309
-------------------------------------------------------------------------
NETHERLANDS GUILDER - 10.5%
244,946 Aegon (Insurance) 23,337,230
121,000 ASM Lithography Hl (Electronics/Semiconductors)* 8,322,395
288,340 Baan Co NV (Computer/Office)* 11,033,326
775,277 Ver Ned Uitgevers (Publishing)* 21,667,425
151,800 Wolters Kluwer NV (Publishing) 20,514,010
-----------
84,874,386
-------------------------------------------------------------------------
PORTUGUESE ESCUDO - 2.0%
797,500 Elec de Portugal (Electrical Instruments) 16,477,835
-------------------------------------------------------------------------
SINGAPORE DOLLAR - 0.3%
1,832,266 Parkway Holdings (Conglomerate) 2,767,903
-------------------------------------------------------------------------
SPANISH PESETA - 2.7%
292,632 Banco Popular (Commercial Banks) 22,052,004
-------------------------------------------------------------------------
</TABLE>
6 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
COMMON STOCKS - (CONTINUED)
<C> <S> <C>
SWEDISH KRONA - 8.7%
395,232 Ericsson Telecommunications (Computer/Office) $ 15,495,283
844,215 Foreningssparbank (Banks)* 19,827,518
708,510 Securitas AB (Business Services) 20,702,111
4,685,493 Swedish Match AB (Tobacco) 15,250,340
------------
71,275,252
--------------------------------------------------------------------------
SWISS FRANC - 6.3%
45,871 Adecco SA (Commercial Services) 14,197,282
17,615 Novartis AG (Pharmaceuticals) 30,083,671
6,261 Cie Financier Richemont AG (Consumer Goods)* 6,973,572
------------
51,254,525
--------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $671,106,444) $789,618,477
--------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT DESCRIPTION VALUE
SHORT-TERM OBLIGATIONS - 3.0%
<C> <S> <C>
$24,412,252 State Street Bank & Trust Euro Time Deposit,
5.56%, 02/02/98 $ 24,412,252
--------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS (COST $24,412,252) $ 24,412,252
--------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $695,518,696)(A) $814,030,729
--------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $183,905,371
Gross unrealized loss for investments in which cost
exceeds value (66,670,594)
--------------------------------------------------------------------------
Net unrealized gain $117,234,777
--------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $696,795,952.
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>
COMMON STOCK INDUSTRY CLASSIFICATIONS
Apparel & Textiles 2.7%
Auto/Vehicle 0.1
Banks 3.5
Beverages 1.2
Business Equipment Manufacturer 2.3
Business Services 11.8
Chemicals 1.1
Commercial Banks 6.4
Commercial Services 1.7
Computers/Office 4.1
Conglomerate 0.3
Construction Materials 0.0
Consumer Goods 3.0
Electrical Instruments 2.0
Electronics 7.5
Engineering 2.1
Entertainment & Leisure 0.0
Financial Services 5.9
Food & Grocery 1.1
Industrial Machinery 4.4
Insurance 4.7
Office Equipment Manufacturer 0.3
Oil & Gas 3.0
Pharmaceuticals 9.8
Publishing 5.2
Real Estate 0.4
Recreational Products 2.5
Retail 3.0
Tobacco 1.9
Utility 4.8
---------------------------------------------
TOTAL COMMON STOCK 96.8%
---------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 7
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities
January 31, 1998
ASSETS:
<TABLE>
<S> <C> <C>
Investment in securities, at value (identified cost
$695,518,696) $814,030,729
Cash, at value 168,187
Receivables:
Investment securities sold 12,140,441
Forward foreign currency exchange contracts 1,674,478
Fund shares sold 5,208,749
Dividends and interest, at value 91,092
Other assets 350,734
-------------------------------------------------------------------------------
TOTAL ASSETS 833,664,410
-------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 4,696,706
Forward foreign currency exchange contracts 4,147,468
Fund shares repurchased 6,891,830
Amounts owed to affiliates 1,820,339
Accrued expenses and other liabilities 527,878
-------------------------------------------------------------------------------
TOTAL LIABILITIES 18,084,221
-------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 725,610,554
Accumulated undistributed net investment income 772,084
Accumulated distributions in excess of net realized gain on
investment transactions (14,898,491)
Accumulated net realized foreign currency loss (12,714,671)
Net unrealized gain on investments 172,796,159
Net unrealized loss on translation of assets and
liabilities denominated in foreign currencies (55,985,446)
-------------------------------------------------------------------------------
NET ASSETS $815,580,189
-------------------------------------------------------------------------------
</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) 35,149,596 2,808,047 172,210
Net asset and Class A redemption value per
share(a) $19.85 $19.70 $19.56
Maximum public offering price per share (Class
A NAV X 1.0582) $21.01 $19.70 $19.56
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE
--------------------------------------------------------------------------
<S> <C> <C>
Total shares of beneficial interest outstanding,
$.001 par value (unlimited shares authorized) 2,817,977 152,953
Net asset value, offering and redemption price per
share $19.97 $19.84
--------------------------------------------------------------------------
</TABLE>
(a) 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 purchase price of the shares.
8 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statement of Operations
For the Year Ended January 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 8,798,407
Interest 1,698,940
-----------------------------------------------------------------------------
TOTAL INCOME 10,497,347
-----------------------------------------------------------------------------
EXPENSES:
Management fees 7,525,362
Distribution fees 1,954,808
Authorized dealer service fees 1,740,100
Transfer agent fees 860,719
Custodian fees 1,013,974
Professional fees 74,461
Amortization of deferred organization expenses 14,573
Trustee fees 12,127
Other 256,664
-----------------------------------------------------------------------------
TOTAL EXPENSES 13,452,788
-----------------------------------------------------------------------------
Less -- fees waived by Goldman Sachs (969,028)
-----------------------------------------------------------------------------
NET EXPENSES 12,483,760
-----------------------------------------------------------------------------
NET INVESTMENT LOSS (1,986,413)
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions 41,736,310
Foreign currency related transactions (8,840,050)
Net change in unrealized gain (loss) on:
Investments 60,304,766
Translation of assets and liabilities denominated in foreign
currencies (23,575,910)
-----------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND
FOREIGN CURRENCY TRANSACTIONS 69,625,116
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 67,638,703
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $1,251,900.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 9
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JANUARY 31, 1998 JANUARY 31, 1997
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (1,986,413) $ (242,737)
Net realized gain on investment transac-
tions 41,736,310 16,714,697
Net realized (loss) gain on foreign cur-
rency related transactions (8,840,050) 146,694
Net change in unrealized gain on invest-
ments 60,304,766 60,236,901
Net change in unrealized loss on
translation of assets and liabilities
denominated in foreign currencies (23,575,910) (28,245,657)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 67,638,703 48,609,898
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A shares -- --
Class B shares -- --
Class C shares -- --
Institutional shares (161,909) (106,712)
Service shares -- --
In excess of net investment income
Class A shares (9,775,036) --
Class B shares (638,453) --
Class C shares (58,050) --
Institutional shares (846,352) --
Service shares (46,405) --
From net realized gain on investment and
foreign currency transactions
Class A shares (28,622,667) (5,358,559)
Class B shares (1,220,047) (159,717)
Class C shares -- --
Institutional shares (2,452,650) (689,171)
Service shares (23,952) (3,947)
In excess of net realized gain on
investment and foreign currency
transactions
Class A shares (11,721,395) --
Class B shares (1,983,107) --
Class C shares (189,719) --
Institutional shares (688,031) --
Service shares (139,091) --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (58,566,864) (6,318,106)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 529,546,180 321,475,961
Reinvestment of dividends and
distributions 50,151,260 5,481,492
Cost of shares repurchased (397,718,119) (75,580,037)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS 181,979,321 251,377,416
------------------------------------------------------------------------------
TOTAL INCREASE 191,051,160 293,669,208
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 624,529,029 330,859,821
------------------------------------------------------------------------------
End of year $ 815,580,189 $ 624,529,029
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED/(DISTRIBUTIONS
IN EXCESS OF) NET INVESTMENT INCOME $ 772,084 $ (25,666)
------------------------------------------------------------------------------
</TABLE>
10 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements
January 31, 1998
1. ORGANIZATION
Effective May 1, 1997, 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 Goldman Sachs International
Equity Fund (the "Fund"). The Trust is registered under the Investment Com-
pany Act of 1940, as amended, as an open-end, management investment company.
At January 31, 1998, the 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 last sale price on valua-
tion date or, if no sale occurs, 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 obli-
gations maturing in sixty days or less are valued at amortized cost. Re-
stricted 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. It is the Fund's
policy, where necessary, to accrue for estimated capital gains taxes on ap-
preciated foreign securities.
11
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
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 valua-
tions, 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 and investments; (ii) gains and losses between
trade date and settlement date on investment securities transactions and for-
ward exchange contracts; and (iii) gains and losses from the difference be-
tween amounts of dividends and interest recorded and the amounts actually
received.
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. The
Fund may enter into such contracts to seek to increase total return. All com-
mitments 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 realized gains or losses at the time the forward
contract is offset by entry into a closing transaction or extinguished by de-
livery of the currency. Risks may arise upon entering these contracts from
the potential inability of counterparties to meet the terms of their con-
tracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
E. SHORT SECURITIES POSITIONS -- 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.
12
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
G. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are being am-
ortized on a straight-line basis over a period of five years. Organization-
related costs were fully amortized as of January 31, 1998.
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
the distribution and authorized dealer service plans as well as other ex-
penses which are directly attributable to such shares. Each class of shares
separately bears their respective class-specific transfer agency fees. Serv-
ice shares separately bear a service class fee payable monthly, at an annual
rate equal to .50% of the average daily net assets of the service class.
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 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 increased
by the premium originally paid.
J. FUTURES CONTRACTS -- The Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices 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 exchange. Subsequent payments for
futures contracts ("variation margin") are paid or received by the Fund dai-
ly, dependent on the daily fluctuations in the value of the contracts, and
are recorded for financial reporting purposes as unrealized gains or losses.
When contracts are closed, the Fund realizes 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-
tract 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.
13
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration Agree-
ments were combined into an Investment Management Agreement (the "Agreement")
encompassing the same services and fee structure. Goldman Sachs Asset
Management International ("GSAM International"), a separate operating divi-
sion of Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser.
Under the Agreement, GSAM International, subject to the general supervision
of the Trust's Board of Trustees, manages the Fund's portfolio. As compensa-
tion for the services rendered under the Agreement, the assumption of the ex-
penses related thereto and administering the Fund's business affairs,
including providing facilities, GSAM International is entitled to a fee, com-
puted daily and payable monthly, at an annual rate equal to 1.00% of the av-
erage daily net assets of the Fund.
Goldman Sachs has voluntarily agreed to reduce or limit certain "Other Ex-
penses" for the Fund (excluding management, service, distribution and autho-
rized dealer service fees and litigation and indemnification costs, taxes,
interest, brokerage commissions, transfer agent fees and extraordinary ex-
penses) until further notice to the extent such expenses exceed .20% of the
average daily net assets of the Fund.
Goldman Sachs serves as the Distributor of shares of the Fund pursuant to
Distribution Agreements. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charge imposed
and has advised the Fund that is retained approximately $1,091,000 during the
year ended January 31, 1998.
The Trust has adopted a Distribution Plan (the "Distribution Plan") pursu-
ant to Rule 12b-1. Under the Distribution Plan, 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 average daily net assets attrib-
utable to Class A, Class B and Class C shares, respectively.
For the year ended January 31, 1998, the Distributor has voluntarily agreed
to waive approximately $216,000 of 12b-1 fees attributable to the Class A
shares and the Manager has agreed to waive $753,000 of its management fee.
The Distributor and Manager may discontinue or modify these waivers in the
future at their discretion.
The Trust has adopted Authorized Dealer Service Plans (the "Service Plans")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. The Fund pays a fee un-
der its Service Plans equal, on an annual 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.
At January 31, 1998, the Fund owed approximately $617,000, $512,000,
$455,000 and $236,000 for Management, Distribution, Authorized Dealer Service
and Transfer Agent fees, respectively.
14
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of securities (excluding short-
term investments and futures) for the year ended January 31, 1998, were
$433,161,162 and $292,549,135 , respectively.
At January 31, 1998, the Fund had the following outstanding forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
FOREIGN CURRENCY SALE CONTRACTS VALUE ON SETTLEMENT DATE CURRENT VALUE UNREALIZED GAIN (LOSS)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEUTSCHE MARK EXPIRING 2/27/98 $ 874,770 $ 845,255 $ 29,515
---------------------------------------------------------------------------------------------------------
FRENCH FRANC EXPIRING 4/23/98 38,453,825 38,420,209 33,616
---------------------------------------------------------------------------------------------------------
HONG KONG DOLLAR EXPIRING 8/10/98 15,398,542 15,051,160 347,382
---------------------------------------------------------------------------------------------------------
IRISH POUND EXPIRING 4/8/98 26,172,034 25,879,934 292,100
---------------------------------------------------------------------------------------------------------
JAPANESE YEN EXPIRING 4/22/98 42,504 43,071 (567)
---------------------------------------------------------------------------------------------------------
SWISS FRANC EXPIRING 2/27/98 51,649,323 51,983,761 (334,438)
---------------------------------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CONTRACTS $132,590,998 $132,223,390 $ 367,608
---------------------------------------------------------------------------------------------------------
<CAPTION>
FOREIGN CURRENCY PURCHASE CONTRACTS VALUE ON SETTLEMENT DATE CURRENT VALUE UNREALIZED LOSS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEUTSCHE MARK
EXPIRING 2/23/98 $ 34,035,705 $ 32,067,577 $(1,968,128)
EXPIRING 4/8/98 25,482,045 25,453,005 (29,040)
---------------------------------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY PURCHASE CONTRACTS $ 59,517,750 $ 57,520,582 $(1,997,168)
---------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Notes to Financial Statements (continued)
January 31, 1998
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 January 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" and "Payable for forward foreign currency exchange contracts" re-
sulting from open and closed but not settled forward foreign currency ex-
change contracts of $1,674,478 and $4,147,468, respectively, in the
accompanying Statement of Assets and Liabilities. Included in these amounts
are $971,865 and $1,815,295, related to forward contracts closed but not set-
tled as of January 31, 1998.
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 year ended January 31, 1998, the Fund did not have
any borrowings under these facilities.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$11,353,594 from accumulated distributions in excess of net realized gain on
investment transactions to accumulated undistributed net investment income,
$2,956,774 from accumulated net realized foreign currency loss to accumulated
undistributed net investment income and $771,280 from accumulated distribu-
tions in excess of net realized gain on investment transactions to paid-in
capital.
16
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
7. SUMMARY OF SHARE TRANSACTIONS
Share activity for the years ended January 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31, 1998 FOR THE YEAR ENDED JANUARY 31, 1997
-----------------------------------------------------------------------
SHARES DOLLARS SHARES DOLLARS
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 21,390,200 $ 449,374,247 12,103,239 $ 230,847,197
Reinvestments of divi-
dends and distributions 2,340,540 44,048,417 241,377 4,749,851
Shares repurchased (16,346,724) (341,975,833) (3,820,157) (72,226,935)
-----------------------------------------------------------------------
7,384,016 151,446,831 8,524,459 163,370,113
---------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,885,737 40,135,556 1,000,064 19,327,085
Reinvestments of divi-
dends and distributions 191,836 3,585,408 7,924 155,475
Shares repurchased (267,333) (5,559,324) (10,181) (198,263)
-----------------------------------------------------------------------
1,810,240 38,161,640 997,807 19,284,297
---------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 196,809 4,156,146 -- --
Reinvestments of divi-
dends and distributions 10,477 194,343 -- --
Shares repurchased (35,076) (669,597) -- --
-----------------------------------------------------------------------
172,210 3,680,892 -- --
---------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 1,616,872 33,368,427 3,657,119 70,627,799
Reinvestments of divi-
dends and distributions 110,699 2,113,646 28,973 572,219
Shares repurchased (2,433,763) (49,275,451) (161,923) (3,153,741)
-----------------------------------------------------------------------
(706,192) (13,793,378) 3,524,169 68,046,277
---------------------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold 118,403 2,511,804 34,686 673,880
Reinvestments of divi-
dends and distributions 11,141 209,446 200 3,947
Shares repurchased (11,421) (237,914) (56) (1,098)
-----------------------------------------------------------------------
118,123 2,483,336 34,830 676,729
---------------------------------------------------------------------------------------------------
NET INCREASE 8,778,397 $ 181,979,321 13,081,265 $ 251,377,416
---------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS(E) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------ --------------------------------------------------------
FROM NET IN EXCESS OF
NET REALIZED REALIZED GAIN NET REALIZED GAIN
NET ASSET NET NET REALIZED AND UNREALIZED IN EXCESS ON INVESTMENT ON INVESTMENT
VALUE, INVESTMENT AND UNREALIZED GAIN (LOSS) ON FROM NET OF NET AND FOREIGN AND FOREIGN
BEGINNING INCOME GAIN (LOSS) ON CURRENCY RELATED INVESTMENT INVESTMENT CURRENCY RELATED CURRENCY RELATED
OF PERIOD (LOSS) INVESTMENTS TRANSACTIONS INCOME INCOME TRANSACTIONS TRANSACTIONS
FOR THE YEARS ENDED JANUARY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A
Shares $19.32 $0.03 $2.99 $(0.95) $ -- $(0.30) $(0.88) $(0.36)
1998 - Class B
Shares 19.24 (0.08) 2.96 (0.94) -- (0.25) (0.47) (0.76)
1998 - Class C
Shares(b) 22.60 (0.04) (2.03) 0.65 -- (0.38) -- (1.24)
1998 - Institu-
tional Shares 19.40 0.10 3.09 (0.98) (0.07) (0.33) (0.97) (0.27)
1998 - Service
Shares 19.34 0.02 3.02 (0.96) -- (0.35) (0.18) (1.05)
------------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 17.20 0.10 3.51 (1.28) -- -- (0.21) --
1997 - Class B
Shares(b) 18.91 (0.06) 0.94 (0.34) -- -- (0.21) --
1997 - Institu-
tional Shares(b) 17.45 0.04 3.39 (1.24) (0.03) -- (0.21) --
1997 - Service
Shares(b) 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
(DECREASE)
IN NET ASSET
VALUE
<S> <C>
1998 - Class A
Shares $0.53
1998 - Class B
Shares 0.46
1998 - Class C
Shares(b) (3.04)
1998 - Institu-
tional Shares 0.57
1998 - Service
Shares 0.50
------------------------------------------------------------------------------------------------------------------------------
1997 - Class A
Shares 2.12
1997 - Class B
Shares(b) 0.33
1997 - Institu-
tional Shares(b) 1.95
1997 - Service
Shares(b) 1.64
------------------------------------------------------------------------------------------------------------------------------
1996 - Class A
Shares 2.68
------------------------------------------------------------------------------------------------------------------------------
1995 - Class A
Shares (3.58)
------------------------------------------------------------------------------------------------------------------------------
1994 - Class A
Shares 3.75
------------------------------------------------------------------------------------------------------------------------------
1993 - Class A
Shares(b) 0.17
------------------------------------------------------------------------------------------------------------------------------
</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 December 1, 1992, May 1, 1996, August 15, 1997,
February 7, 1996 and March 6, 1996, respectively.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
(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.
18 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
RATIO OF
NET ASSETS RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AVERAGE AT END OF NET EXPENSES INCOME (LOSS) TO
VALUE, END TOTAL TURNOVER COMMISSION PERIOD TO AVERAGE AVERAGE NET
OF PERIOD RETURN(A) RATE RATE(F) (IN 000S) NET ASSETS ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$19.85 11.12% 40.82% $.0207 $697,590 1.67% (0.27)%
19.70 10.51 40.82 .0207 55,324 2.20 (0.90)
19.56 (5.92)(d) 40.82 .0207 3,369 2.27(c) (1.43)(c)
19.97 11.82 40.82 .0207 56,263 1.08 0.30
19.84 11.25 40.82 .0207 3,035 1.55 (0.36)
- --------------------------------------------------------------------------------------
19.32 13.48 38.01 .0318 536,283 1.69 (0.07)
19.24 2.83(d) 38.01 .0318 19,198 2.23(c) (0.97)(c)
19.40 12.53(d) 38.01 .0318 68,374 1.10(c) 0.43(c)
19.34 10.42(d) 38.01 .0318 674 1.60(c) (0.40)(c)
- --------------------------------------------------------------------------------------
17.20 28.68 68.48 -- 330,860 1.52 0.26
- --------------------------------------------------------------------------------------
14.52 (16.65) 84.54 -- 275,086 1.73 0.40
- --------------------------------------------------------------------------------------
18.10 26.13 60.04 -- 269,091 1.76 0.51
- --------------------------------------------------------------------------------------
14.35 1.23(d) 0.00 -- 66,063 1.80(c) (0.42)(c)
- --------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF
RATIO OF NET INVESTMENT
NET ASSET EXPENSES TO INCOME (LOSS) TO
VALUE, END AVERAGE NET AVERAGE NET
OF PERIOD ASSETS ASSETS
- --------------------------------------------------------------------------------------
<S> <C> <C>
$19.85 1.80% (0.40)%
19.70 2.30 (1.00)
19.56 2.37(c) (1.53)(c)
19.97 1.18 0.20
19.84 1.65 (0.46)
- --------------------------------------------------------------------------------------
19.32 1.88 (0.26)
19.24 2.38(c) (1.12)(c)
19.40 1.25(c) 0.28(c)
19.34 1.75(c) (0.55)(c)
- --------------------------------------------------------------------------------------
17.20 1.77 0.01
- --------------------------------------------------------------------------------------
14.52 1.98 0.15
- --------------------------------------------------------------------------------------
18.10 2.01 0.26
- --------------------------------------------------------------------------------------
14.35 2.58(c) (1.20)(c)
- --------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Goldman
Sachs International Equity Fund
We have audited the accompanying statement of assets and liabilities of
Goldman Sachs International Equity Fund, one of the portfolios constituting
Goldman Sachs Trust--Equity Funds (a Delaware Business Trust), including the
statement of investments, as of January 31, 1998, and the related statement
of operations and the statement of changes in net assets and the financial
highlights for the periods presented. These financial statements and the fi-
nancial highlights are the responsibility of the Fund's management. Our re-
sponsibility 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 stan-
dards. 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 finan-
cial statements. Our procedures included confirmation of securities owned as
of January 31, 1998 by correspondence with the custodian and brokers. An au-
dit 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 re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs International Equity Fund as of January 31, 1998, the
results of its operations and the changes in its net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 12, 1998
20
<PAGE>
GOLDMAN SACHS FUND PROFILE
Goldman Sachs International Equity Fund
THE GOLDMAN SACHS ADVANTAGE
When you invest in the Goldman Sachs International 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 more than 10,600 professionals based in 35 offices in 19 countries
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 International Equity Fund offers investors access to the benefits
associated with international market diversification. The Fund seeks long-term
capital growth, primarily through equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States.
Target Your Needs
The Goldman Sachs International 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 International Equity Funds
[THE FOLLOWING TABLE WAS REPRESENTED BY A CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
[Fund Risk/Return]
<S> <C>
Higher Asia Growth Fund
Risk/Return
Emerging Markets Equity Fund
INTERNATIONAL EQUITY FUND
Lower
Risk/Return CORE International Equity Fund
</TABLE>
For More Information
To learn more about the Goldman Sachs International Equity Fund and other
Goldman Sachs Funds, call your investment professional today.
<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
James A. Fitzpatrick, Vice President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, 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
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 Reserve
Board, or any other government agency. Investment in the Fund involves risks,
including possible loss of the principal amount invested.
The 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. In particular, the securities markets of foreign
countries may be less liquid, are subject to greater price volatility, have less
government regulation, and are not subject to as extensive and frequent
accounting, financial and other reporting requirements. The Fund may incur
losses because of changes in securities prices expressed in local currencies,
movements in exchange rates, or both.
The Lipper rankings shown in this report are based on relative performance
within an individual fund's Lipper category. Please be advised that certain
differences do exist among the funds; for example, there may be differences in
investment policies, risks, fees and expense ratios, and Goldman Sachs strongly
recommends that these factors be taken into consideration before an investment
decision is made.
(C)Copyright 1998 Goldman, Sachs & Co. All rights reserved.
Date of first use: March 31, 1998 INTLAR / 146K / 3-98
