<PAGE>
Goldman Sachs Funds
EMERGING MARKETS EQUITY FUND Semi-Annual Report July 31, 1998
Long-term capital growth potential
[GRAPHIC] through a diversified portfolio
of emerging markets stocks.
Goldman
Sachs
<PAGE>
Fund Basics
as of July 31, 1998
Assets Under Management
$155.2 Million
Number of Holdings
133
NASDAQ SYMBOLS
Class A Shares
GEMAX
Class B Shares
GEKBX
Class C Shares
GEMCX
Institutional Shares
GEMIX
Service Shares
GEMSX
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
- --------------------------------------------------------------------------------
January 31, 1998- Fund Total Return MSCI EMF (Partial Domestic)
July 31, 1998 (based on NAV)/1/ MSCI EMF Index/2/
- --------------------------------------------------------------------------------
Class A -9.29% -9.17%
Class B -9.39% -9.17%
Class C -9.38% -9.17%
Institutional -8.87% -9.17%
Service -11.04% -9.17%
- --------------------------------------------------------------------------------
/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 Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF)
Index (with dividends reinvested) is a market capitalization-weighted
composite of securities in over 30 emerging market countries, including
Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech Republic,
Egypt, Greece, Hong Kong, Hungary, India, Israel, Jordan, Kenya, Malaysia,
Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Portugal, Russia,
Singapore, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela and Zimbabwe. "Free" indicates an index that excludes shares in
otherwise free markets that are not purchasable by foreigners. Investors
cannot directly invest in the Index. The Index figures do not reflect any
fees or expenses.
- --------------------------------------------------------------------------------
SEC CUMULATIVE TOTAL RETURN/3/
- --------------------------------------------------------------------------------
For the period
ended 7/31/98 Class A Class B Class C Institutional Service
- --------------------------------------------------------------------------------
Last 6 Months -14.24% -13.92% -10.29% -8.87% -11.04%
Since Inception -16.92% -16.59% -12.98% -11.60% -13.80%
(12/15/97)
- --------------------------------------------------------------------------------
/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 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, the assumed deferred sales charge for Class B shares (5%
maximum declining to 0% after six years) and the assumed deferred sales
charge for Class C shares (1% if redeemed within 12 months of purchase). The
public offering price of the Class A shares on 7/31/98 was $9.30 and
represents the NAV plus the maximum sales charge of 5.5%.
- --------------------------------------------------------------------------------
TOP 10 COMPANY HOLDINGS AS OF 7/31/98
- --------------------------------------------------------------------------------
% of Total
Company Holding Net Assets Country Line of Business
- --------------------------------------------------------------------------------
Telecommunicacoes Brasileiras 6.4% Brazil Telecommunications
Telefonos de Mexico SA ADS 3.8% Mexico Telecommunications
ITC Ltd. 2.9% India Consumer Goods
Telec de Sao Paulo 2.6% Brazil Telecommunications
Mahanagar Telephono Nigam GDR 2.5% India Telecommunications
Petroleo Brasileiros 1.8% Brazil Oil & Gas Services
South African Breweries, Ltd. 1.6% South Africa Beverages
YPF Sociedad Anonima ADR 1.5% Argentina Oil and Gas Services
Ranbaxy Laboratories Ltd. 1.5% India Health & Medical
Services
Cia Vale do Rio Doce 1.4% Brazil Mining
- --------------------------------------------------------------------------------
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 EMERGING MARKETS EQUITY FUND
Market Overview
Dear Shareholder,
The period under review was a difficult one for emerging markets around the
world. Over the six-month period ended July 31, 1998, emerging markets, as
measured by the Morgan Stanley Capital International Emerging Markets Free
Index, generated a return of -9.17%.
. Market Review: Emerging Markets Around the World Faltered -- In February,
after a prolonged period of weakness instigated by the devaluation of the
Thai baht, investors briefly renewed their interest in the Asian region. The
rally, however, was short-lived. In the remaining months of the period,
Asia's economies became further mired in recession in the wake of continuing
regional political instability and a weakening Japanese economy.
Latin America markets sold off strongly amid renewed fears over the
currency crisis in Asia, increased political uncertainty in Colombia and
Venezuela and continued weak commodity prices. In Russia, much anticipated
capital inflows from privatizations never materialized. By period end,
dwindling foreign currency reserves threatened to force the devaluation of
the Russian ruble. In a preventative effort, the International Monetary Fund
agreed to bestow a multibillion dollar aid package upon the beleaguered
nation.
South Africa's market also fared poorly. Early in the period, falling
interest rates and major developments in corporate restructuring helped drive
the South Africa market into positive territory. By mid-period, however,
declining commodity prices and an uncertain interest rate policy placed
pressure on the South African rand. This, in turn, led to its eventual
devaluation, and South Africa's equity market fell significantly.
. Market Outlook: Optimistically Cautious -- The increased interest shown by
foreign corporates in purchasing Asian assets shows that long term investors
are beginning to see value emerge in companies across the region. High debt
levels, however, remain the key obstacle in solving the problems of Asian
businesses. As a result, we remain cautious in Asia. In Latin America, we
expect a slowdown in economic growth as a result of higher interest rates and
budget cuts seen in Mexico, Chile and Venezuela. Up until now, the
governments have been taking the necessary steps to prevent any major
contagion from Asia. However, the recent turmoil in Russia and the world's
financial markets has caused substantial reserve losses in Brazil and led to
a significant increase in interest rates. We believe that it is key for the
region that Brazil continues to use all of its fiscal and monetary policy
tools to avoid a devaluation. Eastern European countries should continue to
benefit from the convergence of bonds yields occurring in Europe ahead of the
formation of a single currency; conversely, the outlook for Russia and South
Africa is more muted given high interest rates following currency devalua-
tions in both countries.
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 /s/ John P. McNulty
David B. Ford John P. McNulty
Co-Head, Goldman Sachs Co-Head, Goldman Sachs
Asset Management International Asset Management International
August 31, 1998
1
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Performance Overview
Dear Shareholder,
We are pleased to report on the performance of the Goldman Sachs Emerging
Markets Equity Fund for the six months ended July 31, 1998.
Performance Review
Emerging markets, with a few exceptions, fared poorly over the short time
period covered by this report, a circumstance that is reflected in the Fund's
performance. In general, the Fund's shares slightly underperformed the -9.17%
cumulative total return of its benchmark, the Morgan Stanley Capital
International Emerging Markets Free (MSCI EMF) Index. However, on a relative
basis, the Fund's Institutional share class outperformed the benchmark with a
cumulative total return of 8.87%.
Regional Allocations
At the end of the period, the Fund was underweight its position in Asia versus
the benchmark, with much of the exposure concentrated in more stable economies
such as India. Although our expectations for Asia are modest, we are beginning
to expect that its performance relative to the rest of the emerging world will
improve. Latin America was reduced to an underweight position, although the
Fund maintained an overweight position in Brazil, which benefited Fund
performance. Finally, overweight positions were maintained in emerging markets
in Europe, the Middle East and Africa.
Portfolio Highlights
. Sasol Limited (South Africa) -- Sasol converts coal into refined oil products
and petro-chemicals for domestic consumption and exports. The company should
experience a significant boost in profits due to the depreciation of the rand,
as products are priced in dollars, but costs are in local currency. Over the
long term, the company should be able to exploit its world-leading gas-to-oil
conversion technology in international joint ventures.
. Telesp Celular SA (Brazil) -- Telesp is located in the state of Sao Paulo, the
largest state in Brazil. The company was privatized in July 1998 and was
bought by Telefonica International (TISA) from Spain. Telesp has significant
growth prospects due to the large pent-up demand for telecom services in Sao
Paulo.
. Cia Vale do Rio Doce (Brazil) -- Vale do Rio Doce is the world's largest iron
ore producer and the largest mining company in Brazil. The company was
privatized in the first half of 1997 and, as a result, has been generating
substantial earnings growth due to aggressive cost cutting.
. Grupo Televisa (Mexico) -- Grupo Televisa is the leading broadcast company in
Mexico, with an advertising market share of 78%. The company is presently
undergoing a substantial cost-reduction program and should continue to benefit
from growth in the advertising industry and a better pricing structure.
2
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
INVESTMENT
PROCESS OVERVIEW
The investment process for the Goldman Sachs Emerging Markets Equity Fund
combines both qualitative and quantitative analysis, with an emphasis on
portfolio manager input.
Asset Allocation
----------------
Committee
---------
. Proprietary
Quantitative Model
. Portfolio
Manager Views
[ARROW DOWN]
Country Allocation
------------------
Company Visits
--------------
Internal Research
-----------------
Return Expectations
[ARROW DOWN]
Stock Selection
Portfolio [SIDE ARROW]
Construction
. Stock & Industry
Views Relative
to Benchmark
[ARROW DOWN]
Portfolio Review
& Analysis
. Performance
Measurement
& Attribution
. BARRA
. Risk Analysis
Key New Acquisitions
. Magyr Tavkozlesi (Hungary) -- Matav is the monopoly telecommunications
operator in Hungary. Demand for its value-added services to business customers
and increased traffic are generating strong earnings growth.
. Migros (Turkey) -- Migros, a Turkish food retailer, is growing rapidly by
acquiring market share from the informal sector (stores that are privately
owned and operated).
Portfolio Outlook
The two most significant risks to short- and medium-term returns in the
emerging markets are the Russian economic and political situation and the
direction and pace of change of the Japanese yen. Clearly, both of these
situations have a significant risk of deterioration.
Near term, we intend to keep a close eye on markets in Asia. Although we have
seen some countries make progress with the implementation of bank
restructuring and bankruptcy legislation, the economic weakness of Japan has
again subjected regional currencies to considerable pressure. This will likely
result in continuous volatility in the markets. As a result, we intend to
maintain our defensive investment stance, focusing on companies with strong
balance sheets and dominant business franchises.
In Latin America, we remain cautious due to the expected slowdown in economic
growth resulting from the high interest rate environment. We remain
underweight in the region, with a focus on companies with strong balance
sheets as well as cost-cutting potential following privatization.
Finally, we will continue to overweight Europe and the Middle East, although
not to the extent that these combined regions have been weighted in the near
past. In South Africa, we expect to maintain the Fund's underweight position
as a result of increasing interest rates and pressure on South Africa's
currency.
We thank you for your investment and look forward to your continued
confidence.
Goldman Sachs Emerging Markets Equity Investment Team
New York, Singapore and London, August 31, 1998
3
<PAGE>
GOLDMAN SACHS EMERGING MARKETS 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 EMERGING MARKETS 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 and redemption
charges of 5.0% and 1.0% for Class B and Class C, respectively, and at NAV
for the Institutional and Service Classes) on December 15, 1997 (commencement
of operations). For comparative purposes, the performance of the Fund's
benchmark (Morgan Stanley Emerging Markets Free Index ("MSCI EMF")) is shown.
All performance data shown represents past performance and should not be con-
sidered 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.
EMERGING MARKETS EQUITY FUND'S LIFETIME PERFORMANCE
PERFORMANCE OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 15,
1997 TO JULY 31, 1998
LOGO
GS-Emerging Market Equity Cl A
Inception Date: 12/15/97
Morgan Stanley Class A Class B Class C Institutional Service
EMF Fund Fund Fund Class Class
-----------------------------------------------------------------------
DEC 15/97 10,000 9,500 10,000 10,000 10,000 10,000
DEC 10,621 9,679 10,240 10,240 10,230 10,240
JAN '98 9,788 9,159 9,690 9,700 9,700 9,690
FEB 10,810 9,896 10,470 10,470 10,480 10,450
MAR 11,279 10,312 10,900 10,910 10,930 10,860
APR 11,156 10,369 10,960 10,970 11,000 10,890
MAY 9,628 8,875 9,380 9,390 9,420 9,290
JUNE 8,618 8,034 8,500 8,510 8,560 8,390
JULY 8,891 8,308 8,341 8,702 8,840 8,620
<TABLE>
<CAPTION>
SINCE INCEPTION(A)
OF CLASS SIX MONTHS
AVERAGE ANNUAL TOTAL RETURN THROUGH JULY 31, 1998(B)
<S> <C> <C>
CLASS A
Excluding sales charges -12.10% -9.29%
Including sales charges -16.92% -14.24%
------------------------------------------------------------
CLASS B
Excluding redemption charges -12.20% -9.39%
Including redemption charges -16.59% -13.92%
------------------------------------------------------------
CLASS C
Excluding redemption charges -12.10% -9.38%
Including redemption charges -12.98% -10.29%
------------------------------------------------------------
INSTITUTIONAL CLASS -11.60% -8.87%
------------------------------------------------------------
SERVICE CLASS -13.80% -11.04%
------------------------------------------------------------
</TABLE>
(a) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
(b) All classes commenced operations on December 15, 1997.
5
<PAGE>
GOLDMAN SACHS EMERGING MARKETS 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
<C> <S> <C>
COMMON STOCKS - 81.9%
ARGENTINE PESO - 4.9%
57,037 Banco de Galicia ADR (Commercial Banks) $ 1,169,259
20,600 Cresud S.A. Cifya ADR* (Agriculture) 370,800
23,750 Irsa Inversiones y Representos GDR (Recreational
Services) 883,203
136,700 Perez Compac SA (Diversified Industrial
Manufacturing) 793,261
56,100 Telefonica de Argentina ADR (Utility) 2,030,119
82,050 YPF Sociedad Anonima ADR (Oil & Gas Services) 2,399,963
----------------------------------------------------
7,646,605
-----------------------------------------------------------------------------
BRAZILIAN REAL - 13.2%
6,486 Cemig-Cia de Energetica Minas Gerais* (Utility) 220,523
319,262,200 Cia Energetica (Utility) 1,098,017
1,508,730 Cia Rio Telecom (Telecommunications) 1,375,052
98,000 Cia Vale do Rio Doce (Mining) 2,022,269
10,600 Cia Vale do Rio Doce ADR* (Mining) 227,900
89,000 Companhia Cervejaria Brahma ADR*
(Food & Beverages) 1,279,375
61,296,800 Electrobras PN (Utility) 1,949,502
195,526,000 Gerasul Centrais G* (Utility) 331,186
33,341,000 Lojas Americanas SA* (Retail Trade) 157,668
83,394,000 Paranaense Energy (Utility) 902,022
81,500 Telecomunicacoes Brasileiras ADR
(Telecommunications) 9,866,594
10,732,900 Telesp Celular SA (Telecommunications) 1,102,774
----------------------------------------------------
20,532,882
-----------------------------------------------------------------------------
CHILEAN PESO - 1.1%
17,800 Cia de Telecomunicaciones Chile (Utilities) 392,713
16,200 Distribucion Y Servicio ADR* (Retail) 253,125
14,300 Embotelladora Andina ADR (Beverages) 244,888
6,400 Empresa Nacional de Electricidad SA ADR (Utility) 89,600
21,900 Enersis SA ADR (Utility) 610,463
5,600 Quinenco S.A. ADR (Diversified) 53,900
----------------------------------------------------
1,644,689
-----------------------------------------------------------------------------
COLOMBIAN PESO - 1.0%
115,700 Banco Colombiano SA ADR* (Commercial Banks) 1,214,850
51,200 Cementos Diamante GDR* (Building Materials) 412,800
----------------------------------------------------
1,627,650
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
CZECH KORUNA - 1.6%
2,939 Ceske Radiomunikace AS GDR* (Telecommunications) $ 90,668
9,790 Ckd Praha* (Engineering) 262,962
14,161 Galena* (Health Care) 498,572
6,320 Restitucni (Investment Fund) 207,731
57,400 Sporitelni* (Investment Fund) 743,484
45,405 Zivnobanka Fond(b) (Investment Fund) 660,672
--------------------------------------------------
2,464,089
---------------------------------------------------------------------------
GEORGIAN COUPON - 0.1%
1,750 Stet Hellas Telecom SA A* (Utility) 75,797
---------------------------------------------------------------------------
GREEK DRACHMA - 3.0%
8,610 Alpha Credit Bank* (Financial Services) 867,026
22,755 Attica Enterprises (Transportation-Marine) 383,956
25,585 Hellenic Bottling (Beverages) 852,170
3,666 National Bank of Greece* (Financial Services) 692,341
49,780 Ote Greek Telecom (Telecommunications) 1,413,965
15,530 Strintzis Shipping (Shipping and Freight) 110,542
4,045 Titan Cementos Co. (Communications) 325,400
--------------------------------------------------
4,645,400
---------------------------------------------------------------------------
HONG KONG DOLLAR - 1.4%
1,555,000 Beijing Datang Power Gen-H* (Utility) 367,252
19,200 HSBC Holdings (Commercial Banks) 468,323
158,000 Hutchison Whampoa (Diversified) 758,547
964,000 Legend Holdings (Electronics) 216,475
2,549,000 Zhejiang Expressway* (Construction) 381,602
--------------------------------------------------
2,192,199
---------------------------------------------------------------------------
HUNGARIAN FORINT - 4.9%
57,278 Elektrim (Electronics) 820,759
14,607 Gedeon Richter Ltd. ADR (Drugs) 1,172,212
41,825 Graboplast (Textiles) 166,254
62,683 Magyar Olaj Es Gaz GDR (Oil & Gas) 1,921,234
67,525 Magyr Tavkozlesi ADR* (Telecommunications) 2,156,580
20,580 OTP Bank Rt. (Banking) 1,121,610
28,829 Zalakeramia GDR (Building Materials) 186,668
--------------------------------------------------
7,545,317
---------------------------------------------------------------------------
</TABLE>
6
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
INDIAN RUPEE - 7.3%
67,000 Bank India GDR (Financial Services) $ 737,000
253,600 ITC Ltd. ADR (Consumer Goods) 4,476,040
322,250 Mahanagar Telephono Nigam GDR* (Telecommunications) 3,907,281
134,380 Ranbaxy Laboratories Ltd. GDR (Health & Medical
Services) 2,250,865
-----------------------------------------------------
11,371,186
------------------------------------------------------------------------------
INDONESIAN RUPIAH - 0.9%
786,240 Daya Guna Samudera (Food & Beverages) 562,027
492,000 Gudang Garam (Tobacco) 332,989
1,473,000 PT Telekomunikasi (Telecommunications) 487,266
-----------------------------------------------------
1,382,282
------------------------------------------------------------------------------
ISRAELI SHEKEL - 3.8%
226,540 Bank Hapoalim (Banking) 664,695
679,012 Bank Leumi (Banking) 1,320,133
117,587 First International Bank (Banking) 860,924
425,517 ICL Israel Chemical (Chemical Products) 533,245
29,033 Koors Industries Ltd. ADR* (Utility) 671,388
14,528 Nice Systems Ltd. ADR* (Telecommunications) 559,328
415,057 Super Sol (Retail Trade) 1,360,096
-----------------------------------------------------
5,969,809
------------------------------------------------------------------------------
MALAYSIAN RINGGIT - 1.3%
283,000 Rothmans Industries Limited (Tobacco) 1,999,360
------------------------------------------------------------------------------
MEXICAN PESO - 13.4%
8,594 Cemex SA (Building Materials) 31,714
368,450 Cemex SA Class B (Building Materials) 1,487,852
1,350,000 Cifra Ser C* (Financial Services) 1,968,592
46,100 Coca Cola Femsa SA CV (Food & Beverages) 815,394
20,520 Fomento Economico ADR* (Beverages) 636,120
1,016,300 Groupo Financiero Banamex -Accivl - Class B
(Financial Services) 2,033,740
326,500 Grupo Carso SA (Financial Services) 1,391,699
229,000 Grupo Modelo SA (Beverages/ Tobacco) 2,057,532
59,700 Grupo Televisa GDR* (Broadcast Media) 2,104,425
512,000 Kimberly Clark (Health/ Personal Care) 1,493,214
26,400 Panamerican Beverages (Beverages/ Tobacco) 820,050
118,900 Telefonos de Mexico SA ADR (Telecommunications) 5,945,000
-----------------------------------------------------
20,785,332
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
NEW TAIWAN DOLLAR - 2.3%
304,000 Hon Hai Precision* (Electronic Connectors) $ 2,016,936
453,480 Siliconware Precis* (Technology) 778,563
347,750 Taiwan Semiconductor* (Technology) 789,306
-----------------------------------------------
3,584,805
------------------------------------------------------------------------
PAKISTAN RUPEE - 0.3%
449,000 Fauji Fertilizer (Chemical Products) 394,556
------------------------------------------------------------------------
PHILIPPINE PESO - 2.2%
5,269,300 Ayala Land Inc. (Real Estate) 1,345,486
287,700 Manila Electric Co. (Utility) 697,040
61,600 Philippine Long Distance (Telecommunications) 1,353,444
-----------------------------------------------
3,395,970
------------------------------------------------------------------------
POLISH ZLOTY - 0.6%
17,635 Lentex* (Building Materials) 138,676
23,551 MPP Vouchers (Investment Fund) 733,932
-----------------------------------------------
872,608
------------------------------------------------------------------------
RUSSIAN RUBLE - 2.5%
77,923 Ao Mosenergo ADR* (Oil & Gas) 448,057
4,615,746 Irkutskenergo ADR (Utility) 437,765
36,783 Lukoil Co. ADR* (Oil & Gas Services) 1,223,035
17,455 Rao Gazprom ADR* (Energy) 190,260
77,495 Surgutneftegaz* (Oil & Gas) 426,223
7,595 Unified Energy System ADR* (Utility) 98,735
77,127 Unified Energy System GDR* (Utility) 1,020,728
-----------------------------------------------
3,844,803
------------------------------------------------------------------------
SOUTH AFRICAN RAND - 9.5%
300,481 ABSA Group Ltd. (Financial Services) 1,646,135
48,260 Anglo American Industries (Diversified) 866,549
42,721 Anglogold (Natural Resources) 1,809,442
151,591 Barlow Ltd. (Industrial Machinery) 751,138
69,554 De Beers Centenary (Natural Resources) 1,148,807
108,708 Liberty Life Association (Insurance Services) 1,987,499
225,918 Rembrandt Group (Diversified) 1,422,378
284,525 Sasol Ltd. (Oil & Gas Services) 1,779,735
126,933 South African Breweries Ltd.
(Beverages) 2,515,827
86,673 Tiger Oats (Food & Beverages) 771,057
-----------------------------------------------
14,698,567
------------------------------------------------------------------------
THAILAND BAHT - 1.4%
263,200 PTT Exploration & Production* (Energy) 2,193,333
------------------------------------------------------------------------
</TABLE>
7
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Investments (continued)
July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
TURKISH LIRA - 4.4%
14,661,724 Adana Cimento - Class A (Building Materials) $ 567,446
46,933,151 Akbank (Commercial Banks) 1,418,547
25,225,230 IS Bankasi (Commercial Banks) 1,046,015
1,504,380 Migros (Food & Beverages) 1,608,073
2,078,005 Netas Telekomunik* (Telecommunications) 124,466
2,078,005 Netas Telekomunik Rights exp. 08/11/98*
(Telecommunications) 490,587
27,646,808 Yapi Kredi Bankesi
(Commercial Banks) 856,001
25,392,974 Yapi Kredi Bankesi
(Commercial Banks) 786,218
---------------------------------------------------
6,897,353
----------------------------------------------------------------------------
VENEZUELAN BOLIVAR - 0.8%
40,950 Cia Anonima Nacional Tele Venezuela ADR
(Telecommunications) 926,494
790,576 Venezolana de Cementos (Building Materials) 337,133
105,410 Venezolana de Cementos (Building Materials) 40,812
---------------------------------------------------
1,304,439
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $152,458,312) $127,069,031
----------------------------------------------------------------------------
PREFERRED STOCKS - 6.9%
BRAZILIAN REAL - 6.7%
188,009,000 Banco Bradesco SA (Banking) $ 1,584,187
5,169,865 Banco Bradesco SA Rights exp. 09/14/98 (Banking) 12,446
54,000 Brahma (Food & Grocery) 38,769
54,736,623 Cemig - Cia Energetica Minas Gerais (Electrical
Services) 1,858,989
61,296,800 Gerasul Centrais G (Utility) 108,042
12,709,800 Petroleo Brasileiros (Oil & Gas Services) 2,786,638
16,221,912 Telec de Sao Paulo (Telecommunications) 4,017,087
---------------------------------------------------
10,406,158
----------------------------------------------------------------------------
RUSSIAN RUBLE - 0.2%
42,155 Lukoil ADR (Oil & Gas Services) 321,432
----------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $11,638,650) $ 10,727,590
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNITS/SHARES DESCRIPTION VALUE
<C> <S> <C>
STRUCTURED NOTES - 5.0%
UNITED STATES DOLLAR - 5.0%
6,709 Kuala Lumpur Composite Index Linked Note* $ 631,116
23,116 Kuala Lumpur Composite Index Linked Note* 2,202,724
62,512,592 Merrill Lynch Call Warrant on Korean Stock Price
Index 200* 1,806,614
61,071,086 Merrill Lynch Call Warrant on Korean Stock Price
Index 200* 1,801,597
161,679 Taiwan Index Linked Note* 1,295,049
----------------------------------------------------
7,737,100
-----------------------------------------------------------------------------
TOTAL STRUCTURED NOTES
(COST $8,073,993) $ 7,737,100
-----------------------------------------------------------------------------
OPTIONS - 0.4%
BRAZILIAN REAL
24,200 RCA Option V9M $ 576,364
-----------------------------------------------------------------------------
TOTAL OPTIONS
(COST $338,513) $ 576,364
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<C> <S> <C> <C>
BOND - 1.1%
RUSSIAN RUBLE
Inter American Development Bank
17,900,000 31.0% 05/08/00 $ 1,711,515
--------------------------------------------------------------------------------------------------
TOTAL BONDS
(COST $1,856,802) $ 1,711,515
--------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.3%
POLISH ZLOTY
Poland Treasury Bill
8,700,000 17.2% 02/24/99 $ 2,308,823
5,000,000 17.2% 02/10/99 1,335,047
--------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $3,588,612) $ 3,643,870
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $177,954,882)(A) $151,465,470
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
FEDERAL INCOME
TAX INFORMATION:
Gross unrealized
gain for
investments in
which
value exceeds
cost $ 4,855,688
Gross unrealized
loss for
investments in
which
cost exceeds
value (33,750,495)
--------------------------------
Net unrealized
loss $(28,894,807)
--------------------------------
</TABLE>
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes is $180,360,277.
(b) A portion of cash, $54,498, has been segregated for extended settlement
of this security.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
8
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
PERCENTAGE
OF TOTAL
NET ASSETS
COMMON AND PREFERRED STOCK INDUSTRY CONCENTRATIONS
Agriculture 0.2%
Banking 3.6
Beverages 2.7
Beverages/Tobacco 1.8
Broadcast Media 1.4
Building Materials 2.1
Chemical Products 0.6
Commercial Banks 4.5
Communications 0.2
Construction 0.2
Consumer Goods 2.9
Diversified 2.0
Diversified Industrial Manufacturing 0.5
Drugs 0.8
Electrical Services 1.2
Electronic Connectors 1.3
Electronics 0.7
Energy 1.5
Engineering 0.2
Financial Services 6.0
Food & Beverages 3.2
Food & Grocery 0.0
Health & Medical Services 1.4
Health Care 0.3
Health/Personal Care 1.0
Industrial Machinery 0.5
Insurance Services 1.3
Investment Fund 1.5
Mining 1.4
Natural Resources 1.9
Oil & Gas 1.8
Oil & Gas Services 5.5
Real Estate 0.9
Recreational Services 0.6
Retail 0.2
Retail-Trade 1.0
Shipping & Freight 0.1
Technology 1.0
Telecommunications 21.8
Textiles 0.1
Tobacco 1.5
Transportation-Marine 0.2
Utility 7.2
----------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCK 88.8%
----------------------------------------------------------------
</TABLE>
9
<PAGE>
GOLDMAN SACHS EMERGING MARKETS 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> <C>
Investment in securities, at value
(identified cost $177,954,882) $151,465,470
Cash, at value 3,012,499
Receivables:
Investment securities sold 622,408
Forward foreign currency exchange
contracts 40,322
Fund shares sold 347,650
Dividends and interest, at value 592,074
Deferred organization expenses, net 13,607
Other assets 191,740
-------------------------------------------------------------------------------
TOTAL ASSETS 156,285,770
-------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased 553,408
Forward foreign currency exchange
contracts 137,469
Fund shares repurchased 210
Amounts owed to affiliates 250,984
Accrued expenses and other liabilities 138,650
-------------------------------------------------------------------------------
TOTAL LIABILITIES 1,080,721
-------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 180,231,729
Accumulated undistributed net
investment income 1,078,534
Accumulated undistributed net realized
gain on investment and foreign currency
transactions 510,450
Net unrealized loss on investments and
translation of assets and liabilities
denominated in foreign currencies (26,615,664)
-------------------------------------------------------------------------------
NET ASSETS $155,205,049
-------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 5,957,974 49,880 28,661
Net asset and Class A redemption value
per share(a) $8.79 $8.78 $8.79
-------------------------------------------------------------------------------
<CAPTION>
INSTITUTIONAL SERVICE
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Total shares of beneficial interest
outstanding, $.001 par value (unlimited
shares authorized) 11,546,320 160
Net asset value, offering and
redemption price per share $8.84 $8.62
-------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share X 1.0582) for
Class A shares is $9.30. 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.
10
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Operations
For the Six Months Ended July 31, 1998 (Unaudited)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends(a) $ 1,485,665
Interest 446,293
------------------------------------------------------------------------------
TOTAL INCOME 1,931,958
------------------------------------------------------------------------------
EXPENSES:
Management fees 642,999
Custodian fees 211,954
Transfer agent fees 95,593
Distribution fees 51,779
Authorized dealer service fees 50,747
Registration fees 43,412
Professional fees 31,988
Trustee fees 2,579
Amortization of deferred organization expenses 970
Other 19,751
------------------------------------------------------------------------------
TOTAL EXPENSES 1,151,772
------------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived by Goldman Sachs (278,476)
------------------------------------------------------------------------------
NET EXPENSES 873,296
------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,058,662
------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investment transactions (4,821,082)
Foreign currency related transactions 5,353,986
Net change in unrealized loss on:
Investments (25,633,792)
Translation of assets and liabilities denominated in foreign
currencies (118,309)
------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS (25,219,197)
------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (24,160,535)
------------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on dividends were $100,286.
11
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Changes in Net Assets
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JULY 31, 1998
(UNAUDITED)
<S> <C>
FROM OPERATIONS:
Net investment income $ 1,058,662
Net realized gain on investment and foreign currency
related transactions 532,904
Net change in unrealized loss on investments and
translation of assets and liabilities denominated in
foreign currencies (25,752,101)
------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (24,160,535)
------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 163,420,362
Cost of shares repurchased (20,993,816)
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS 142,426,546
------------------------------------------------------------------------
TOTAL INCREASE 118,266,011
------------------------------------------------------------------------
NET ASSETS:
Beginning of year 36,939,038
------------------------------------------------------------------------
End of period $155,205,049
------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME $ 1,078,534
------------------------------------------------------------------------
</TABLE>
12
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Statement of Changes in Net Assets
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
FOR THE
PERIOD ENDED
JANUARY 31,1998(A)
<S> <C>
FROM OPERATIONS:
Net investment income $ 19,872
Net realized loss on investment and foreign currency
related transactions (22,454)
Net change in unrealized loss on investments and
translation of assets and liabilities denominated in
foreign currencies (863,563)
--------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS (866,145)
--------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Net proceeds from sales of shares 37,824,117
Cost of shares repurchased (18,934)
--------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS 37,805,183
--------------------------------------------------------------------------
TOTAL INCREASE 36,939,038
--------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
--------------------------------------------------------------------------
End of period $36,939,038
--------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME $ 19,872
--------------------------------------------------------------------------
</TABLE>
(a) The Fund commenced operations on December 15, 1997.
13
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each 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 (LOSS) ON
INVESTMENTS FROM NET
NET ASSET AND FOREIGN REALIZED GAIN IN EXCESS
VALUE, NET CURRENCY FROM NET ON INVESTMENT OF NET NET DECREASE
BEGINNING INVESTMENT RELATED INVESTMENT AND OPTIONS INVESTMENT IN NET ASSET
OF PERIOD INCOME TRANSACTIONS INCOME TRANSACTIONS INCOME VALUE
FOR THE SIX MONTHS ENDED JULY 31 (UNAUDITED),
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $ 9.69 $ 0.04 $(0.94) -- -- -- $(0.90)
1998 - Class B Shares 9.69 0.02 (0.93) -- -- -- (0.91)
1998 - Class C Shares 9.70 0.03 (0.94) -- -- -- (0.91)
1998 - Institutional
Shares 9.70 0.06 (0.92) -- -- -- (0.86)
1998 - Service Shares 9.69 (0.13) (0.94) -- -- -- (1.07)
FOR THE PERIOD ENDED JANUARY 31,(B)
1998 - Class A Shares 10.00 -- (0.31) -- -- -- (0.31)
1998 - Class B Shares 10.00 -- (0.31) -- -- -- (0.31)
1998 - Class C Shares 10.00 -- (0.30) -- -- -- (0.30)
1998 - Institutional
Shares 10.00 0.01 (0.31) -- -- -- (0.30)
1998 - Service Shares 10.00 -- (0.31) -- -- -- (0.31)
------------------------------------------------------------------------------------------------------------
</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 15, 1997.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
14
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
RATIO OF
NET ASSETS RATIO OF NET INVESTMENT
NET ASSET PORTFOLIO AT END OF NET EXPENSES INCOME (LOSS)
VALUE, END TOTAL TURNOVER PERIOD TO AVERAGE TO AVERAGE
OF PERIOD RETURN(A) RATE (IN 000S) NET ASSETS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8.79 (9.29)%(d) 35.27%(d) $ 52,362 2.17%(c) 1.36%(c)
8.78 (9.39)(d) 35.27(d) 438 2.67(c) 0.69(c)
8.79 (9.38)(d) 35.27(d) 252 2.67(c) 0.92(c)
8.84 (8.87)(d) 35.27(d) 102,151 1.30(c) 2.35(c)
8.62 (11.04)(d) 35.27(d) 2 1.80(c) (2.71)(c)
- ----------------------------------------------------------------------------
9.69 (3.10)(d) 3.35 17,681 1.90(c) 0.55(c)
9.69 (3.10)(d) 3.35 64 2.41(c) 0.05(c)
9.70 (3.00)(d) 3.35 73 2.48(c) (0.27)(c)
9.70 (3.00)(d) 3.35 19,120 1.30(c) 0.80(c)
9.69 (3.10)(d) 3.35 2 2.72(c) (0.05)(c)
- ----------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO VOLUNTARY WAIVER
OF FEES OR EXPENSE LIMITATIONS
-----------------------------------
RATIO OF RATIO OF NET
NET ASSET EXPENSES TO INVESTMENT INCOME
VALUE, END AVERAGE NET (LOSS) TO AVERAGE
OF PERIOD ASSETS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C> <C>
$8.79 2.69%(c) 0.84%(c)
8.78 3.19(c) 0.17(c)
8.79 3.19(c) 0.40(c)
8.84 1.82(c) 1.83(c)
8.62 2.32(c) (3.23)(c)
- ----------------------------------------------------------------------------
9.69 5.88(c) (3.43)(c)
9.69 6.39(c) (3.93)(c)
9.70 6.46(c) (4.25)(c)
9.70 5.28(c) (3.18)(c)
9.69 6.70(c) (4.03)(c)
- ----------------------------------------------------------------------------
</TABLE>
15
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements
July 31, 1998 (Unaudited)
1. ORGANIZATION
Goldman Sachs Trust (the "Trust"), a Delaware business trust registered under
the Investment Company Act of 1940 (as amended) as an open-end management in-
vestment company. The Trust includes the Goldman Sachs Emerging Markets
Equity Fund (the "Fund"). At July 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. Certain
reclassifications have been made to the prior periods' amounts to conform
with the current period presentation. Such reclassifications have no effect
on previously reported net asset values of the Fund.
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 the securi-
ties traded on a foreign exchange will be valued at the official bid price.
Unlisted equity and debt securities for which market quotations are available
are valued at the mean between the most recent bid and asked prices. Debt se-
curities 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 am-
ortized cost. Restricted securities, and other securities for which quota-
tions are not readily available, are valued at fair value using methods
approved by the Board of Trustees of the Trust.
Investing in emerging markets may involve special risks and considerations
not typically associated with investing in the United States. These risks in-
clude revaluation of currencies, high rates of inflation, repatriation re-
strictions on income and capital, and future adverse political and economic
developments. Moreover, securities issued in these markets may be less liq-
uid, subject to government ownership controls, delayed settlements, and their
prices more volatile than those of comparable securities in the United
States.
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.
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; (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.
16
<PAGE>
GOLDMAN SACHS EMERGING MARKETS 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. DERIVATIVE FINANCIAL INSTRUMENTS -- STRUCTURED NOTES
Subject to its investment restrictions, the Fund may utilize derivative fi-
nancial instruments such as structured notes. Such instruments are used by
the Fund as a means of investing in a particular market or of increasing the
return on the Fund's investments or both. The value of the principal of
and/or interest on such securities is determined by reference to changes in
the value of the financial indicators including, but not limited to indices,
currencies or interest rates. These financial instruments may subject the
fund to a greater degree of market risk and loss than other types of fixed
income securities.
F. 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.
G. 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 tim-
ing differences associated with having different book and tax year ends.
H. DEFERRED ORGANIZATION EXPENSES -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
I. 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 average net assets for the period.
Class A, Class B and Class C shares bear all expenses and fees relating to
distribution and authorized dealer service plans. Each class of shares sepa-
rately bears their respective class-specific transfer agency fees. Service
shares separately bear a service class fee payable monthly to service organi-
zations for their services.
J. 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.
17
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
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.
K. 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 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.
3. AGREEMENTS
Goldman Sachs Asset Management International ("GSAM International"), an af-
filiate of Goldman, Sachs & Co. ("Goldman Sachs"), acts as the Fund's invest-
ment adviser pursuant to an Investment Management Agreement (the
"Agreement"). Under 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 af-
fairs, including providing facilities, GSAM International is entitled to a
fee, computed daily and payable monthly, at an annual rate equal to 1.20% of
the average daily net assets of the Fund. For the six months ended July 31,
1998, GSAM International has voluntarily agreed to waive approximately
$53,000 of its Management Fee. GSAM International may discontinue or modify
this waiver in the future at its discretion.
For the six months ended July 31, 1998, Goldman Sachs voluntarily agreed to
reduce 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, transfer agent
fees and extraordinary expenses) to the extent such expenses exceeded .16% of
the average daily net assets of the Fund. For the six months ended July 31,
1998, Goldman Sachs has reimbursed approximately $225,000. At July 31, 1998,
approximately $159,000 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 charge and has
advised the Trust that it has retained approximately $463,000 during the six
months 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.
18
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
The Trust, on behalf of the Fund, 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 serv-
ices. The Fund pays a fee under its Service Plan equal, on an annual basis,
to .25% of its average daily net assets attributable to Class A, 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.
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 $142,000, $33,000, $31,000
and $45,000 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) for the six months ended July 31, 1998, were
$183,181,503 and $34,310,684, respectively.
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 LOSS
----------------------------------------------------------------------------
<S> <C> <C> <C>
Deutsche Mark expiring 10/7/98 $2,013,823 $2,056,964 $ (43,141)
Russian Ruble expiring 8/10/98 936,250 1,014,843 (78,593)
----------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY SALE CONTRACTS $2,950,073 $3,071,807 $(121,734)
----------------------------------------------------------------------------
</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" and "Payable for forward foreign currency exchange contracts" of
$40,322 ($40,322 of realized gains relating to forward foreign currency ex-
change contracts closed but not settled as of July 31, 1998) and $137,469
(comprised of $15,735 of realized losses relating to forward foreign currency
exchange contracts closed but not settled as of July 31, 1998 and $121,734 of
unrealized losses relating to open forward foreign currency exchange con-
tracts as detailed in the table above), respectively, in the accompanying
Statement of Assets and Liabilities.
For the six months ended July 31, 1998, Goldman Sachs earned approximately
$25,000 of brokerage commissions from portfolio transactions.
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 six months ended July 31, 1998, the Fund did not
have any borrowings under these facilities.
19
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
Notes to Financial Statements (continued)
July 31, 1998 (Unaudited)
6. SUMMARY OF SHARE TRANSACTIONS
Share activity for the periods ended July 31, 1998 and January 31, 1998 are
as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JULY 31, 1998
(UNAUDITED) FOR THE PERIOD ENDED JANUARY 31, 1998
--------------------------------
---------------------------------------------
SHARES DOLLARS SHARES DOLLARS
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Shares sold 5,166,538 $ 52,545,655 1,824,207 $ 17,866,344
Shares repurchased (1,032,771) (10,081,607) -- --
--------------------------------
---------------------------------------------
4,133,767 42,464,048 1,824,207 17,866,344
-------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 45,829 440,950 6,579 64,645
Shares repurchased (2,528) (23,339) -- --
--------------------------------
---------------------------------------------
43,301 417,611 6,579 64,645
-------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 24,991 248,016 7,520 72,494
Shares repurchased (3,850) (37,625) -- --
--------------------------------
---------------------------------------------
21,141 210,391 7,520 72,494
-------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
Shares sold 10,666,551 110,185,741 1,973,802 19,819,033
Shares repurchased (1,092,081) (10,851,245) (1,952) (18,934)
--------------------------------
---------------------------------------------
9,574,470 99,334,496 1,971,850 19,800,099
-------------------------------------------------------------------------------------------------------
SERVICE SHARES
Shares sold -- -- 160 1,601
--------------------------------
---------------------------------------------
-- -- 160 1,601
-------------------------------------------------------------------------------------------------------
NET INCREASE 13,772,679 $ 142,426,546 3,810,316 $ 37,805,183
-------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GOLDMAN SACHS EMERGING MARKETS EQUITY FUND
THE GOLDMAN
SACHS ADVANTAGE
When you invest in the Goldman Sachs Emerging Markets 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 stocks of emerging market
countries is more likely to provide greater returns and reduce overall portfolio
volatility over time than a portfolio that invests only in U.S.-based stocks.
Goldman Sachs Emerging Markets Equity Fund offers investors access to the
benefits associated with emerging market investing. The Fund seeks long-term
capital appreciation, primarily through equity securities of emerging country
issuers.
Target Your Needs
The Goldman Sachs Emerging Markets 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 an
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
Emerging
Markets Equity
Fund
For More Information
To learn more about the Goldman Sachs Emerging Markets 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 Reserve
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.
The stocks of smaller companies are often associated with higher risks,
including greater volatility, than stocks of larger companies.
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 per share.
(C) Copyright 1998 Goldman, Sachs & Co. All rights reserved. Date of first use:
September 30, 1998
EMESAR /31K / 9-98
